On Monday, March 19, AT&T will take on the U.S. Justice Department in a high-profile antitrust trial over the company’s $85 billion merger with Time Warner.
Overseeing the case will be Judge Richard Leon, who watched over the approval of Comcast’s 2011 acquisition of NBCUniversal, a vertical merger similar to what AT&T and Time Warner are proposing.
The tie-up between AT&T and Time Warner would create a combined company with national satellite and wireless networks and a deep production capabilities along with a popular content slate including programming from HBO, CNN, TBS and TNT.
Judge Leon said that the trial may six to eight weeks. That’s significantly longer than previous estimates, which put the trial length at about two weeks and tacked on another two to three weeks for the Judge to render his decision.
Analysts recently have given AT&T slightly down odds of winning the court battle. MoffettNathanson analyst Michael Nathanson puts odds on AT&T winning the trial at about 50/50. In a research note, Wells Fargo said Paul Young of the firm’s risk arbitrage team said the market is pricing in a deal probability of 35% to 40%, or slightly worse odds than a coin flip.
In recent weeks, both AT&T’s and the DOJ’s court strategies have taken shape. In February, AT&T’s defense was dealt a blow when Judge Leon denied a request by AT&T to use President Donald Trump’s apparent bias against CNN as an argument during the trial. The judge declined to make the DOJ produce records showing possible communications between the White House and the Justice Department.
Late last week, AT&T spelled out its case in a pre-trial brief, arguing that the DOJ’s initial argument about AT&T and Time Warner threatening to withhold Turner content from rival pay-TV providers no longer holds water thanks to the government’s economic expert refuting the theory.
“Now, what remains of the government’s case, ‘like a Persian cat with its fur shaved, is alarmingly pale and thin,’” AT&T wrote in the filing.
AT&T said the DOJ’s case is now based on the theory that Turner will now be more likely to drive harder bargains with rival distributors.
The DOJ has argued that a combined AT&T and Time Warner would result in raising the total annual U.S. pay TV bill by $436 million.
"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 wrote in a brief. "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.”
AT&T pointed toward calculations from University of California at Berkeley economics professor Carl Shapiro as a means of shooting down the DOJ’s allegations of price hikes.
“In his initial report, the government’s expert claimed, with startling and implausible precision, that the merger will cause consumer pay-TV prices to rise by a monthly total of 27 cents per subscriber, or less than 0.2% of a consumer’s average monthly bill,” AT&T wrote in its brief. “Just a few weeks later, after fiddling with some input dials, the expert managed to almost double that insubstantial result to a still-insubstantial 45-cent monthly increase, all of 0.4% per bill, which is where the government currently stakes its case.”