Trump regulators signal new antitrust approach with AT&T merger

The Trump administration’s antitrust enforcers have fired a warning shot to AT&T and other companies hoping to pull off massive mergers.

Makan Delrahim, the Justice Department’s antitrust chief, is reportedly expected to take AT&T to court over its proposed $85 billion deal with Time Warner. 

Earlier this month, in an unusually public spat, it was reported that Department of Justice (DOJ) officials had demanded that AT&T sell off CNN’s parent company, Turner Broadcasting, from Time Warner if it wanted the deal approved. DOJ sources told The Hill and other outlets that AT&T had offered to follow through with divesting from CNN.

AT&T has denied both accounts, saying it did not and would not make such an offer.

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Signs that the merger was facing trouble came as a shock to many observers who had predicted that the deal would easily pass regulatory scrutiny since it involved two companies that do not directly compete with one another, known as a vertical merger.

Lina Khan, a scholar with the Open Markets Institute, said that the scrutiny on vertical deals would represent a significant shift from previous antitrust policy at the Justice Department.

“I think it’s a potential signal that this administration that would not be as permissive on vertical mergers as the Obama administration was, which is significant because there has been this assumption that vertical mergers are benign,” Khan said.

Other major companies are looking at how the AT&T-Time Warner is handled by antitrust enforcers for signs about whether they can proceed with their own potential mergers.

The dispute has raised questions about whether President Trump is using the regulatory review of the merger to retaliate against CNN, which he often criticizes as “fake news.” AT&T, the White House and Delrahim have all denied that there’s been any political interference in the merger.

And on Thursday, Delrahim essentially outlined the substantive reasons why he might want the companies to sell off certain assets in a speech before the American Bar Association. He argued that proactive antitrust enforcement is not only essential for a healthy economy, but also central to the conservative belief in limited government.

“Vigorous antitrust enforcement plays an important role in building a less-regulated economy in which innovation and business can thrive, and American consumers can benefit,” Delrahim said.

Though he didn’t mention AT&T or Time Warner, he hinted at why he might want the combined companies to divest from CNN and other content providers. Delrahim argued that problematic mergers should be subject to “structural remedies” if they are to be approved, which means requiring them to sell off certain assets that could be used to suppress competition.

That approach would be a shift from the Obama administration, which approved some controversial mergers on the condition that the company abide by certain “behavioral remedies” — usually in the form of consent decrees that prohibited certain anticompetitive business practices.

“That approach is fundamentally regulatory, imposing ongoing government oversight on what should preferably be a free market,” Delrahim said Thursday.

The last two weeks have come as a surprise for many in the private sector who predicted that Delrahim, as a member of a pro-business Republican administration, wouldn’t shy from greenlighting consolidation.

“There are people who thought he would be a shill for industry,” said a Republican lobbyist who requested anonymity to speak freely about how industry advocates view regulators. “That speech pretty much told everyone to go pound sand. Under his watch, [he said] without specifically saying it, this is going to be a different regime than the Obama one where everything just got through.”

Until the AT&T episode broke into public view, the private sector had little reason to worry about the Trump administration getting in the way of big mergers. Another vertical merger, Amazon’s $13.7 billion acquisition of Whole Foods, was approved by the Federal Trade Commission just two months after it was announced.

And the Federal Communications Commission has helped clear the way for another pending media merger in Sinclair Broadcast Group’s proposed acquisition of Tribune Media, a deal that’s worth $3.9 billion.

Trump vowed to block the AT&T-Time Warner merger in a campaign speech in October 2016, saying that it would concentrate too much power in one company. But despite that promise and Trump’s vendetta against CNN, many had believed that the merger was safe because of the administration’s pro-business agenda.

“This has kind of been the one moving question throughout the Trump administration is to what degree will the economic populism that he articulated on the campaign be translated into policy,” Khan said. “Across the board, for the most part we’ve seen that go the other way.”

Now other companies seeking vertical entertainment mergers may hold off to find out the outcome of AT&T deal.

“People are going to wait and see what happens here,” the Republican lobbyist said. “I think you have to be a riverboat gambler to come in and launch one right now.”