Failed Government Attempt to Block AT&T/Time Warner Merger Was Bizarre
Broadcasters, cable operators and newspaper publishers have been combining content and delivery — that is, producing their own content and then delivering it themselves — since as long as anyone can remember. A federal judge’s ruling today that AT&T’s acquisition of Time Warner will not harm consumers therefore makes perfect sense.
The government speculated that AT&T might charge unaffiliated cable companies higher prices to carry Time Warner content such as HBO, CNN and Warner Bros. But in a competitive market, AT&T would risk retaliation if it treated others unfairly. Since AT&T’s customers want to be able to view content created by others — not just HBO, CNN and Warner Bros. — AT&T will be both a buyer and a seller of content, and it therefore has an incentive to offer the same terms it hopes to receive in it’s dealings with rivals. It should be noted that Comcast pledged not to unfairly increase the prices that other cable companies would have to pay for NBCUniversal content when it acquired those assets in 2011, and that “not a single noncompliance issue was brought to the judge in seven years and he was never advised of any final non-compliance finding by [the Department of Justice].”
The government also argued AT&T could raise rates that consumers pay for cable service. An antitrust economist working for the DOJ estimated that Americans’ cable bills could go up as much as $436 million a year, or about 45 cents per month per subscriber if the merger goes through. AT&T pointed out that prices didn’t go up after the Comcast/NBCUniversal merger. But even assuming the government’s economist is correct, a price increase of 45 cents a month — or $5.40 per year — is not going to make a big difference to the typical household, and it could generate hundreds of millions of dollars in capital expenditure for service improvements.
The government’s disastrous attempt to lower cable rates in the early 90’s yielded about one dollar a month in consumer savings. Billions of dollars in capital expenditure were lost at the very time government planners wanted cable operators to upgrade their systems to compete against telephone companies. Meanwhile, most consumers didn’t notice the meager savings on their cable bills. Congress overwhelmingly repealed cable rate regulation after a couple of years.
The Assistant Attorney General for Antitrust in the Trump administration, Makan Delrahim, reportedly has a worrisome ideological preference for forcing merging parties to sell valuable assets — in a hurry, possibly at fire sale prices, usually to competitors — rather than impose reasonable conditions like those adopted in the case of Comcast/NBCUniversal during the Obama years. Delrahim apparently feels that imposing conditions forces he and his staff to act as a “regulator” tasked with monitoring a company’s compliance, a role he would rather not play. This philosophical predisposition is why the government sued to bock the AT&T/Time Warner merger.
It may seem to Delrahim and others that the approach he is advocating is “deregulatory” and is therefore faithful to conservative principles, but this is to ignore the big picture. Generally speaking, there is some positive synergy yielding benefits for consumers and investors alike or the assets wouldn’t have been combined in the first place. Forcing successful firms to dump valuable assets is an extreme example of central planning and can result in a serious violation of the free market. It should be viewed, in most cases, as an act of vandalism. Most of the time, we may never know whether a divestiture achieved any of it’s stated objectives or was even necessary in the first place. Conditions — particularly temporary conditions like the Comcast/NBCUniversal conditions — have more observable effects and can also be modified if they don’t work or aren’t necessary.
Antitrust officials should seek to interfere in the free market as little as possible. Every merger should be evaluated according to it’s own unique circumstances, and remedies should be as narrowly tailored as possible. In some cases, asset sales may be appropriate, but in other cases some form of “regulation” may be less apt to yield unintended consequences. Antitrust law got into serious trouble when the “per se” mindset — e.g., the idea that particular types of conduct violate antitrust law regardless of the facts — used to dominate. Delrahim’s preference for divestiture over merger conditions in this case smells a lot like that.