- - Monday, August 20, 2018

ANALYSIS/OPINION:

In June, federal Judge Richard Leon ruled against the Justice Department’s efforts to block the acquisition of Time Warner by AT&T, and precipitously discouraged the Justice Department from seeking an injunction to delay the merger pending appeal.

Fortunately, Antitrust Chief Makan Delrahim has backbone. The American people did not receive a fair day in court. The appellate court should review the case de novo — re-judge the case in its entirety without reference to Judge Leon’s findings — or send it back for retrial by another, more temperate judge.

At issue is the purchase of Time Warner’s considerable content franchises — HBO, CNN, TCM, TNT and TBS, as well as Warner Bros. TV and film production studios — by one of the nation’s largest pay TV distributors. AT&T has fiber optic TV distributions in many cities and owns DirecTV.

Such vertical mergers have not been much challenged in decades, although the Justice Department imposed restrictions on Comcast’s business practices when it acquired NBCUniversal in 2011. Those were poorly enforced and the deal, tainted by a Comcast executive’s considerable fund raising for Barack Obama, should serve as no precedent.

The Justice Department maintains AT&T will be able to coerce other cable, streaming and satellite services to pay more for Time Warner networks and content — lest they compete with AT&T’s offering without them.

It’s tough to market a TV bundle without Time Warner’s string of networks, which in some measure may be claimed about the NBC lineup too. In turn, AT&T can use those higher carriage rates to justify higher prices to its own fiber optic and DirecTV customers.

Cable companies and satellite providers like Verizon fiber optic, Comcast and Time Warner Cable, which was spun off as an independent company in 2009 and purchased by Charter Communications in 2016, are scrambling as Americans cut the cord and purchase TV from streaming services like Hulu or independent producers like Netflix.

It’s all terribly complicated, but how much market power AT&T enjoys will be significantly disrupted in the 2020s by 5G cellular, which will permit households to easily bypass hard line cable. Operating on higher frequencies than 4G, the speed and bandwidth will be breathtaking and likely cheaper to build than conventional cable Internet and TV systems.

AT&T, Sprint, T-Mobile and Verizon cellphone companies will be competing with local cable companies to offer households high speed Internet and TV without co-axil or fiber optic cables.

In this environment, the capacity to access Time Warner’s cable networks and Warner Bros. productions at reasonable carriage rates could prove pivotal to survival of cellular phone networks as the whole in-home TV and portable device marketplace reshapes.

Now coming to light through recently published transcripts of the bench conferences with the opposing lawyers, the judge rushed the trial to accommodate the deadline imposed by the two companies’ merger agreement, was impatient with Justice Department lawyers and questioned the experience of its attorneys and limited their ability to cross-examine AT&T’s witnesses.

It should come as no surprise that Judge Leon has one of the worst records for being overturned by an appeals court.

During a bench conference, AT&T attorney Daniel Petrocelli mentioned that one his lawyers was solicited for an anonymous contribution for the unveiling of the judge’s portrait. Judge Leon said he had no involvement in the fund-raising process, but it seems the AT&T lawyers thought he should know and that was ethical to inform him during the trial.

In any case, that contribution was not absent from the judge’s mind while he was deliberating or handing down his ruling. And to give readers a sense of how dissolute things have become, a University of Pittsburgh specialist in legal ethics said the judge acted appropriately.

I may be an impulsive academic, but I would have been inclined to order Mr. Petrocelli replaced.

I would be curious to know how the judge and professor would react if, while I was grading final exams, a student’s father called to tell me his family was contributing to a memorial commemorating my career.

After the judge’s decision, the two companies quickly merged before the Justice Department could appeal and now taking them apart could be tough.

Still, justice and the public interest require de novo review or a new trial — and ultimately restructuring remedies including requiring AT&T to divest the Turner Networks.

• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.


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