Pay TV bills will spike $436M a year with AT&T-Time Warner merger, DOJ says

AT&T has brushed off the calculations. (AT&T)

If AT&T is allowed to buy Time Warner Inc., the Justice Department argued, it will raise the total annual U.S. pay TV bill by $436 million.

The DOJ made that assertion in a trial brief (PDF) last week, first reported on by Ars Technica. The DOJ is suing AT&T to block its $85 billion bid to buy Time Warner.

"If TV program distributor AT&T acquires TV-program producer Time Warner, American consumers will end up paying hundreds of millions of dollars more than they do now to watch their favorite programs on TV," the DOJ brief said. "In short, the transaction violates Section 7 of the Clayton Act, because its effect 'may be substantially to lessen competition.' Prices for current services will go up and development of emerging competition will slow down.”

The DOJ also noted that petitioning against the merger of pay TV rivals in the past, “AT&T had no trouble at all explaining to the Federal Communications Commission that, when program distributors acquire content producers, the resulting vertically integrated firms “have the incentive and ability to use (and indeed have used whenever and wherever they can) that control as a weapon to hinder competition.”

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As for its cost estimates, the DOJ attributes those to University of California at Berkeley economics professor Carl Shapiro, who will be a government witness in the trial that starts Monday at the U.S. District Court for the District of Columbia. 

"Professor Shapiro's model predicts that the merger will cause a price increase to rival MVPDs for Turner content of 18.4% on average, translating into a total increase of about $61 million per month, or about $731 million per year," the DOJ brief said.

While rival pay TV providers would pay an extra $60.9 million per month for programming under the DOJ’s estimates, DirecTV would save an estimated $30.8 million per month. That would suggest a rise of $30.1 million per month in total TV bills. 

The number rose further after Shapiro performed a postmerger simulation, changing competitive dynamics in specific markets to account for AT&T’s enhanced scale.

"Professor Shapiro's model predicts that, nationwide, consumers will pay about $36 million more per month, and about $436 million more per year, for MVPD services," the DOJ said.

For its part, AT&T has brushed off Shapiro’s calculations, noting that if there is a price bump due to the merger, it would only be around 45 cents.