The Justice Department on Monday sued AT&T to block its $85 billion merger with Time Warner, court filings show.
In a lawsuit filed in U.S. District Court in Washington, federal prosecutors argued that the merger would hurt competitors and consumers.
“AT&T/DirecTV would hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for Time Warner’s networks, and it would use its increased power to slow the industry’s transition to new and exciting video distribution models that provide greater choice for consumers,” the filing reads.
David McAtee, AT&T’s general counsel, said in a statement that the company is prepared to fight the regulators.
“Today’s DOJ lawsuit is a radical and inexplicable departure from decades of antitrust precedent," McAtee said. "Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently."
Earlier this month it was reported that Justice Department officials had demanded that AT&T sell off CNN’s parent company from Time Warner as a condition for regulatory approval, raising questions about whether President Trump was intervening in the deal to retaliate against CNN for its critical coverage of him.
The Justice Department and the White House have both denied that there’s been any political interference in the merger review.
Makan Delrahim, the top antitrust regulator at the Justice Department, said in a speech last week that he plans to crack down on vertical mergers, such as the AT&T deal, that involve companies that don’t directly compete with each other. Delrahim criticized the Obama administration’s approval of similar mergers, such as Comcast’s purchase of NBC Universal in 2011.
Democrats and consumer groups have criticized the merger, arguing that AT&T could use Time Warner’s content to hurt other cable and internet providers. In addition to CNN, Time Warner also owns channels like HBO, TBS and TNT.
Critics say that a combined AT&T-Time Warner could withhold its programming from other providers or raise its prices.
"Although there is some controversy over the political environment surrounding the transaction, media consolidation in general and this transaction in particular is not in the interest of the American public," said Gene Kimmelman, a former Justice Department antitrust official and the president of Public Knowledge.
"The combined company would have the incentive and ability to harm rival video distributors and programmers, threatening the competitive future of online video, while giving the new company the ability to withhold programming or drive up prices for other satellite and cable players," Kimmelman added.
But AT&T argues that there's greater incentive to ensure that its content is as widely available as possible in order to capitalize on the potential advertising revenue. The company says that such vertical mergers are essential in order for them to compete for ad dollars with internet companies like Facebook and Google.
In a call with reporters, AT&T CEO Randall Stephenson pointed out that companies like Netflix and Amazon act as both creators and distributors when it comes to content.
He also addressed "the elephant in the room" regarding potential political interference from the White House.
"Frankly, I don’t know," Stephenson said. "But nobody should be surprised that the question keeps coming up."