Dallas-based AT&T heads to trial over Time Warner merger

As the business day wrapped up Friday at AT&T headquarters, a major trial for the telecommunications giant is looming on the horizon.

The U.S. government is trying to stop Dallas-based AT&T from merging with Time Warner.

The trial could last up to six to eight weeks. It’s very complicated, but it has economists, lawyers and business people watching from all over the world because the outcome could have a permanent impact on consumers.

SMU Economist Mike Davis says it's tough to underscore what a big deal the trial will be.

“This is one of the most interesting cases that, frankly, I've seen in my lifetime,” he said.

The Department of Justice sued to block AT&T's merger with Time Warner in November. It was a major setback for AT&T, which is trying to use the merger to add programming to its portfolio and compete with others like Amazon and Netflix.

CEO Randall Stephenson was stunned when they were initially blocked.

“Obviously, we are surprised to be here,” Stephenson said. “And candidly, I'm a bit troubled by it.”

AT&T was surprised because it's what's called a vertical merger since the two merging companies are involved in the same supply chain — entertainment — but both do different things.

The government hasn't tried to stop a merger like it since the 70s but expressed concern that AT&T’s control over Time Warner programming could be risky for AT&T's competitors.

“The government theory here is really very novel, that somehow AT&T is going to leverage its power in this market to gain advantage of this market,” Davis said. “And that's not how the world usually works.”

Attorney Chad Ruback, who is not involved in the case, says the burden is on the government.

“These type of cases are extremely tough for the government to win,” he said. “It's really tough to prove that a merger would substantially diminish competition if the two merger pushers aren't competitors.”

While a six- to eight-week trial will determine the outcome of the merger, it'll hardly be final.

Ruback says there will likely be appeals, and it will take time.

The impact on consumers is the central question of the case. Vertical mergers typically don't harm consumers. The government says it will.

Davis says the case goes beyond impacting AT&T or Time Warner customers. If a judge strikes the merger down, it could impact several other proposed vertical mergers in other industries.

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