The AT&T Antitrust Case: Questions and Answers

AT&T and Time Warner are trying to merge into a nationwide internet, satellite television and media powerhouse.

The $85.4 billion deal, reached in October 2016, was widely expected to be approved. But in a surprising move this week, the Justice Department’s antitrust division decided to block the deal, saying that the new company would harm consumers and weaken competition. The move was a stark departure from decades of leniency toward similar tie-ups, including Comcast’s acquisition of NBCUniversal in 2011.

Here is what you need to know to make sense of the government’s case:

Why was the government’s decision such a surprise?

AT&T and Time Warner do not directly compete against each other, meaning that their combination, known in the business world as a vertical merger, would not reduce the number of companies in the telecommunications or media markets. That is a key test of competition for antitrust officials.

For about four decades mergers like this one passed regulatory muster, notably Comcast’s union with NBC in 2011 and Time Warner’s merger with AOL in 2000. The Justice Department has been more critical of mergers between companies that directly compete, what antitrust officials call horizontal mergers. In 2015, the agency blocked Comcast’s purchase of Time Warner Cable, saying that combining the two cable and broadband providers would reduce options for consumers and have too much power.

Then why are antitrust officials doing this?

Makan Delrahim, less than two months into his job as the head of the antitrust division at the Justice Department, has arrived with a very different approach to merger reviews.

He has said that he is not opposed to vertical mergers in general. But he said he disagreed with how anticompetitive concerns for these deals have been handled in the past.

Traditionally, antitrust officials have addressed concerns by making companies agree to abstain from anti-competitive business practices. In the case of the Comcast-NBC Universal deal, Comcast promised to share NBC programming with streaming companies like Netflix, for example. These sort of arrangements are called behavioral remedies.

But Mr. Delrahim believes that those agreements are difficult to police and often do not work. If there are anticompetitive harms, he says, the companies should be willing to sell off assets to allay those concerns. Mr. Delrahim proposed AT&T sell off Turner or DirecTV, according to three people from the companies involved in the deliberations who spoke on the condition that they not be named because of the delicacy of the negotiations AT&T has refused to sell either one and said it instead would fight in court to keep all assets.

Why does Mr. Delrahim criticize behavioral remedies?

Mr. Delrahim, a Republican who served at the Justice Department during the Bush era, believes the government should not expend a lot of resources on merger enforcement. He thinks consent decrees with behavioral conditions turn the Justice Department into a regulatory agency that has to police those settlements for years.

In a speech at the American Bar Association this month, Mr. Delrahim said, “Like any regulatory scheme, behavioral remedies require centralized decisions instead of a free market process.” He added that if a deal is anticompetitive, “we should only accept a clean and complete solution.”

Are regulators rethinking antitrust more broadly?

Corporate consolidation, particularly in the tech and media sectors, has become a bipartisan concern. Lawmakers say they are worried about the power of Facebook over public opinion and Amazon’s great reach across retail, media, and business services like cloud storage.

There is a call for regulators to think more creatively about antitrust because these companies may pose competition concerns while also delighting customers. But don’t expect a dramatic new standard for tech companies. Mr. Delrahim has said the ultimate test for competition is whether consumers are happy.