Judge's error —

FCC says court made error in approval of AT&T/Time Warner merger

AT&T's statements to FCC shouldn't have been dismissed by judge, FCC says.

A Star Wars Death Star battle station with AT&T's logo and the names of Time Warner properties.

The Department of Justice's attempt to reverse the AT&T/Time Warner merger received some help yesterday from an unexpected source: the Federal Communications Commission.

The FCC previously allowed AT&T to buy Time Warner without having to undergo a lengthy public-interest review, despite pushback from Democrats in the Senate and FCC. The DOJ fought the merger alone, ultimately losing a court ruling that allowed AT&T to complete the acquisition.

But the DOJ appealed that court ruling last month, and yesterday the FCC gave the DOJ's case a small boost. The FCC isn't actually supporting the DOJ's case, but the commission's filing points out an error made by the US District Court for the District of Columbia. In US District Judge Richard Leon's ruling against the DOJ, he said that he was "hesitant to assign any significant evidentiary value" to previous statements that AT&T and the AT&T-owned DirecTV made to the FCC. AT&T's own statements to the FCC, made in the years prior to the AT&T/Time Warner merger, supported the DOJ's case that a merged entity could raise the price of programming. Those AT&T statements were made as part of the FCC's 2010 review of the Comcast/NBCUniversal merger and in other FCC proceedings.

But Leon wrote that AT&T's previous statements to the FCC had little if any relevance:

In particular, in examining defendants' prior regulatory filing statements, I am mindful of the considerations discussed in the context of the third-party competitor testimony. When AT&T and DirecTV made many of the proffered regulatory filings, they acted as competitors to (or customers of) distributors whose competitive positions would be affected by FCC review. For that reason alone, I am hesitant to assign any significant evidentiary value to those prior regulatory filings.

“The district court erred”

This was an incorrect conclusion, the FCC said in its court brief yesterday, which was filed at the United States Court of Appeals for the District of Columbia Circuit. "While the Commission takes no position on the relevance of any document in this case, it is concerned that two of the rationales supplied by the district court for discounting the probative value of submissions made to the FCC could reflect a misunderstanding of Commission procedures," the FCC wrote.

AT&T's filings with the FCC are required to be truthful even when the company is trying to affect a competitor's business, the FCC wrote.

"[T]he Commission's rules require all regulated parties—whether applicants seeking to transfer licenses in connection with a proposed merger or competitors who oppose the merger—to abide by the same standard of truthfulness in adjudicatory proceedings," the FCC wrote.

FCC rules prohibit both intentional misrepresentations and "inaccurate statements submitted due to negligence," the FCC said.

"AT&T and DirecTV were subject to this obligation when they submitted comments in earlier FCC merger proceedings. Thus, there was no reason for the district court to treat those comments as less credible simply because AT&T and DirecTV were 'competitors' of the merger applicants in those proceedings (rather than the applicants themselves)," the FCC wrote.

The FCC said the district court also erred when it wrote that AT&T and DirecTV filings in the Comcast/NBC merger review "were less probative here" because of differences between the FCC's public interest review standard and the DOJ's "burden for 'block[ing] a transaction' under Section 7' of the Clayton Act."

"While it is correct that the Commission's 'public interest' review is broader in certain respects than traditional antitrust analysis, the Commission has historically included competition analysis as one component of its public interest review and has looked to the Antitrust Division's merger guidelines for guidance when doing so," the FCC noted in its court filing yesterday.

Even though the FCC didn't block Comcast's purchase of NBC, it did impose conditions to prevent anticompetitive conduct similar to the conduct the DOJ is concerned about with AT&T and Time Warner. The FCC's filing yesterday said:

In determining that the Comcast-NBCU merger would increase the bargaining leverage of the merged firm in programming negotiations, the FCC applied the same "[s]tandard bargaining theory" that formed the basis for the government's suit to block the AT&T-Time Warner merger. Applying "a Nash bargaining model," the Commission concluded that the proposed Comcast-NBCU merger would increase the merged firm's bargaining leverage "due to the expected gain in subscribers to Comcast cable if programming is withheld from a rival" video programming distributor. DirecTV made the same point in a filing with the FCC concerning the Comcast-NBCU transaction, arguing that the merger "would enable Comcast to raise the prices paid by its [distributor] rivals for NBCU programming." AT&T made this point more broadly in another FCC proceeding, arguing that cable operators with affiliated programming "attempt to use their control over such programming to try to artificially limit competition in downstream video distribution markets."

"In short, given that the Commission analyzes competition as one component of its public interest review of license transfers, the district court erred in suggesting that differences between these two standards made documents submitted to the Commission less probative of statements contained therein that relate to market analysis," the FCC concluded.

Appeal could force AT&T to undo merger

Although AT&T completed its acquisition of Time Warner, a court could theoretically force AT&T and Time Warner to reverse the merger. AT&T has maintained some separation between its old and new business units, which might make undoing the merger logistically easier.

The DOJ filed its opening brief last week, arguing that the district court "clearly erred when it found the merger was unlikely to have an anticompetitive effect."

Briefs supporting the DOJ's case were filed this week by consumer advocacy group Public Knowledge and the American Cable Association, which represents small- and medium-sized cable companies.

Channel Ars Technica