It is the business world's version of the Russian collusion story.
The U.S. Justice Department's lawsuit to block AT&T's $85-billion (U.S.) takeover of Time Warner is fraught with intrigue, allegations of White House interference and Twitter outbursts by President Donald Trump.
AT&T chief executive Randall Stephenson addressed the "elephant in the room" last week – namely, that the administration's opposition to the deal is Mr. Trump's way of punishing Time Warner's CNN for its unflattering coverage of his presidency. Mr. Trump has frequently attacked the network as a purveyor of "fake news" and once retweeted a video GIF showing him body-slamming a wrestler whose face has been replaced with a CNN logo.
"There's been a lot of reporting and speculation whether this is all about CNN and, frankly, I don't know," Mr. Stephenson told reporters. "But nobody should be surprised that the questions keep coming up because we've been witnessing such an abrupt change in the application of antitrust law here."
AT&T is right about the highly unusual nature of the case. The Justice Department almost never seeks to block mergers involving companies that aren't direct competitors. AT&T is a telecommunications giant with interests in satellite TV, mobile-phone service, land lines and internet access. Time Warner is an entertainment conglomerate whose properties include CNN, TNT, HBO, TBS and the Warner Bros. movie studio.
The last time U.S. antitrust regulators took a case of so-called "vertical integration" to court was in 1979, and they lost. They haven't successfully blocked a vertical merger since the early 1970s.
The competitive effect of horizontal mergers is considerably easier to demonstrate. If supermarket A buys supermarket B, that removes a competitor from markets, allowing the acquirer to raise prices that shoppers pay for their groceries.
Vertical mergers can also inhibit competition, but it's a whole lot trickier to prove.
The Justice Department, for example, argues that the AT&T-Time Warner merger would result in higher prices for satellite and cable-TV subscriptions, inflate licensing fees for programming and stifle innovation by online streaming services. Among other things, AT&T could try to keep popular Time Warner content – such as the Game of Thrones TV series, Harry Potter movies and sports – out of the hands of rival TV and internet providers, including Comcast and Verizon. That would force consumers to switch to AT&T if they wanted to see its content.
AT&T counters that it would make no business sense to restrict access to its entertainment. AT&T insists that the merger isn't about battling traditional cable and TV providers. Mr. Stephenson says the point of the takeover is to build a company capable of rivalling technology giants such as Facebook and Google, which are creating their own entertainment content, delivering it directly to consumers and selling advertising.
The Justice Department's biggest hurdle may not be proving its case, but getting the courts to overlook the possibility of White House interference. As a presidential candidate, Mr. Trump argued that the merger would put "too much concentration in the hands of too few."
The Justice Department insists the Trump White House has not swayed its handling of the case.
But it doesn't look good. Before being hired as the department's top antitrust enforcer, then-telecom lobbyist Makan Delrahim said the AT&T-Time Warner merger didn't present a "major antitrust problem." Once on the job, Mr. Delrahim abruptly changed his view. Before the lawsuit was filed, he was reportedly pushing AT&T to divest key assets, such as Turner Broadcasting (which owns CNN) or AT&T's DirecTV, as a way to spur more competition.
Strange, then, that as the Justice Department is putting the squeeze on AT&T, Mr. Trump's new head of the Federal Communications Commission, Ajit Pai, is proposing to unwind so-called "network neutrality." The policy shift is a gift to internet providers, allowing the likes of AT&T to set aside more and faster bandwidth for their own subscriber traffic at the expense of other internet users, such as Netflix or Google. This could inflate prices, and result in less competition and choice.
In the end, Mr. Trump may find that a larger, more dominant AT&T-Time Warner is just what the country needs to curb the growing media clout of Google and Facebook and Amazon, rather than higher tolls.