December 11, 2018 | Rob Cortes
Edited by: Riya Rana
At the end of the 19th century, the United States was home to some of the wealthiest individuals the world had ever seen. These titans of industry created vast networks of railroad, energy consolidation systems and complex machines. Of these, the richest, John D. Rockefeller was worth $1.2 billion dollars, an astounding $21 Billion dollars in modern currency.1 Although this was an era of great wealth, it was mired with low wages and inhumane working conditions. Half of all work-related deaths occurred in two industries, oil, and railroads, while the total rate of fatalities fell 97% between 1900 and 1979.2 Wages saw a 50% increase in value between 1860 and 1890, however, the gap between the rich and poor widened all the same. To make matters worse, the average income for industrial workers was about $500, while most economists and historians say that workers needed at least $600 to make ends meet.3 Employers took advantage of immigrants, women, and children alike and committed gross-negligence against millions for decades.
Today, new frontiers in technology and energy push the bounds of civilization, eerily like the events of the late 18th and early 19th centuries. Corporations unchecked can wreak havoc on the economic, sociological and healthcare aspects of a society. The only difference between then and now is the U.S. government plays a much larger regulatory role than it did then, when its role was more inconsequential. The passing of legislation such as the Sherman Antitrust Act and the election of a more democratic congress, as well as trustbusting presidents, Roosevelt and Taft, led to an increase in regulation, wages, and competition. Over 100 years later, this history lesson rings with urgency. Its purpose in this review is to show the extreme conditions that can occur when government regulation of an industry is scant.
Earlier this year, D.C. District Court Judge Richard Leon ruled on a proposed merger between AT&T and Time Warner. AT&T is a global holdings corporation that has business in tech sales, internet and wireless services, entertainment, television and provides support for businesses worldwide with a global IP Network, businesses that make up about 99% of the world’s economy.4 Time Warner, at the time of the merger was one of the world’s premier entertainment conglomerates. Consisting of HBO, “known for its groundbreaking original series, popular late-night programs, compelling sports shows, award-winning documentaries, as well as Hollywood blockbusters”5, Turner which “boasts more than 175 international networks, including the #1-rated pay-tv network portfolio in Latin America. Turner is home to a growing portfolio of original hits”6 Warner Bros which is a “Warner Bros. is a leader in global entertainment and is the world’s leading producer of film and television programming”7 and Turner Advertising. After examining the offering of these two corporations, it is easy to see how absorption of Time Warner into AT&T could give it a huge leg up over similar companies such as Verizon Wireless and Charter Communications. A union of the two would create one of the largest media companies in our country’s history.
On November 20, 2017, the US Department of Justice’s Antitrust Division filed suit on behalf of the United States of America against AT&T. The Department of justice cited several causes of concern in their testimony. “Time Warner is likely to substantially lessen competition in the video programming and distribution market nationwide by enabling AT&T to use Time Warner’s must-have television content.”8 The prosecution reasons that this would drive the cost of competition up as competitors would have to spend more to retain customers, which means higher prices. This downward spiral potentially can lead to bankruptcy, which eliminates competition, and jobs, which decrease the competitive nature of wages. However, the defense argued that acquisition of Time Warner was merely a response and in fact a necessity for its future success. “Veritable explosion of innovative new video content” and “vertically integrated entities like Netflix, Hulu, and Amazon have achieved remarkable success in creating and providing affordable . . . video content.”9 AT&T argued, throughout its testimony, that the nature of its competition is not only to include conglomerates such as itself but budding companies in the “video programming and distribution industry.”10 By acquiring a network that provides entertainment such as HBO’s Game of Thrones and Turner’s Rick and Morty, AT&T would be able to compete with such companies on a more competitive and level playing.
In the court proceedings, the Department of Justice showed the continued trend of assessing large scale, potentially harmful mergers. Under President Obama, the country saw an increase in antitrust litigation, in favor of the determent of such transactions. The President did have a unique situation after the economic collapse in 2008, in which he had the responsibility to protect American citizens. In 2008, Obama withdrew the ‘2008 Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act Report’, explaining that the report “raised too many hurdles to government antitrust enforcement.”11 Between 2009 and 2011, the DOJ filed an increasing number of suits against mergers and acquisitions: “cases filed: 9 (2009), 14 (2010), 18 (2011); cases pending: 14 (2009), 17 (2010), 24 (2011).”12 In the years following President Obama’s increase in regulatory policy until the present, the economy has seen marked growth.
Despite efforts of the Department of Justice and the support of recent history, Justice Richard Leon ruled in favor of the AT&T and Time Warner merger. Judge Leon argued that the prosecution failed to show that “the proposed merger is likely to substantially lessen competition.”13 The defense’s argument centered specifically on HBO. Because HBO was a holding of Time Warner, it was distributed to different cable networks. HBO has huge revenue streams from subscription fees because of its many primetime slots throughout the year. The acquisition may prevent rival companies to stream or broadcast this premium content and reap the rewards. Judge Leon found 2 problems with this argument. First, there is no evidence that AT&T would “foreclose rivals’ access to HBO-based promotions.”14 A key witness during the trial confirmed this, reporting that the “business (HBO) is relying on our affiliates to promote us.”15 Second, the government failed to prove that “HBO promotions are so valuable that withholding or restricting them will drive customers to AT&T.”16 The court found that it actually makes more financial sense for AT&T to not withhold the service from HBO’s former affiliates, a critical blow to the prosecution. Interestingly, following the June 12th verdict, stock prices plummeted 6%, and the overall price has been stagnant since the merger. Shareholders and investors alike were mostly opposed to the merger.
The real impact of the decision by the district court, however, does not come in the form of percentages or dollars for stockholders. History has frowned upon a lack of regulatory power for a government. A stern, even draconian mindset, on the other hand, can lead to an increase in wages, economic growth and the well-being of a populace. Under the current administration, lack of government intervention has been a motif from health care to the environment. Such a decision can be the start of a long line of mergers that are unprosecuted. Failure to prosecute such transactions is an injustice to the American people, as they are the ones who feel the brunt of any economic change. The historical perspective outlined at the beginning of this review gives context to how our country operated; although, at present, such an encore of our history is unlikely. This does not discount the fact that a decrease in regulation and oversight can continue to push marginalized Americans further from the center. Wages and benefits that should be Americans’ inherent rights as citizens will become harder to guarantee. Our government cannot allow this growing wage gap to continue. Given our country’s history, we cannot afford to under-investigate mergers, especially if they are of this large a magnitude.
Robert Cortes is a junior at the Johns Hopkins University, where he is majoring in Public Health Studies and minoring in Financial Economics
1 Peterson-Withorn, Chase. (2017, September 28). From Rockefeller to Ford, See Forbes’ 1918 Ranking of The Richest People in America. Retrieved September 29, 2018, from https://www.forbes.com/sites/chasewithorn/2017/09/19/the-first-forbes-list-see-who-the-richest-americans-were-in-1918/#555b7d524c0d
2 Lebergott, Stanley. (1976) Wages and Working Conditions. Retrieved September 29, 2018, from http://www.econlib.org/library/Enc1/WagesandWorkingConditions.html
4 AT&T Communications. (2018) Company Profile. Retrieved October 1, 2018, from https://about.att.com/pages/company_profile_communications.
8 United States of America v. AT&T Inc. et al. Civil Case No. 17-2511.
11 Mahoney, Stacey. (Jan 2013). Antitrust Enforcement Under President Obama: Where Have We Been and Where Are We Going? The Antitrust Counselor (Vol.7.1). Retrieved October 1, 2018, from https://www.morganlewis.com/~/media/files/docs/archive/antitrust-enforcement-under-president-obama-where-have-we-been-and-where-are-we-going.ashx
13 US v. AT&T
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