WASHINGTON (Reuters) – The U.S. Department of Justice will file a lawsuit aimed at blocking AT&T Inc’s $85.4 billion acquisition of Time Warner Inc, a source familiar with the matter told Reuters on Monday.

AT&T, the No. 2 U.S. wireless carrier, struck a deal in October 2016 to buy Time Warner, which owns the premium channel HBO, movie studio Warner Bros and news channel CNN, in order to compete by bundling mobile service with video entertainment.

Shares of Time Warner fell to trade about 1 percent lower on Monday on the back of reports that the U.S. government is set to make an antitrust announcement.

The media company’s stock was trading near the flatline before the news hit. AT&T shares, meanwhile, jumped about 1 percent. Bloomberg first reported the news.

Stephenson

AT&T’s top executive has found himself uncomfortably caught in a political fracas pitting Trump loyalists who want to punish CNN, career staffers that claim they are genuinely concerned about the media concentration that would result from AT&T’s multi-billion dollar acquisition of Time Warner, Inc., and Trump critics rushing to defend whatever they perceive the administration is against.

A frustrated Randall Stephenson, AT&T chairman and CEO, appeared at The New York Times Dealbook Conference in New York Thursday to talk about his astonishment that the company’s merger has become a public political hot potato that theorizes on President Donald Trump’s active dislike of CNN and opponents of the president who suspect the Trump Administration is attempting to punish the news media for its negative coverage of the president.

“I have never been told that the price of getting the deal done was selling CNN, period. And likewise I have never offered to sell CNN,” Stephenson said, refuting rumors that emerged in a Financial Times piece on Wednesday that claimed AT&T would have to dump CNN to get its merger deal approved. “There is absolutely no intention that we would ever sell CNN.”

While repeatedly stressing his conversations with the Department of Justice were strictly confidential, Stephenson was willing to publicly deny that CNN was ever discussed as part of the merger review. Stephenson was not so willing to comment on rumors the DoJ was seeking a divestiture of DirecTV, which AT&T acquired for $48.5 billion in 2014.

Stephenson declared it “makes no sense” to sell CNN or Turner Broadcasting, the Time Warner-owned division that runs TBS, CNN, Headline News, TNT and other cable channels.

“There is a lot of information and data that we think can be used to stand up a new advertising business,” Stephenson said. “Pairing that with the Turner advertising inventory is a really powerful thing, we believe. That is what we aspire to do. Selling CNN makes no sense in that context.”

AT&T CEO Randall Stephenson: ‘I have never been told that the price of getting a deal done was selling CNN’ from CNBC. (2:19)

The political backlash that has since emerged may actually help AT&T’s PR effort to win approval of the deal as Trump critics now rush to defend AT&T as a victim of presidential authoritarianism.

Bloomberg News published an editorial this afternoon calling for the merger to be approved just to stick it to the Trump Administration:

You don’t have to be a fan of the merger to realize that there is something seriously wrong here. As others have noted, the merger appears to be in trouble for a worrisome reason: President Donald Trump hates CNN and wants to inflict some punishment.

That Trump has long opposed the merger is hardly a secret. During his campaign, he said that if AT&T and Time Warner were allowed to combine it would “destroy democracy.” He put out a campaign statement vowing to “break up the new media conglomerate oligopolies” that “are attempting to unduly influence America’s political process.”

As for his antipathy towards CNN, it’s been a running subplot ever since he decided to run for president. He bashed the station all through the campaign and hasn’t let up as president, accusing it of being one of the media outlets that trafficks in “fake news.” A few months ago, he shockingly tweeted an image of a train running over a CNN reporter.

Trump has every right to oppose the deal and to criticize CNN; as they say, it’s a free country. But he doesn’t have the right to bend the Justice Department to his will. Yet that appears to be what is happening. That antitrust expert who said last year that the deal didn’t pose any problems? Makan Delrahim is now the head of the Justice Department’s antitrust division. And wouldn’t you know it: He’s suddenly had a change of heart about the antitrust implications of the deal.

[…] It is appalling that the Justice Department’s antitrust department appears poised to do Trump’s bidding. The good news is that AT&T has vowed to go to court if the government tries to block the merger. So far, the judiciary has been the branch of government that has stood up to the president’s authoritarian impulses. I never thought I would be rooting for two very big companies to combine into one giant company, but I am. If the AT&T-Time Warner merger goes through, it will mean that the rule of law has won. At least for now.

AT&T couldn’t be luckier if the deal becomes a referendum on whether the Trump Administration is opposing the deal as part of a personal political dispute. Suggesting it is “good news” for AT&T to go to court to win its merger may make AT&T feel better, but ordinary consumers and ratepayers are once again forgotten in the debate over media consolidation.

AT&T CEO Randal Stephenson: Sale of CNN never came up with Department of Justice from CNBC. (5:45)

WASHINGTON (Reuters) – U.S. antitrust regulators believe that AT&T Inc’s proposed acquisition of Time Warner Inc would raise costs for rival entertainment distributors and stifle innovation, a Department of Justice official told Reuters on Thursday.

Allaying those concerns is the rationale for the Justice Department’s demand that AT&T sell assets in order for the deal to be approved, said the official, speaking on condition of anonymity.

The Justice Department wants AT&T to sell its DirecTV unit or sell Time Warner’s Turner Broadcasting unit, which includes news company CNN, sources told Reuters on Wednesday.

AT&T has signaled it would not agree to sell DirecTV, which it acquired for $49 billion in 2015, leaving CNN and other cable TV assets as the main sticking point in negotiations between the Justice Department and AT&T.

The antitrust regulator is worried the combined company could make it harder for rivals to deliver content to consumers using new technologies, the official said. AT&T has said it wants to disrupt “entrenched pay TV models.”

The Justice Department’s desire for asset sales has raised concerns about political influence on the $85.4 billion deal, given U.S. President Donald Trump’s frequent criticism of CNN. As a candidate, Trump vowed to block the deal shortly after it was announced in October 2016, but has not addressed the issue publicly as president.

The head of the Justice Department’s antitrust division, Makan Delrahim, said in a statement late on Thursday that he has “never been instructed by the White House” on the AT&T deal.

Raj Shah, a White House spokesman, said in a separate statement that Trump “did not speak with the Attorney General about this matter, and no White House official was authorized speak with the Department of Justice on this matter.”

AT&T chief executive Randall Stephenson defended the merger at a New York City media conference on Thursday, and said he did not want to sell CNN.

The company has opposed divesting assets and has told the government it is willing to fight in court to win approval, sources said on Wednesday.

The deal is opposed by an array of rivals and consumer groups worried that it would give the combined company too much power. Opponents are pushing for conditions that would limit AT&T’s ability to charge media rivals higher prices to carry Time Warner content.

Shares of Time Warner were down slightly in afternoon trading at $88.35. AT&T shares rose 2 percent to $34.09.

Defenders of FCC Chairman Ajit Pai are rushing to defend the Republican majority’s likely support for an initiative to roll back the FCC’s 25/3Mbps speed standard embraced by his predecessor, Thomas Wheeler.

Johnny Kampis, writing for Watchdog.org, claims that broadband speed standard has had an adverse affect on solving America’s rural broadband gap.

After raising that standard, suddenly those areas with speeds below 10 mbps were lumped into the same group with those who could access speeds of 10-25 mbps, resulting in diminished focus on those areas where the broadband gap cut the deepest.

Raising the standard meant, too, that fans of big government could point to the suddenly higher percentage of the population that was “underserved” on internet speeds and call for more taxpayer money to solve that “problem.”

Kampis is relying on the talking points from the broadband industry, which also happens to support the same ideological interests of Watchdog.org’s benefactor, the corporate/foundation-funded Franklin Center for Government & Public Integrity. The argument suggests that if you raise broadband standards, that opens the door to more communities to claim they too are presently underserved, which then would qualify them for government-funded broadband improvements.

Kampis’ piece, like many of those published on Watchdog.org, distorts reality with suggestions that communities with 50Mbps broadband service will now be ripe for government handouts. He depends on an unnamed source from an article written on Townhall.com and also quotes the CEO of Freedom Foundation of Minnesota, which is closely associated with the same Franklin Center that hosts Watchdog.org. Kampis’ piece relies on sourcing that is directly tied to the organization hosting his article.

In reality, rural broadband funding has several mechanisms in place which heavily favor unserved, rural areas, not communities that already have 50Mbps internet access. ISPs also routinely object to projects proposed within their existing service areas, declaring them already served, and much of the funding doled out by the Connect America Fund (CAF) Kampis suggests is a government handout are being given to telephone companies, not municipalities.

Kampis

Kampis is satisfied free market capitalism will eventually solve the rural broadband problem, despite two decades of lackluster or non-existent service in areas deemed unprofitable to serve.

“So while Pai’s critics denigrate him because his FCC is considering lowering that broadband standard, he’s just correcting an earlier mistake, with the realization that the free market, not big government, will solve the rural broadband gap if given enough time,” Kampis writes. “And returning to the old standards will help ensure that the focus will be placed squarely on the areas that need the most help.”

Kampis suggests that free market solution might be 5G wireless broadband, which can potentially serve rural populations less expensively than traditional wired broadband service. Communities only need wait another 5-10 years for that to materialize, if it does at all.

Kampis claims to be an investigative reporter, but he didn’t venture too far beyond regurgitating press releases and talking points from big phone companies and opponents of municipal broadband. If he had spent time reviewing correspondence sent to the FCC in response to the question of easing broadband speed standards, he would have discovered the biggest advocates for that are large phone companies and wireless carriers that stand to benefit the most from the change.

Following the money usually delivers a clearer, more fact-based explanation for what motivates players in the broadband industry. In this case, the 25Mbps speed standard has regularly been attacked by phone and wireless companies hoping to tap into government funds to build out their networks. Traditional phone companies are upset that the 25Mbps requirement means their typical rural broadband solution – DSL, usually won’t cut it. Wireless companies have also had a hard time assuring the FCC of consistent 25Mbps speeds, making it difficult for them to qualify for grants. AT&T wasn’t happy with a 10Mbps standard for wireless service either.

Incidentally, these are the same companies that have failed to solve the rural broadband gap all along. Most will continue not serving rural areas unless the government covers part of their costs. AT&T illustrates that with its own fixed wireless rural broadband solution, which came about grudgingly with the availability of CAF funding.

The dark money ATM network hides corporate contributions funneled into advocacy groups.

The free market broadband solution is rooted in meeting Return On Investment metrics. In short, if a home costs more to serve that a company can recoup in a short amount of time, that home will not be served unless either the homeowner or someone else covers the costs of providing the service. By wiping out the Obama Administration’s FCC speed standard, more ratepayer dollars will be directed to phone and wireless companies that will build less expensive and less-capable DSL and wireless networks instead of investing in more modern technology like fiber optics.

Mr. Kampis, and others, through their advocacy, claim their motive is a reduction in government waste. But in reality, and not by coincidence, their brand of journalism hoodwinks readers into advocating against their best interests of getting fast, future-proofed broadband, and instead hand more money to companies like AT&T. The Franklin Center refuses to reveal its donor list, of course, but SourceWatch reported the Center is heavily dependent on funding from DonorsTrust, which cloaks the identity of its corporate donors. Mother Jones went further and called it “a dark money ATM.”

Companies like AT&T didn’t end up this lucky by accident. It donates to dark money groups that fund various sock puppet and astroturf operations that avoid revealing where the money comes from, while the groups get to claim they are advocating for taxpayers. By no coincidence, these groups frequently don’t attack corporate welfare, especially if the recipient is also a donor.

New York’s rural broadband initiative is on track to deliver near 100% broadband coverage to all New York homes and has speed requirements and a ban on hard data caps.

Raising speed standards does not harm rural broadband expansion. In New York, Gov. Andrew Cuomo’s broadband expansion campaign is on track to reach the remaining 150,000 homes still without broadband access by sometime next year. His program relies on broadband expansion funding that comes with requirements that insist providers offer internet access capable of at least 25Mbps (with a preference for 100Mbps) for $60 or less and a ban on hard usage caps. Kampis claims the 25Mbps speed standard hampers progress, yet New York is the first state in the nation moving towards 100% broadband availability for its residents at that speed or better.

Chairman Pai’s solution is little more than a gift to the country’s largest phone and wireless companies that would like to capture more CAF money for themselves while delivering the least amount of service possible (and keep money out of the hands of municipalities that want to build their own more capable networks). The evidence is quite clear — relying on the same companies that have allowed the rural broadband crisis to continue for more than 20 years is a stupendously bad idea that only sounds brilliant after some corporation writes a large check.

A last-ditch effort last weekend by executives of SoftBank and Deutsche Telekom to overcome their differences in merging Sprint with T-Mobile USA ended in failure, killing Wall Street’s hopes combining the two scrappiest wireless carriers would end a bruising price war that had heated up competition and hurt profits at all four of America’s leading wireless companies.

Now Wall Street, hungry for a consolidation deal, is strategizing what will come next.

Sprint/T-Mobile Merger

In the end, SoftBank’s chairman, Masayoshi Son, simply did not want to give up control of Sprint to Deutsche Telekom, especially considering Sprint’s vast wireless spectrum holdings suitable for future 5G wireless services.

The failure caused Sprint Corp. shares and bonds to plummet, and spooked investors are worried Sprint’s decade-long inability to earn a profit won’t end anytime soon. Sprint’s 2010 Network Vision Plan, which promised better coverage and network performance, also helped to load the company with debt, nearly half of which Sprint has to pay back over the next four years before it becomes due. Sprint’s perpetual upgrades have not tremendously improved its network coverage or performance, and its poor performance ratings have caused many customers to look elsewhere for wireless service.

Investors are also concerned Sprint will struggle to pay its current debts at the same time it faces new ones from investments in next generation 5G wireless technology. Scared shareholders have been comforted this morning by both Son and Sprint CEO Marcelo Claure in an all-out damage control campaign.

Son has promised the now-orphaned Sprint will benefit from an increased stake in the company by SoftBank — a signal to investors SoftBank is tying itself closer to Sprint. Son has also promised additional investments to launch yet another wave of network upgrades for Sprint’s fourth place network. But nothing is expected to change very quickly for customers, who may be in for a rough ride for the immediate future. Son has already said his commitment to raise Sprint’s capital expenditures from the current $3.5-4 billion to $5-6 billion annually will not begin this year. Analysts claim Sprint needs at least $5-6 billion annually to invest in network improvements if it ever hopes to catch up to T-Mobile, AT&T, and Verizon Wireless.

Masayoshi Son, chairman of SoftBank Group

“Even if the next three-four years will be a tough battle, five to 10 years later it will be clear that this is a strategically invaluable business,’’ Son said, lamenting losing control of that business in a deal with T-Mobile was simply impossible. “There was just a line we couldn’t cross, and that’s how we arrived at the conclusion.”

During a call with analysts on Monday, Sprint’s chief financial officer Tarek Robbiati acknowledged investors’ disappointment.

Investors were hoping for an end to deep discounting and perks given to attract new business. T-Mobile’s giveaways and discounting have reduced the company’s profitability. Sprint’s latest promotions, including giving away service for up to a year, were seen by analysts as desperate.

Son’s own vision plan doesn’t dwell on the short-term, mapping out SoftBank’s progress over the next 300 years. But for now, Son is concerned with supporting the investments already made in the $100 billion Vision Fund Son has built with Saudi Arabia’s oil wealth-fueled Public Investment Fund. Its goal is to lead in the field of next generation wireless communications networks. Sprint is expected to be a springboard for those investments in the United States, supported by the wireless company’s huge 2.5GHz spectrum holdings, which may be perfect for 5G wireless networks.

But Son’s own failures are also responsible for Sprint’s current plight. Son attempted to cover his losses in Sprint by pursuing a merger with T-Mobile in 2014, but the merger fell apart when it became clear the Obama Administration’s regulators were unlikely to approve the deal. After that deal fell apart, Son has allowed T-Mobile to overtake Sprint’s third place position in the wireless market. While T-Mobile grew from 53 million customers to 70.7 million today, Sprint lost one million customers, dropping to fourth place with around 54 million current customers.

Son’s answer to the new competition was to change top management. Incoming Sprint CEO Marcelo Claure promptly launched a massive cost-cutting program and layoffs, and upgrade-oriented investments in Sprint’s network stagnated, causing speeds and performance to decline.

Claure tweetstormed damage control messages about the merger’s collapse, switching from promoting the merger’s benefits to claims of relief the merger collapsed:

• “Jointly stopping merger talks was right move.”
• “Sprint is a vital part of a larger SoftBank strategy involving the Vision Fund, Arm, OneWeb and other strategic investments.”
• “Excited about Sprint’s future as a standalone. I’m confident this is right decision for our shareholders, customers & employees.”
• “Sprint added over 1 million customers last year – we have gone from losing to winning.”
• “Last quarter we delivered an estimated 22% of industry postpaid phone gross additions, our highest share ever.”
• “Sprint network performance is at best ever levels – 33% improvement in nationwide data speeds year over year.”
• “We are planning significant investments to the Sprint network this year and the years to come.”
• “In the last 3 years we’ve reduced our costs by over $5 billion.”
• “Sprint’s results are the best we’ve achieved in a decade and we will continue getting better every day.”

In Saturday’s joint announcement, Claure said that “while we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination. However, we have agreed that it is best to move forward on our own. We know we have significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

“They need to spend (more) money on the network,” said William Ho, an analyst at 556 Ventures LLC.

CNBC reports Sprint’s end of its T-Mobile merger deal has hammered the company’s stock. What does Sprint do now? (1:30)

Sprint/Altice Partnership

Sprint executives hurried out word on ‘Damage Control’ Monday that Altice USA would partner with Sprint to resell wireless service under the Altice brand. In return for the partnership, Sprint will be able to use Altice’s fiber network in Cablevision’s service area in New York, New Jersey, and Connecticut for its cell towers and future 5G small cells. The deal closely aligns to Comcast and Charter’s deal with Verizon allowing those cable operators to create their own cellular brands powered by Verizon Wireless’ network.

An analyst at Cowen & Co., suspected the Altice deal may be a trial to test the waters with Sprint before Altice commits to a future merger between the two companies. Altice is hungry for expansion, currently owning Cablevision and Suddenlink cable operators in the U.S. But Altice has a very small footprint in the U.S., leading some analysts to believe a more lucrative merger might be possible elsewhere.

Sprint/Charter Merger

Charter Communications Logo. (PRNewsFoto/Charter Communications, Inc.)

Charter Communications stock was up more than 7% in early Monday morning trading as a result of speculation SoftBank and Charter Communications were restarting merger talks after a deal with T-Mobile collapsed.

CNBC reported that Mr. Son was willing to resume talks with Charter executives about a merger between the cable operator and Sprint. Charter executives have shown little interest in the deal, still distracted trying to merge their acquisitions Time Warner Cable and Bright House Networks into Charter’s current operation. Charter’s entry into wireless has been more tentative, following Comcast with a partnership with Verizon Wireless to resell that considerably stronger network under the Charter brand beginning sometime in 2018.

According to CNBC, John Malone’s Liberty Media, which owns a 27% stake in Charter, is now in favor of a deal, while Charter’s top executives are still opposed.

CNBC reports Charter and Sprint may soon be talking again about a merger between the two. (6:33)

Dish Networks <-> T-Mobile USA

Wall Street’s merger-focused analysts are hungry for a deal now that the Sprint/T-Mobile merger has collapsed. Pivotal Research Group is predicting good things are possible for shareholders of Dish Network, and upgraded the stock to a “buy” recommendation this morning.

Jeff Wlodarczak, Pivotal’s CEO and senior media analyst, theorizes that Sprint’s merger collapse could be good news for Dish, sitting on a large amount of unused wireless spectrum suitable for 5G wireless networks. Those licenses, estimated to be worth $10 billion, are likely to rise in value as wireless companies look for suitable spectrum to deploy next generation 5G networks.

Multichannel News quotes Wlodarczak’s note to investors:

“In our opinion, post the T-Mobile-Sprint deal failure there is a reasonable chance that T-Mobile could make a play for Dish or Dish spectrum as it would immediately vault the most disruptive U.S. wireless player into the leading U.S. spectrum position (w/ substantially more spectrum than underpins Verizon’s “best in class” network),” Wlodarczak wrote. “This possible move could force Verizon to counter-bid for Dish spectrum (or possibly the entire company) as Dish spectrum is ideally suited for Verizon and to keep it out of T-Mobile’s hands.”

AT&T/DirecTV Buyout of Dish Network

Wlodarczak has also advised clients he believes the deregulation-friendly Trump Administration would not block the creation of a satellite TV monopoly, meaning AT&T should consider pairing its DirecTV service with an acquisition of Dish Networks’ satellite TV business, even if it forgoes Dish’s valuable wireless spectrum.

“AT&T, post their Time Warner deal, could (and frankly should) be interested in purchasing Dish’s core DBS business taking advantage of a potentially more laissez faire regulatory climate/emergence of V-MVPD’s, to significantly bolster their DirecTV business (and help to justify the original questionable DirecTV deal) by creating a SatTV monopoly in ~10-15M US households, increased programming scale and massive synergies at a likely very attractive price.”

Such a transaction would likely resemble the regulatory approval granted to merge XM Satellite Radio and Sirius Satellite Radio into SiriusXM Satellite Radio in 2008. Despite the merger, just months after its approval, the combined company neared bankruptcy until it was bailed out with a $530 million loan from John Malone’s Liberty Media in February 2009. Liberty Media maintains an active interest in the satellite radio company to this day.