The feds’ lawsuit over Dodgers channel could make it harder for AT&T to buy Time Warner

Reporting from Washington —  AT&T Inc.’s hopes of completing its $85.4-billion purchase of Time Warner Inc. depends on convincing federal regulators that they should allow one of the nation’s telecommunications giants to become even bigger.

Getting hit with a collusion lawsuit doesn’t help make that case, particularly for a deal that already has drawn bipartisan criticism, antitrust experts and consumer advocates said.

The Department of Justice on Wednesday sued AT&T’s DirecTV unit, alleging it was “the ringleader” in unlawful efforts to prevent widespread carriage of the SportsNet LA television channel owned by the Los Angeles Dodgers.

Making matter worse for AT&T, the Justice Department is the same agency that must review the Time Warner deal to make sure it passes antitrust muster.

“All things being equal, you don’t want to be sued by the DOJ when you’re trying to get a merger approved by the DOJ,” said John Bergmayer, senior counsel at digital rights group Public Knowledge. “I don’t think it helps them.”

But how much it might hurt AT&T’s attempt to acquire Time Warner Inc. was unclear.

Although the suit names DirecTV and AT&T, the unlawful activity took place before AT&T completed its purchase of the satellite provider in July 2015.

AT&T was one of the pay-TV providers that the Justice Department said was part of the collusion. But the Time Warner deal is a vertical integration of companies that don’t directly compete against one another instead of a horizontal merger with another pay-TV provider, which would raise additional collusion concerns.

Time Warner spun off its Time Warner Cable unit in 2009. Charter Communications Inc. bought Time Warner Cable last year and is renaming the service Spectrum.

AT&T said the allegations regarding SportsNet LA shouldn’t have any effect on regulatory approval of Time Warner.

“This civil suit has nothing to do with our proposed acquisition of Time Warner Inc.,” said AT&T spokesman Michael Balmoris.

Andrew Jay Schwartzman, a Georgetown University law professor, said the Justice Department would review the deal on its own merits. But the collusion suit could have an impact “on the margins,” he said.

“It affects your judgment and your assessment if they have a track record of behaving anticompetitively,” he said of Justice Department antitrust regulators.

If the deal also must be approved by the Federal Communications Commission, which appears likely, the DirecTV suit could have a larger impact, Schwartzman said.

“They’re looking at the broader effects on the marketplace,” he said of the FCC. “Something like this underscores for the FCC some of the problems that are exacerbated if you increase AT&T’s and Time Warner’s collective clout in the marketplace.”

Concerns about increased media consolidation led the AT&T/Time Warner deal to get a frosty reception when it was announced last week.

Republican presidential nominee Donald Trump said his administration would block the deal if he wins next week’s election. Hillary Clinton, the Democratic presidential nominee, said the merger raised “questions and concerns.”

Senate Judiciary Committee Chairman Charles Grassley (R-Iowa) called for a “robust review.” The panel’s antitrust subcommittee has scheduled a hearing for Dec. 7.

Opponents of AT&T’s deal to buy Time Warner said the collusion suit was another reason for regulators to reject the deal.

“AT&T and DirecTV had too much power over the pay-TV, Internet and content markets even before their multibillion merger closed last year,” said Matt Wood, policy director of Free Press, another digital rights group.

“Now that they’ve joined forces, the absolute last thing we need is approval of a deal to put these bad actors in control of Time Warner’s video content empire,” he said.

Bergmayer said the collusion case “raises obvious concerns about whether AT&T would have the incentive and ability to harm consumers if it were permitted to acquire Time Warner.”

“The past behavior of a company is relevant,” he said. “We’re not saying this by itself is the reason to block the merger. It’s one more data point.”

Hours before the suit was announced, Free Press and 17 other digital rights, consumer advocacy and social justice organizations sent a letter to Clinton and Trump urging them to reject the deal because it would make AT&T too powerful.

“There is little evidence that anyone — other than the executives and shareholders of the merging companies — benefits from these massive deals,” the letter said. “The recent history of media concentration is littered with broken promises and higher prices for customers.”

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