Federal Appeals Court Questions DOJ Economic Concerns Regarding AT&T/Time Warner Union

Federal Appeals Court judges Dec. 6 questioned lawyers representing the Department of Justice about the government’s economic concerns regarding AT&T’s $85 billion acquisition of Time Warner.

The Justice Department’s antitrust division filed an appeal of a district court judge’s June approval of the merger that resulted in the formation of WarnerMedia — citing the deal would lead to higher pay-TV pricing and content blackouts for consumers, among other issues.

Government attorney Michael Murray argued U.S. District Court Judge Richard Leon erred in “economic logic and reasoning” in relation to possible blackouts of consumer access to content occurring during carriage disputes between content holders and pay-TV and over-the-top video distributors.

“‘Incentives remain the same’ for a super company to threaten a ‘blackout,’ in which it withholds content from distributors, in order to cripple rivals,” said Murray, as reported by CNN Business.

But D.C. Circuit Court of Appeals Judge Robert Wilkins countered that there exist arbitration procedures in place for carriage disputes  — systems Wilkins said Judge Leon used in his decision.

“So how can we just ignore that and say the district court has irrationally switched positions?” asked Wilkins.

Speaking Dec. 4 the UBS 46thAnnual Global Media and Communications confab in New York, AT&T Randall Stephenson remained optimistic the appeals court would validate the merger.

Specifically, Stephenson said the appellate court is looking for errors in law, not whether the district court judge “gets the facts right or not.” He said AT&T hired appellate lawyers during the original trial to consult on the strength of their case as it applied to the rule of law.

“We feel like Judge Leon wrote a pretty tight order and it was an order that was very fact-specific to the AT&T/Time Warner case, and so we feel like we have an order that should stand up well in the appellate review,” Stephenson said. “And so, we’re anxious to get this piece of it behind us.”

 

Federal Appeals Court Sets Argument Date for AT&T, DOJ Case

The United States Court of Appeals for the District of Columbia has slated Dec. 6 the date for oral arguments in the Justice Department’s legal challenge of the AT&T/Time Warner merger.

The DOJ in July filed an appeal of U.S. District Court Judge Richard Leon’s ruling that the $85 billion merger was not anticompetitive or detrimental to consumers without spinning off select assets, including Turner and CNN, which the government had sought.

“If AT&T is permitted to control Time Warner’s most valuable media assets, the merged firm will have both the incentive and the ability to raise its rivals’ costs and stifle growth of innovation, next-generation entrants that offer attractive alternatives to AT&T/DirecTV’s legacy pay-TV model – all to the detriment of American consumers,” said the Justice Department.

AT&T, which consummated the merger – including rollout of WarnerMedia – two days after Leon’s ruling, said the judge was thorough in his decision.

“[Leon] could hardly have been more thorough, fact-cased, and well-reasoned,” AT&T General Counsel David McAtee said in a statement.

 

DOJ Upping Comcast Scrutiny Over Hulu

When Comcast acquired NBC Universal in 2011, federal regulators required the Philadelphia-based media conglomerate to step away from management issues regarding Hulu — the subscription streaming video service it co-owns with the Walt Disney Co., 21st Century Fox and AT&T’s WarnerMedia.

With those and other regulatory restrictions lifted this year, Comcast, which owns 30% of Hulu, now has more of input into how Hulu — and online TV service Hulu Live — operate. The cable operator announced last month the appointment of three members to Hulu’s board of directors, who include NBC Universal executives Jeff Shell, Linda Yaccarino and Matt Bond.

Now the U.S. Depart of Justice’s antitrust unit plans to up its oversight into how Comcast its renewed leverage on how Hulu operates in the pay-TV ecosystem, according to Assistant Attorney General Makan Delrahim.

Speaking Oct. 3 to Senators in Washington, D.C., Delrahim was asked if Comcast increased oversight of Hulu posed a threat to consumers.

“Certainly, Hulu could be a competitor to the cable business,” Delrahim told Senator Richard Blumenthal (D-Conn.), according to Bloomberg. “And it’s one that we will examine carefully to see if they might take any conduct that would harm its ability to compete.”

Indeed, in a letter to Comcast prior to restrictions being lifted, Delrahim reminded the company that government oversight was not in the past tense.

“The department retains jurisdiction to enforce the antitrust laws and takes its obligations seriously,” he wrote on Aug. 14.“We would appreciate your cooperation in keeping us informed by providing the department with any plans you may have to change your policies or practices involving video programming and distribution.”

Interestingly, the DOJ could forward the letter to Disney, which will own 60% Hulu following its $71 billion acquisition of select Fox assets, including Hulu. That deal, whose price tag was significantly reduced following Comcast’s separate purchase of British satellite TV operator Sky, is still under regulatory approval.

Disney plans to launch a branded OTT video service next year – as it did this year with ESPN+.

 

California Inks Net Neutrality Bill; Trump Administration Sues

California Gov. Jerry Brown Sept. 30 signed legislation that returns key provisions of net neutrality law enacted by the Federal Communications Commission under President Obama.

Brown approved SB822 — dubbed the California Internet Consumer Protection and Net Neutrality Act of 2018 — prohibiting fixed and mobile Internet service providers (ISPs) from engaging in actions concerning the treatment of Internet traffic.

The law prevents ISPs (including Comcast, AT&T and Verizon) from blocking lawful content, applications, services, or nonharmful devices, impairing (i.e. throttling) or degrading lawful Internet traffic on the basis of content, application, service or use of specified practices known as “zero-rating,” which enable users to consume select content without impacting their monthly data caps.

It also denies ISPs from offering or providing services other than broadband Internet access service that are delivered over the same last-mile connection into consumer homes, if those services have the purpose or effect of evading the above-described prohibitions or negatively affect the performance of broadband Internet access service.

The Trump Administration responded with the Department of Justice filing a federal lawsuit claiming the state law violates provisions of the FCC’s rolled back net neutrality guidelines enacted under new chairman Ajit Pai.

“Under the Constitution, states do not regulate interstate commerce — the federal government does,” Attorney General Jeff Sessions said in a statement. “Once again, the California legislature has enacted an extreme and state law attempting to frustrate federal policy.”

Pai, who was appointed to the FCC by Obama, and promoted to chairman position by President Trump, has long argued previous net neutrality provisions represented government overreach on private enterprise and thwarted capital investment.

The revamped FCC last December voted to reclassify ISPs as “information service providers.” That action — restoring lighter regulatory oversight — overturned the prior FCC’s 2015 ruling that classified ISPs as common carriers under Title II of the Communications Act of 1934.

“Not only is California’s Internet regulation law illegal, it also hurts consumers,” Pai said, citing “zero rating” data plans he said enable low-income consumers to stream video and music.

“They have proven enormously popular in the marketplace,” Pai said.

Eddie Kurtz, with Courage Campaign, a civil liberties group, applauded the signing of SB822.

“Governor Jerry Brown did the right thing by choosing to institute the strongest net neutrality rules in the country, sending a clear signal to Californians that guaranteeing access to the internet for all, helping California communities — particularly low-income communities — and  boosting small businesses is a priority for our state,” said Kurtz.

 

DOJ Appealing Judge’s Approval of AT&T’s Acquisition of Time Warner

In a surprise, the Justice Department is set to appeal a recent federal judge’s decision greenlighting AT&T’s $85 billion acquisition of Time Warner, including Warner Bros., Turner and HBO.

In a court document filed July 12, the DOJ appears to be acting on its initial disappointment last month after U.S. District Court Judge Richard Leon ruled the government had failed to meet its burden to establish that the merger was anti-competitive and would hurt consumers.

Some critics contend much of government’s resolve around thwarting the deal revolved around President Donald Trump’s public dislike of CNN, which is owned and operated by Turner. During the 2016 campaign, Trump argued the transaction would be bad for consumers.

While the DOJ had no objection to the closing of the merger following Leon’s decision, it still left open the possibility of a future appeal.

Regardless, repercussions to the DOJ decision could impact Comcast and Disney’s attempt to purchase 20thCentury Fox Film and other 21stCentury Fox assets, including U.K. satellite TV operator Sky.

Indeed, Comcast’s $65 billion offer for Fox assets and separate $34 billion bid for Sky hinged upon Leon’s decision and the DOJ’s subsequent response.

News of the appeal sent AT&T shares down 1% in after-market trading.