The U.S. Department of Justice sued AT&T Inc on Monday to block its $85.4 billion acquisition of Time Warner Inc, saying the deal could raise prices for rivals and pay-TV subscribers while hampering the development of online video.
The lawsuit is the first major challenge to a merger by the administration of U.S. President Donald Trump, who has repeatedly criticized Time Warner's CNN news unit and announced his opposition to the deal before the election last year, saying it would concentrate too much power in AT&T's hands.
The Justice Department is arguing that AT&T would use Time Warner's films and movies to force rival pay-TV companies to pay “hundreds of millions of dollars more per year for Time Warner's networks” in the lawsuit filed late Monday in federal court in Washington.
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The government cited documents where AT&T and its satellite broadcast unit DirecTV described the traditional pay-TV model as a “cash cow” and “golden goose,” suggesting customers were at risk of price hikes.
The 23-page complaint also said the deal would slow the industrys transition to online video and other new distribution models.
AT&T, which sees the deal as a way to compete against emerging technology companies such as Netflix Inc and Amazon.com Inc's Prime Video, described the lawsuit as "a radical and inexplicable departure from decades of antitrust precedent.
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AT&T head lawyer David McAtee said vertical mergers, between companies on different steps in a supply chain, are routinely approved.
“We see no legitimate reason for our merger to be treated differently, said McAtee, adding that AT&T is confident a judge will reject the Justice Departments case. The Obama administration approved a similar vertical deal in 2011 to allow cable company Comcast Corp to acquire NBCUniversal.
AT&T Inc is prepared to go to trial as soon as possible, lead trial counsel Daniel Petrocelli, a partner at OMelveny & Myers, told reporters on Monday.
The legal challenge ramps up hostilities after AT&T rejected the Justice Department's demand earlier this month to divest DirecTV or Time Warner's Turner Broadcasting - which contains news network CNN - in order to win antitrust approval.
The move may be a sign that the Trump administration will look closely at other big mergers.
The deal has been a political lightning rod since it was hatched in October 2016. During his campaign, Mr. Trump said that reporters covered him unfairly and has continued to attack CNN as president, which he has labeled as “fake news.” He has not commented on the AT&T deal since his inauguration in January.
U.S. Attorney General Jeff Sessions declined to say last week if anyone from the White House had discussed the merger with any Justice Department officials.
The No. 2 U.S. wireless carrier is trying to buy Time Warner, which also owns the premium channel HBO and movie studio Warner Bros, so it can bundle video entertainment on its mobile service.
The Justice Department's lawsuit cited internal Time Warner documents that said long-term contracts to show live sporting events like college basketball and baseball would help allow it to achieve “targeted rate increases.”
The lawsuit also said AT&T and Comcast, which control almost half of the pay-TV market, “would have an increased incentive and ability to harm competition by impending online competitors they consider a threat.”
The complaint's focus on raising the costs of DirecTV's rivals and hampering the move to online video is consistent with normal antitrust concerns, said Henry Su, a partner in the law firm Constantine Cannon.
“The theories that are being espoused (in the complaint) are not out on the edge or untested theories. They're espousing what we consider traditional theories of vertical harm,” said Mr. Su. “It doesn't look like a stretch.”
Aside from Mr. Trump and the Justice Department, the deal is also opposed by an array of consumer groups and smaller television networks.