AT&T has already had one starring role in American antitrust history. Its enforced break-up in 1984, into a group of regional firms and a long-distance carrier, helped unleash competition in the country’s telecoms industry. This week AT&T was centre-stage in another momentous antitrust decision, one that threatens a much worse outcome for consumers.
On June 12th Richard Leon, a federal judge, ruled that the firm, which has largely been put back together in recent decades, can acquire Time Warner, an entertainment giant. Assuming no appeal by the Department of Justice (DoJ), which brought the lawsuit against the merger, the deal will create a colossus able to sell HBO, CNN and other TV networks over its own wireless and satellite connections. A frenzy of dealmaking is expected, as other infrastructure firms join forces with those that create content. Comcast, the largest broadband provider in America, has entered a bidding war with Disney for much of 21st Century Fox. Verizon, AT&T’s arch-rival in wireless, may move to buy CBS and perhaps Viacom.
The ruling was a humiliation for the DoJ. Some see this as deserved comeuppance for a politicised decision to oppose the merger. It is true that antitrust authorities very rarely oppose “vertical mergers”, in which firms in different parts of the supply chain combine. And Donald Trump is famously unimpressed with CNN’s coverage of him. If the DoJ’s stance was indeed swayed by Mr Trump, that is obviously wrong—but not in itself a reason to wave the deal through.
In fact, the judge used different arguments. He accepted the case made by AT&T and Time Warner that the media landscape has changed. Conventional firms face fiercer competition from tech giants—the likes of Netflix are winning viewers directly rather than via cable-TV packages, as Facebook and Google are taking ad revenues. Mr Leon was also unpersuaded by the DoJ’s argument that AT&T would threaten to withhold its content from rival distributors in order to raise prices.
This newspaper believes that the deal should have been squashed for different reasons. Vertical mergers can be dangerous for consumers if one of the parties already wields too much power in its own industry. Ideally, infrastructure firms would face enough competition to keep prices low, and content firms would battle to sell services over that infrastructure. America is moving in the opposite direction. Two in five American households subscribe to an AT&T service. The deal gives it a powerful incentive to favour its own content over that of rivals. AT&T’s unspoken long-term goal is probably to sell expensive bundles of infrastructure and content to near-captive customers. The repeal of rules governing net neutrality, which took effect on June 11th, compounds the problem by letting infrastructure firms favour their own content.
This week’s defeat may well make the DoJ think twice about obstructing other tie-ups. After the judge’s verdict, shares rose in would-be dealmakers—among them T-Mobile and Sprint, two telecoms firms whose plans to merge also ought to be stopped. Yet, if anything, America needs a more activist approach to antitrust. In 1970-99 regulators brought an average of 16 cases a year; in 2000-14 that number fell below three. America also needs more choice in wireless and broadband markets. Municipalities should be able to build wholesale fibre networks to give their communities more high-speed broadband options; the Trump administration should urge the industry to build a national wholesale 5G wireless network. Otherwise, AT&T’s place in the annals of antitrust will stand for a decline in competition as well as an upsurge.