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DOJ antitrust chief blocking AT&T-Time Warner deal didn't see a problem with it a year ago

  • The Justice Department is suing to block AT&T's $85 billion deal for Time Warner, calling it harmful to consumers and stifling to innovation.
  • Makan Delrahim, a former lobbyist and law professor, recently took office as the DOJ antitrust chief.
  • In an interview on Canadian television last year, Delrahim explained why the AT&T deal wasn't as problematic as some other media combinations.

When AT&T and Time Warner announced their $85 billion blockbuster merger in October 2016, politicians immediately said the deal would be scrutinized for its potential to raise prices for consumers.

But then- Pepperdine University law professor Makan Delrahim, who had served in the Justice Department's antitrust division under President George W. Bush, offered a slightly more nuanced view in a Canadian television interview around the time the deal was announced.

The sheer size of the deal and the fact that it involved major media would certainly attract a lot of attention, he told Canada's BNN, but "I don't see this as a major antitrust problem."

Delrahim, who also once lobbied on behalf of communications and technology companies, has since become antitrust chief in the Justice Department under President Donald Trump. On Monday, he sued to block the deal, calling it an "illegal" combination that harms consumers and stifles innovation.

Many legal minds — not least among them AT&T's legal team — have questioned the government's stance. It certainly would appear to be a major shift in thinking for Delrahim, at least as far as the views he shared during the Canadian television interview last year.

AT&T and Time Warner would be a "vertical merger," one that combined AT&T's vast communications distribution network with Time Warner's marquee movie and television production assets, such as Warner Studios and the CNN news channel.

But this wasn't the type of vertical merger like Comcast's 2011 purchase of NBC Universal, he said, which combined a cable operator and a broadcaster, and it is not akin to a merger of direct competitors like DirectTV and Dish Network.

"That's not to say that there aren't going to be some concerns and antitrust issues of you know, one distributor owning various content and it might somehow impact other distributors, but it doesn't raise the same challenges as some of those other transitions have brought," Delrahim said last year.

Dan Petrocelli, AT&T's outside counsel, told CNBC on Tuesday the last time the government won a case challenging a vertically integrated merger was during the Nixon administration. The government has the burden of proof, and it hasn't been able to win these cases. On Delrahim's comment last year, Petrocelli said: "The reality is he was absolutely right. It doesn't pose any problem whatsoever."

The DOJ didn't immediately return a call for comment.

Here is a transcript of the portion of the Canadian television interview in which he discusses the transaction:

INTERVIEW DATED: OCT. 24, 2016

QUESTIONS ARE PARAPHRASED, ANSWERS ARE VERBATIM

Delrahim: "This certainly is an interesting deal. We've already heard over the weekend in Washington both the Republican and Democrat leaders of the Senate antitrust subcommittee issue a statement expecting a close examination of this transaction. You know, I've been reading a bit over the weekend and there has been some talk about the regulatory aspects. You know, this is more of what we would call a vertical merger, a content with distribution rather than two competitors merging. I anticipate that the FCC will have little if any role and it will be a pure antitrust … it shouldn't be – just the sheer size of it and the fact that it's media I think will get a lot of attention, however I don't see this as a major antitrust problem."

Q: Given that Donald J. Trump has stated publicly that this is a deal that he would not allow to go through, and even though you don't think it will come up against any regulatory hurdles, can you maybe flesh out for us what potential regulatory hurdles there could be that could kill the deal?

Delrahim: "Sure. It'll go through the typical merger review going through the antitrust division of the Justice Department. In the United States, one of the interesting parts of it is that there is a law, and the agency — if they find that it somehow is harmful to competition and that the exact legal standard is 'it substantially lessens competition' – then they will bring a lawsuit. They would have to go to court before an independent federal judge and prove their case, and the burden's with the Justice Department. Unlike other areas, or a deal that requires FCC review, this would be not so much up to an administration – an administration can oppose it — however a judge would also have to agree with them. There's very defined legal and econometric standards for these. For example, when I was at the Justice Department, the division brought a lawsuit against Oracle's acquisition of Peoplesoft. The DOJ thought that that was harmful to competition, they sued, went before a court, and a court disagreed with the DOJ, saying it didn't meet its burden, and the merger went through. There certainly is a lot of power within the administration, however, it's not the ultimate power."

Question: Are comparisons between this deal and the Comcast-NBC Universal deal fair?

Delrahim: "I have seen some of the comments and some of them are misplaced in that you have a broadcaster and a cable company coming together or you have two competitors like AT&T and T-Mobile trying to merge. Comcast-Universal with the NBC transition: The part that is different – certainly there are similarities in that you're buying a content producer and the various media assets that NBC Universal had – however, NBC was a broadcaster, which is a form of distribution, which was being bought by Comcast, which was a cable operator trying to buy media. Here, because Time Warner — and some of the confusion may be the fact that Time Warner doesn't own any cable operations anymore, they sold those off and so you're just dealing with pure content. That's not to say that there aren't going to be some concerns and antitrust issues of you know, one distributor owning various content and it might somehow impact other distributors, but it doesn't raise the same challenges as some of those other transitions have brought. Like DirectTV-Dish at one point attempted to merge and those two competitors would have raised a whole different set of issues than this would. From a technical standpoint, I think these folks would have an easier route toward approval than a merger of two competitors."

— CNBC's Tom Franck contributed reporting.

— Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.