AT&T has a behemoth plan to buy Time Warner. But Uncle Sam might smash the $85.4 billion deal before it becomes a reality.
To understand why, let's take a brief tour through America's history of antitrust law.
In the late 1800s, small farmers needed railroads to ship their crops to market. But the railroads were run by a small number of giant companies, who used their control over that market access to bleed farmers dry. The Sherman and Clayton Acts were passed to combat this, by giving the government the power to break up especially big companies, prevent mergers, punish anticompetitive behavior, and more.
This antitrust attitude prevailed through the middle of the 20th century. Mergers were assumed to be bad, and the burden of proof was on the corporate powers to show otherwise. Markets were aggressively policed to ensure economic power was as widely dispersed as possible. Deals that would give a company as little as 7 percent control of a market were axed. Vertical integration — a merger between companies at two different points in a supply chain — was pretty much illegal by default.
All that changed in the Reagan years, thanks in no small part to the efforts of one man: Robert Bork, a judge and legal scholar who argued that antitrust enforcement should concentrate solely on making sure prices don't rise. He also argued that vertical integration is almost by nature efficient, and thus doesn't constitute a threat to consumers.
Since the language of antitrust law is pretty broad, it requires interpreting by regulators and courts. Bork's ideas proved enormously influential in the courts that oversee antitrust law, and the result was that the Justice Department and other regulators took a far more circumspect approach to enforcement. The bar for successful antitrust enforcement was set incredibly high, effectively flipping the burden of proof to the people looking to break up corporate power.
Since then, that power has done nothing but grow: There's been a frenzy of mergers in recent years, as the rate of startups declines, and markets that were once dominated by a range of companies are now overseen by four, three, or even two powerhouses. Revenues of the Fortune 500 companies rose from 58 percent of the economy in 1994 to 73 percent in 2013. Rather than kill merger deals completely, regulators have instead increasingly turned to allowing even the biggest combinations, though with conditions — like they did when Charter bought Time Warner Cable from the rest of Time Warner, or when Comcast bought NBCUniversal.
In fact, last year was the biggest year for mergers and acquisitions ever, and 2016 could well be even bigger.
But now there's a simmering bipartisan agreement that things have gotten out of hand.
Sen. Elizabeth Warren (D-Mass.) gave a fiery speech earlier this year effectively calling for all of Bork's changes to be reversed: for regulators to shift the burden of proof back onto the pro-merger side, to get a lot more serious about scrutinizing vertical mergers, and to stop approving with a string of conditions and just block mergers outright instead. Language in the Democratic Party's 2016 platform called for strengthening antitrust enforcement — the first time that's happened since 1988. And the Center for American Progress, the premiere center-left think tank in D.C., put out a report effectively agreeing with Warren on all points.
Regarding the proposed merger of AT&T and Time Warner, the ranking Republican and the ranking Democrat on the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights released a joint statement saying it "would potentially raise significant antitrust issues." A spokesman for the Hillary Clinton campaign and vice presidential candidate Tim Kaine admitted there's reason to be suspicious of the deal. Bernie Sanders called for the deal to be killed, and Donald Trump said he would kill it if elected.
Still, the fact that the Comcast and NBCUniversal deal was let through — albeit with conditions — suggests AT&T-Time Warner might survive as well. And for their part, both AT&T and Time Warner seem blithely confident their deal will pass regulatory muster.
But the potential marriage of AT&T and Time Warner is already offering a dramatic test of just how serious America's new push to revitalize antitrust enforcement actually is.
It's not just because of the deal's prominence and size; it's also because it's a classic case of vertical integration. AT&T's business is providing access to the internet, phone lines, digital services, and media. It boasts more than 100 million subscribers across its wireless, broadband, and DirectTV services. Meanwhile, Time Warner owns cable channels like CNN, TNT, and HBO, along with the Warner Brothers film studio — its business is creating the media and content that businesses like AT&T sell access to. Would the new AT&T-Time Warner hybrid drive out content produced by rivals?
That would hurt consumers — not because it would raise prices necessarily, but because it would reduce options. And that's the thing: A true return to the old antitrust approach requires a recognition that the harms of overwhelming corporate power go well beyond the mere leverage to raise prices. It increases one company's power to shape our politics, or society, and our culture. More importantly, it can reduce productivity by killing off the competitive pressure from business rivals and prevent other market entrants from ever raising their heads. It doesn't simply have the potential to hurt consumers with higher prices; it can hurt everyone trying to earn a living by selling their goods and services in the market.