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Why Did the DOJ Sue to Block AT&T-Time Warner Deal?

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Jan. 24 2018, Updated 7:32 a.m. ET

DOJ challenges AT&T-Time Warner merger

The Department of Justice (or DOJ) has filed a lawsuit against AT&T (T) over its $85.4 billion mega-merger deal with Time Warner (TWX), which was announced in October 2016. According to the DOJ, the proposed agreement would create a monopoly, thereby raising the prices of channels and forcing rival pay-TV operators and satellite players to pass on those costs to consumers. The DOJ argued that the deal might also hinder the development of online video.

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DOJ’s demands and AT&T’s counter arguments

DOJ expressed concern that the combined entity, if it is approved, would enjoy the monopoly over both high-quality content and the distribution medium. The DOJ is concerned that AT&T could raise prices, impacting US consumers.

The DOJ has urged AT&T to offload its DIRECTV division or Turner Broadcasting assets, including CNN. However, the company denied the arguments and noted that its Turner Broadcasting was a profitable segment for Time Warner, driven by cable channels including TBS, TNT, Cartoon Network, and CNN.

AT&T generated revenues of $11.4 billion and operating income of $4.4 billion in 2016. The DIRECTV segment is doing well, and AT&T remains focused on promoting its satellite-based DIRECTV brand over its fiber-based U-Verse as its new pay-TV offerings.

US (SPY) telecom giant AT&T claimed that both companies’ business would not overlap. Hence, the deal wouldn’t reduce the number of competitors from the media, pay-TV, or telecom industries.

In 2011, the DOJ permitted Comcast (CMCSA), the largest cable MSO (multi-service operator) to acquire media giant NBCUniversal. Notably, AT&T and the DOJ earlier engaged in settling the matter but failed to resolve it. So, AT&T and Time Warner decided to go to court against the DOJ for their long-awaited merger deal.

According to news sources, the Justice Department wants the court ruling to start in May. However, AT&T argues that its agreement with Time Warner will expire in April, costing them $500.0 million. The telecom giant is now waiting for the court ruling.

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