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Photo credit: Mike Mozart via Flickr, CC BY 2.0

Why Is the Trump Administration Trying to Block This Mega-Merger?

Since taking office, President Trump’s greatest economic achievement has undoubtedly been the aggressive regulatory rollback his administration has unleashed. With respect to government red tape, the Trump administration has sent a clear signal from day one — the “War on Business” initiated by President Obama’s executive branch was over.

But last week, we received our first signal that the deregulation train could be losing steam, when Trump’s Department of Justice announced it would be suing to block AT&T and Time Warner from merging. As The Wall Street Journal reported:

The lawsuit misconstrues markets and undermines the rule of law—whether or not it was inspired by the White House.

Start with the fact that the AT&T-Time Warner deal is a “vertical merger,” meaning that the two companies operate in distinct markets and don’t directly compete. Time Warner is mainly a content producer. AT&T, which also owns DirectTV, is mainly a distributor.

Justice last sued to block a vertical merger under Section 7 of the Clayton Act in 1977 in United States v. Hammermill Paper Co. It lost. Unlike horizontal mergers of businesses that directly compete, the government in vertical deals must marshal evidence to prove that vertically integrated companies would reduce competition and harm consumers.

As The Wall Street Journal noted, the federal government blocking a vertical merger is essentially unprecedented in modern American history.

Yet even more puzzling than an administration (deservingly) praised for ‘deconstructing the administrative state’ nevertheless putting its thumb down on one of the largest business deals in America are the clear lack of anti-competitive forces generally used to initiate “trust-busting.”

As Variety reported, over the past three months:

[AT&T] reported a record quarterly loss of 385,000 traditional pay-TV subs, which AT&T blamed on increased competition from other pay-TV operators and over-the-top services.

The above illustrates how cable companies are struggling to compete in a new media environment where companies such as Amazon, Google, and Apple have launched streaming services competing against the traditional cable box. AT&T is not the only cable company experiencing growing pains from the evolution of technology; cable companies are largely shedding subscribers across the board. The New York Post estimated that the number of Americans who “cut the cord” could eclipse 22 million by the end of 2017.

Claiming that an AT&T and Time Warner merger warrants trust-busting would be similar to labeling Blockbuster a monopoly after Netflix had already arrived on the scene. As RealClearMarkets editor John Tamny noted in a 2010 Forbes column:

Indeed, popular as the Blockbuster brand was, getting to the video store in order to take advantage of its services was a hassle for customers–as was returning videos on time to avoid paying late fees. The rise of Netflix from well outside the traditional retail space meant these problems were solved in one fell swoop.

Netflix entered the market offering a monthly fee for movies, DVDs by mail and no limits on how long its customers could keep the movies in question. With no retail spaces of its own to drive up costs, Netflix out-innovated a former innovator with a service that licked the late-fee problem and didn’t require customers to leave their houses.

A similar transition is now underway, and it is changing the way many Americans watch television. In the face of growing challenges from innovating tech-startups, the last thing we should do is kneecap cable companies by depriving their ability to merge or consolidate with other institutions.

While fears of anti-competitive practices are cited as the reason for this lawsuit, blocking a cable companies’ ability to streamline its offerings to remain competitive can only yield more power to silicon tech giants, who would face less competition from cable providers.

Bottom line — the AT&T and Time Warner merger is good for competition and good for our economy. Attorney General Sessions, let’s get back to cutting red tape instead of creating it.

Photo credit: Mike Mozart via Flickr, CC BY 2.0

Jonathan Decker

Jonathan Decker is the Chief Economic Correspondent for TheNationalPulse.com.