Killing the AT&T-Time Warner deal would be radical. Good. Let's do it.

It's time for Uncle Sam to bust some trusts

An AT&T store on 5th Avenue in New York.
(Image credit: Getty Images)

On Monday, the U.S. Justice Department officially filed a lawsuit to block AT&T's $85 billion acquisition of Time Warner. The two sides may still eventually settle out of court. But it sounds like they're headed for trial.

AT&T general counsel David McAtee declared the lawsuit a "radical and inexplicable departure from decades of antitrust precedent." He's right. But in a just world, the DOJ should prevail. This merger should be killed.

The proposed AT&T-Time Warner deal is an example of vertical integration — one company at one point in a supply chain buying another company at another point in the supply chain. Time Warner produces media content like news, television shows, and movies; it owns CNN, HBO, Warner Bros., The CW, TNT, and more. AT&T is a telecommunications company, and owns a giant wireless network and the DirecTV satellite service. It provides consumers access to Time Warner's content. (Horizontal integration, by contrast, is a merger between two companies at the same point in a supply chain, who produce the same good or service — like Sprint and T-Mobile.)

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Antitrust law was vigorously enforced from its creation in the 1800s up through the last third of the 20th century. Government enforcement came down hard on horizontal integration; a merger could be squashed if it gave the resulting company control of just 7 percent of a market. Vertical integration was basically illegal across the board.

All that changed in the 1980s, when the way courts understand antitrust law — and thus how government enforces it — was upended by free-market ideology. Preventing the concentration of market power was no longer an end in itself. The government had to demonstrate that any horizontal integrations would actually result in inefficiencies and higher prices for consumers. That set the bar far higher, allowing far more mergers through. Meanwhile, vertical integrations went from being illegal by default to being legal by default: The logic was that, since the two companies sold two different things, the merger couldn't be anticompetitive by definition.

This was a pinched and foolhardy approach. Consumers can be harmed on choice and quality as well as price. Even if prices stay low, the decrease in competition can lead to less innovation, less investment, stagnant wages, and rising inequality.

AT&T's acquisition of Time Warner may not reduce the number of media content producers. But it does mean AT&T has a vested interest in promoting the content it would own on its satellite and wireless networks, while squeezing out alternative providers. Competitors can't get their media content to consumers if they can't get onto the telecommunications networks those consumers use to view media content.

Harold Feld — who works for Public Knowledge, a communications and internet advocacy group that also opposes the merger — also points out the difference between "behavioral remedies" and "structural remedies" at play here. With behavioral remedies, instead of forcing the companies to break up outright, you just make the merger contingent on the company fulfilling certain promises to help out consumers or not engage in anticompetitive behavior. But the DOJ isn't a regulatory body, so it relies on the courts to enforce these deals — and the deals usually have a time limit.

Behavioral remedies were in fashion during the Obama administration, but there's now widespread dissatisfaction with the results. So DOJ's approach to the AT&T-Time Warner deal is a swing back to structural remedies: Just force the companies to break up and be done with it. It's a blunt but straightforward approach that doesn't require ongoing oversight.

Now, a lot of people are understandably concerned that DOJ's lawsuit could be President Trump inflicting political punishment on Time Warner. The company owns CNN, a cable news network the president makes no secret of loathing.

Nonetheless, the Justice Department's demands look pretty legit: To allow the deal, they're apparently calling either for Time Warner to sell off its Turner Broadcasting division, which owns CNN, TNT, and more, or they're calling for AT&T to sell off DirecTV, a satellite provider. In other words, either break off a hefty chunk of the media production from the combined company, or break off a hefty chunk of the telecommunication service that broadcasts that media content. Either way, the concentration of market power is broken up.

If AT&T does go to court to try and stop DOJ, that would be a good thing: The Justice Department would then likely have to make its case in the daylight of the public court system, which should clarify whether any inappropriate White House meddling is at work here.

AT&T isn't wrong to be shocked. The feds gunning for this deal is a dramatic departure from how the government has approached antitrust law over the last three or four decades.

But it's also a departure that's long overdue.

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Jeff Spross

Jeff Spross was the economics and business correspondent at TheWeek.com. He was previously a reporter at ThinkProgress.