AT&T says it's ready to fight the government for its $85 billion Time Warner deal if it has to. The Justice Department's objections surprised many on Wall Street.
The objections also raised red flags for those who worry that the White House is trying to hurt CNN through the merger-review process. President Donald Trump has tangled frequently with the Time Warner-owned news network.
WHY DOES AT&T WANT TO BUY TIME WARNER?
As U.S. wireless growth slows down, AT&T has been looking for ways to marry its nationwide wireless business with video, which Americans increasingly watch on the internet.
AT&T bought satellite TV company DirecTV in 2015. Buying Time Warner would give AT&T more video through HBO, CNN, TBS, TNT and other cable networks and the Warner Bros. movie studio. AT&T can deliver this video over the internet, including its cellular network.
AT&T also hopes to use Time Warner content to support an advertising business that could stand up to Google and Facebook, which dominate the digital-ad industry and are increasingly interested in video themselves. AT&T also could use Time Warner's video to support its wireless business. AT&T already discounts its streaming service, DirecTV Now, and even HBO, which it doesn't own yet, as an incentive to get people to sign up for its unlimited phone data plans.
WHAT WILL IT MEAN FOR RIVALS AND CONSUMERS?
AT&T says it will be able to package and deliver video more cheaply, over the internet, rather than in expensive cable bundles.
There are concerns that AT&T would favor its programming for its millions of customers. AT&T, for example, already lets its wireless customers watch DirecTV Now without using up their phone data, making rival video potentially more expensive for those on limited data plans.
AT&T could try to hurt TV networks owned by other companies, which AT&T distributes to its cable and satellite TV customers and on its streaming service. Or AT&T could limit Time Warner content to its own customers, in direct or subtle ways, hurting rival cable and online distributors.
Several Democratic senators warned the deal would lead to higher prices and fewer choices for consumers.
WHY HASN'T THE DEAL CLOSED?
According to a person familiar with the situation, who spoke on condition of anonymity because the person wasn't authorized to speak publicly, the Justice Department wants AT&T to sell video assets as a condition of approval. Justice suggested that AT&T sell either DirecTV or Turner, the arm of Time Warner that holds CNN, TBS and TNT. AT&T wasn't interested in doing so. The specific reasons for such a demand aren't clear.
If AT&T and Justice cannot agree to conditions, the Justice Department can sue to block the purchase — something looking more likely.
DOES THIS INVOLVE THE WHITE HOUSE?
The Justice Department is supposed to make merger reviews based solely on antitrust law.
But Trump's strongly voiced disdain for CNN has raised the specter of political influence behind the scenes. As a candidate, Trump vowed to block the deal because it concentrated too much "power in the hands of too few." As president, Trump has often blasted CNN for its coverage of him and his administration, disparaging it and its reporters as "fake news."
The White House has said that Trump "did not speak with the attorney general about this matter" and that "no White House official was authorized to speak with the Department of Justice on this matter." Trump's hand-picked antitrust chief, Makan Delrahim, said he has "never been instructed by the White House on this or any other transaction under review by the antitrust division."
In fact, a demand to sell DirecTV or Turner would be consistent with Delrahim's previously stated preference for "structural" changes to a deal, like selling off assets, rather than having the government monitor a company's promises to abide by certain conditions, as was done when Comcast bought NBCUniversal.
But even the perception of White House involvement could influence the deal-review process.
The president's vocal opposition to CNN and the deal will come up in any lawsuit, said Matthew Cantor, an antitrust attorney. "For me it would be virtually impossible to not take that into account."
AT&T CEO Randall Stephenson, in an on-stage interview in New York, said he had no reason to believe a "Trump factor" was influencing or interfering in the review.
DOES THE DEAL MAKE SENSE IF AT&T HAS TO SELL ASSETS?
In the on-stage interview, Stephenson said that if AT&T is required to sell "some of the key franchises of the business that are the most desired for the business plan ... we would move to litigation." Stephenson was responding on a question on whether he would consider selling Turner or HBO. He previously said he wouldn't be willing to sell CNN.
It's also unlikely AT&T will agree to sell or spin off DirecTV, Barclays analysts wrote Thursday. They say DirecTV makes up a substantial percentage of earnings, and AT&T's strategy of discounting DirecTV Now streaming service has helped it hang on to wireless customers.
HOW UNUSUAL IS THIS?
The government has filed or threatened lawsuits to block several high-profile deals in the past, in industries as varied as telecom and health care. But most of those involved direct competitors.
Antitrust experts were hard-pressed to think of examples of blocked "vertical" deals, in which the acquiring company isn't a direct competitor of the company being purchased. In such deals, a competitor isn't eliminated, so it's harder for the government to show how consumers would be harmed.
Analysts believe AT&T would have a strong case in court. The government has the burden to show that the deal would reduce competition.