The public wins a DOJ-AT&T court battle, no matter the result

The public wins a DOJ-AT&T court battle, no matter the result
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Generally, heading to court is the path of last resort. It is something you do when everything else fails. Litigation is enormously expensive, time-consuming and unpredictable. Our legal system encourages parties to resolve their disputes through negotiation, and if the parties end up in court, it usually means something went horribly wrong.

The Justice Department (DOJ) just filed a lawsuit over AT&T’s proposed acquisition of Time Warner. For a number of reasons, I think this is a good thing. In fact, it could be a really good thing, and that is true regardless of who wins in the end. Here’s why:

Reason 1: The antitrust agencies and the courts have given businesses a pretty clear framework of how to think about mergers between direct competitors, but this is not true when it comes to vertical mergers.

The Horizontal Merger Guidelines are recent (2010) and reflect up-to-date legal and economic thinking about mergers between competitors.

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In the last five years, a number of horizontal merger cases have been brought by the DOJ and Federal Trade Commission and have gone to trial, including Sysco/US Foods, Staples/Office Depot, Aetna/Humana and Anthem/Cigna. The courts have written well-reasoned decisions, and the rules of the road are reasonably clear.

 

But when it comes to vertical mergers, those like the proposed acquisition here, the situation is quite different. The Non-Horizontal Merger Guidelines have not been updated since the early 1980s. The last major vertical merger that the government litigated to a decision dates from 1979.

The last time the Supreme Court adjudicated a vertical merger was in 1972. So maybe it is time for the courts to take another look. While we are at it, how about dusting off and updating the Non-Horizontal Guidelines? Businesses thinking about vertical deals would benefit from having a newer road map.

Reason 2: An AT&T loss might actually be good for CNN.

A lot of ink has been spilled over President Trump’s criticisms of CNN and his comments as a presidential candidate in opposition to the AT&T deal. This has led some people who normally would oppose more media consolidation to become supporters of the merger.

The irony is that no one seems to be thinking about what is going to happen to CNN if it becomes part of a large and conservative telecom company like AT&T.

If the deal goes through, CNN’s management and operations would undoubtedly change under AT&T’s ownership and not necessarily in a way that its viewers and supporters would like. This is probably why AT&T when it first announced the deal made a big point of promising that CNN would remain editorially independent.

Promises like that are easy to make but also easy to ignore later on, so who knows what will happen? But one thing is sure: If the deal falls apart, CNN continues as is. If the deal goes through, it’s not clear what will happen to CNN.

Reason 3: A government loss might actually be good for the government.

Everybody who goes to court wants to win, and DOJ is no exception. But this time, the government may actually be in a win-win situation. If a judge blocks the merger, it’s a win for the DOJ and vindicates its current approach to vertical deals.

But if the DOJ loses, it is not the end of the world. If the DOJ’s approach is wrong or its evidence is weak, it would be good for a court to say so.

For most of its 100-plus years, antitrust law has changed and developed because of court decisions. Indeed, that is what Congress had in mind when it created the antitrust laws in the first place.

But more recently, the antitrust agencies have tended to pretty much do their own thing. Having a court occasionally tell the agency that it is right or wrong is not a bad idea. It is, after all, what Congress intended.

Reason 4: Behavioral remedies don’t work.

A lot of brouhaha has surrounded reports that DOJ was looking at divestitures here instead of the more usual remedies in vertical deals. After all, the argument goes, DOJ let Comcast buy NBCUniversal subject only to a bunch of conditions not to use its new toy as a weapon against its competitors.

In truth, problematic vertical mergers often have been saddled with conditions such as non-discrimination provisions, firewalls and arbitration procedures.

But there is increasing evidence that these conditions don’t work very well and may not in fact do much of anything. John Kwoka and Diana Moss have explained why, from an economic standpoint, these sorts of remedies tend to fail.

Additionally, people seem to have forgotten that although Comcast/NBCU was settled with behavioral conditions in 2011, DOJ did not take up Comcast’s offer to make Time Warner Cable subject to the same conditions. Indeed, Comcast/Time Warner Cable, which was also a vertical deal, fell apart in 2015 in the face of a likely government challenge.

Republicans in particular tend not to like regulation and regulatory interference in the market. Behavioral remedies are a form of regulation. Much better to quickly greenlight a merger if there are no serious competition concerns, or to block a merger or require divestitures if it is anticompetitive, and let the market move on.

Reason 5: Media mergers should get careful scrutiny.

Large corporate mergers affect us all. There has been discussion recently about some of the possible negative consequences of excessive industry consolidation, including effects on the middle class and on workers. Excessive consolidation was troubling to Americans for many years and, after a lull, has begun to trouble people again.

Big media mergers in particular deserve careful scrutiny, since they affect how news and information reach the public. The media landscape has been changing, but that does not diminish the importance of a vibrant and competitive media sector to the “marketplace of ideas.” If anything, we need to worry these days both about “old” gatekeepers and “new” gatekeepers.

For all of these reasons, dear DOJ and AT&T, I think it is good that you are in court. I know this is not how anyone wants to spend their holidays, but we have an excellent federal bench here in D.C. and there could be real public benefits if you are willing to let a judge decide whether the merger is legal or illegal.

Allen Grunes spent more than a decade at the DOJ Antitrust Division and is the co-founder of The Konkurrenz Group in Washington, D.C., which advises small businesses, Fortune 500 firms, consumer advocacy groups and governments on issues of competition, privacy and consumer protection law. He has written and worked on a number of high-profile mergers and has coauthored a book with Maurice Stucke on big data and competition policy.