AT&T merger and digital innovation

Agood way to guarantee you’ll be wrong about something is to predict the future of technology. Experts can hazard guesses about artificial intelligence, driverless cars or the death of cable television, but technological innovation and societal change aren’t orderly. They disregard expectations. They’re dynamic. No one knows how trends will play out.

So how was it that the U.S. Department of Justice was certain AT&T’s $85 billion deal to acquire Time Warner would “greatly harm” consumers — even as the digital communications and entertainment industries are being blown apart and reinvented? No one could have anticipated the iPhone, Facebook or Netflix. It would make more sense to give innovative companies room to compete and then let customers decide how to spend their time and where to spend their money.

That philosophy of encouraging — not stifling — competition and innovation is the big takeaway from a federal court decision Tuesday that ruled AT&T can move ahead with its purchase of Time Warner. The Trump administration’s Justice Department sued to block or impose major conditions on the merger, which would bring together a content distributor (AT&T is a wireless, broadband and satellite TV provider) and a content creator (Time Warner owns HBO, CNN and a movie studio).

U.S. District Judge Richard Leon wisely slapped down the government’s arguments predicting customers would have to pay more for the combined company’s services. Now the merger can proceed — and likely so too can other potential deals.

The AT&T case can be boiled down to “vertical integration,” a strategy of one company, AT&T, controlling multiple stages of a supply chain: both the creation and distribution of content. Generally regulators worry more about horizontal mergers in which one company buys up a direct competitor because of a monopoly risk. But Leon said the government hadn’t proved AT&T would punish consumers with higher prices or competitors by, say, withholding Time Warner’s CNN from other cable companies. Both ring true because if AT&T overcharges you, there are competing cable and wireless companies that want your business, and it would make no sense for AT&T to keep CNN to itself because the network is more valuable if it’s broadly accessible.

The crucial point is that the digital world continues to grow and evolve. Facebook and Google rose to dominate digital advertising. Netflix is now one of the most important Hollywood entertainment studios.

The reason AT&T wants Time Warner is so it can compete against tech companies and expand its customer base: Imagine the next big entertainment innovation: virtual reality shows starring … robots? AT&T is more likely to get there first by controlling a movie studio.

It’s all exciting unknowable stuff, which the Justice Department shouldn’t be trying to anticipate and regulate. This is the reason we supported the Federal Communications Commission’s move to do away with net neutrality, the federal government’s regulatory controls on internet providers: Because increased competition is a greater spur to technological innovation than government fiat.

Regulators have a role to play in ensuring an open and fair marketplace. But they shouldn’t be in the business of picking winners, losers or the next big thing in tech.