Judge Ruling In AT&T Merger Again Highlights Broken Antitrust Enforcement, Court Myopia

from the ill-communication dept

Last year AT&T defeated the DOJ's challenge to the company's $86 billion merger with Time Warner thanks to a comically narrow reading of the markets by U.S. District Court Judge Richard Leon. At no point in his original 172-page ruling (which approved the deal without a single condition) did Leon show the faintest understanding that AT&T intends to use vertical integration synergistically with the death of net neutrality and neutered FCC oversight to dominate smaller competitors and tilt the entire internet ecosystem in its favor.

While the DOJ lost its original case, it was quick to appeal late last year, highlighting how within weeks of the deal AT&T had jacked up prices on consumers and competitors like Dish Networks, which says it was forced to pull HBO from its lineup because it could no longer afford the higher rates. Those rate hikes were directly courtesy of the huge debt AT&T incurred from both its 2015 merger with DirecTV (which eliminated a direct pay TV competitor from the market), and last year's Time Warner merger.

None of this apparently mattered to a three-judge panel from the US Court of Appeals for the DC Circuit, which ruled this morning (pdf) that AT&T's latest merger would be allowed to stand. According to the Judges, the DOJ's claims that Leon failed to understand basic economic realities in the broadband and video markets were "unpersuasive." Much like the initial Leon ruling, the cornerstone of the Judges ruling centers around the idea that because there's more and more streaming competition, any anti-competitive problems from the deal would be mystically mitigated:

"Evidence also indicated that the industry had become dynamic in recent years with the emergence, for example, of Netflix and Hulu. In this evidentiary context, the government’s objections that the district court misunderstood and misapplied economic principles and clearly erred in rejecting the quantitative model are unpersuasive. Accordingly, we affirm."

But, like the Leon ruling, the Judges failed to understand the bigger picture, almost to an embarrassing degree. In part with the DOJ's help, since throughout the entire case, the phrase net neutrality wasn't uttered even once in context.

While AT&T does face more competition via streaming competitors, its control over wireless and wired broadband networks those services run over gives AT&T a distinct advantage. So in addition to making "must have" content more expensive for competitors (something the court just ignores), AT&T can also use its broadband networks to hamstring these emerging competitors. We've already seen that demonstrated clearly as AT&T imposes arbitrary and unnecessary usage caps on overage fees on its broadband users if they use a competitor like Netflix, but not if they use AT&T's own streaming service.

It's not rocket science to see how AT&T's domination of broadband, control of essential content, and successful obliteration of FCC oversight all work synergistically to distort the market AT&T operates in. This is a company that effectively told the Ajit Pai FCC to go neuter itself, and the agency was more than happy to oblige. It's the same company that had so much political power, it was able to convince the government to retroactively change the law when it was found to be spying on Americans without a warrant. The problems with this type of power couldn't be more obvious.

Meanwhile, the case continues to show how the steady lobbying erosion of U.S. antitrust authority is having a decidedly negative impact US market health. For decades we were told that the telecom industry should be deregulated to unleash brave new synergies and amazing innovation. This wouldn't be a problem, telecom giants and their allies insisted, because antitrust authority would help keep these natural monopolies in line.

Yet here we are, with antitrust authority so comically eroded that lawyers are trapped within very narrow confines of economic theory, utterly incapable of proving even the most obvious of harms.

The broadband industry is a broken, natural monopoly plagued by federal and state regulatory capture. When you obliterate what few consumer protections exist, giants like AT&T and Comcast don't just mystically start behaving thanks to a free market, they just double down on existing, bad behavior. That's because telecom isn't a free market, it's a broken mess. And free of both competition and meaningful regulatory oversight, it only gets worse. History has made this point time and time again, and the public's utter disdain of Comcast and AT&T is example A.

In the wake of the telecom industry's successful attack on FCC authority, there are only a few things that can keep these natural monopolies in line absent meaningful competition. One, an FTC that lacks the authority, resources, or rule-making ability to actually police bad ISP behavior. Two, state regulators and AGs that ISPs and the FCC have working overtime. And antitrust enforcement that's been so neutered by lobbying that the government can't police even the most obvious instances of competitive issues caused by mindless merger mania.

Anybody, Judges included, that can't see the obvious problem here isn't paying close enough attention.

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Filed Under: competition, doj, merger, streaming, telco, telecom, tv

Companies: at&t, time warner