Consumer groups and small cable operators are among the outside organizations supporting the Department of Justice in its appeal of a decision to allow AT&T's purchase of Time Warner.
That decision was a "setback for consumers of video programming," Public Knowledge, Consumers Union and the American Antitrust Institute write in a friend-of-the-court brief submitted this week to the D.C. Circuit Court of Appeals.
Public Knowledge and the other groups are weighing in on a battle dating to late last year, when the Justice Department sued to block AT&T's purchase of Time Warner on the grounds that the deal would decrease competition and result in higher prices for consumers. The Justice Department contended that the merger -- which brings cable companies including CNN and HBO into AT&T's fold -- would enable the telecom to harm competitors by withholding (or demanding excessive fees for) popular channels.
U.S. District Court Judge Richard Leon in Washington, D.C. rejected that argument in June. He said in a written ruling that AT&T would have reason to distribute Time Warner content "as broadly as possible."
But Public Knowledge and the other organizations argue that Leon discounted the possibility that AT&T would threaten to withhold programs as a bargaining tactic.
"The court believed that because AT&T would lose money in the event of a blackout, and that therefore a blackout was unlikely to occur, AT&T could not obtain increased bargaining leverage and drive up the rates of rival distributors by threatening to withhold content," the groups write. "But bargaining theory and common sense dictate otherwise. It is a common bargaining tactic to threaten to engage in conduct that would be unprofitable when considered in isolation, as trade wars, nuclear deterrence, and labor strikes illustrate."
The American Cable Association, which represents small cable operators, also submitted a friend-of-the-court brief siding with the government. That group wrote that Leon engaged in "faulty and inconsistent economic reasoning" when he rejected the government's arguments.
The companies closed the deal in late June, but AT&T is managing the Turner network separately from DirecTV and U-Verse. The telecom plans to maintain that structure until the earlier of February 28, 2019 or the conclusion of the government's appeal.