WASHINGTON (Reuters Breakingviews) - AT&T has unintentionally thrown a bone to the U.S. antitrust watchdog. The Justice Department faces high hurdles in appealing a harsh ruling that cleared the telecom group’s $85 billion purchase of Time Warner. But AT&T may be a little too complacent: it raised some customer prices.
Last November, the DOJ took the unusual gamble of suing to block the merger between AT&T and Time Warner, even though they aren’t direct competitors. Last month, U.S. District Court Judge Richard Leon found overwhelmingly in favor of the companies. The deal closed a few days afterward. An appeal seemed unlikely given Leon’s smackdown of government lawyers.
The government has yet to reveal its legal rationale for appealing but AT&T has raised prices since the deal closed. Monthly streaming for DirecTV now will cost an additional $5, which will bring in at least an extra $127 million per month. In his ruling, Leon cited a government expert’s estimate that AT&T could pass on $352 million a year in cost savings to DirecTV customers. AT&T also increased its monthly administrative fee for wireless customers, which could raise about $800 million a year, according to BTIG Research.
The hikes may not be admissible in the appeal because they occurred after the antitrust trial. They also may not be a direct result of the merger. Still, AT&T needs the help. To finance the deal, the company’s net debt will balloon to $180 billion or 2.9 times adjusted EBITDA. Before the deal, that ratio stood at 2.3 times EBITDA, according to Eikon.
Politics may play a part in the DOJ’s decision too. President Donald Trump has said the deal should be blocked and has been a vocal critic of Time Warner-owned CNN. The appeal could also give broadcaster Comcast pause in its pursuit of some Twenty-First Century Fox assets – where it is up against an already-approved $71 billion offer from Walt Disney.
In fighting AT&T’s acquisition, the government focused more on the possibility of costs rising for AT&T’s rivals than for its customers. Still, the timing of the price hikes makes it look like the merger has already hurt consumers. That’s a risky strategy. Government lawyers and judges watch TV too.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.