The Justice Department's Challenge of the AT&T-Time Warner Merger

Speaker 1:                           Welcome to the Federalist Society Practice Group podcast. The following podcast, hosted by the Federalist Society Telecommunications and Electronic Media Practice Group, was recorded on Monday during a live telephone conference call, held exclusively for Federalist Society members.

Wesley Hodges:                Welcome to the Federalist Society's teleforum conference call. This afternoon's topic is a review of the Justice Department's suit against the AT&T Time Warner merger. My name is Wesley Hodges, and I'm the associate director of practice groups at the Federalist Society. As always, please note that all expressions of opinion are those of the expert on today's call. Today, we are fortunate to have with us Jim Tierney, who's a partner at the Orrick Law Firm. After our speaker gives his remarks, we will open for an audience Q&A, so during the call, please keep in mind what questions you might have. We'll have plenty of time to address them. Thank you for speaking with us today, Jim. The floor is yours.

James Tierney:                  First, thanks to the Federalist Society for inviting me to participate in this teleforum, and particular thanks to you, Wesley, for handling all the logistics for this phone conversation today. Just a little more by way of background, I was at the DOJ for 25 years doing merger enforcement and participated in several merger trials, so I have some perspective on what the parties are going through, and perhaps some of the arguments they'll be making at this trial. So with that, Judge Leon and a preliminary motion on this case made a statement, "While a rare breed of horse, this case is not exactly a unicorn."

                                                So I don't really know about that. This rare horse hasn't been spotted in the wild in more than 40 years, and most antitrust lawyers and economists had probably thought it had gone extinct. The reason this breed of horse hasn't been seen in 40 years is because I think most economists and most antitrust lawyers believe that vertical deals are pro-competitive. In fact, there's a sort of unwritten presumption that vertical deals are pro-competitive, because they generate significant consumer benefits, and anti-competitive harm is often speculative.

                                                And in the occasional case where the DOJ or the FTC can identify consumer harm, that harm is typically addressed through conduct remedies that allow the deal to go forward. So by this action, the DOJ has brought the litigated vertical merger case back from the brink of extinction. And we'll have to see if this breed of horse will go extinct or not. We'll have to see if the DOJ can show consumer harm, in which case, it may be a rare horse. But if it can't show consumer harm, or that harm turns out to be nothing more than a myth, then perhaps this case very well might be a unicorn.

                                                So the deal itself, the deal was announced in October, 2016. AT&T agreed to acquire Time Warner for $108 billion. On November 20th, the DOJ filed suit to block the acquisition. Trial started today. We expect the first day or two will focus mostly on procedural issues and dealing with confidential documents and how they'll be handled at trial. The trial's expected to last about six to eight weeks. We can expect a decision on this case on or before June 21st. The party's merger agreement expires on June 21st, and if the deal does not close by that date, AT&T has agreed to pay a break fee of $500 million. So the court, to accommodate the parties, has set trial with enough time to issue a decision well before June 21st.

                                                So mark your calendars if you're anxious to see what the opinion looks like. So the DOJ's decision, it was a highly unusual decision. As I said, this is a purely vertical transaction, which means that the two companies, AT&T and Time Warner, don't compete head to head. It's a combination of complementary assets. AT&T's video distribution and Time Warner's content. And in particular, Time Warner has a lot of content, both film and television programming. But the complaint really focuses on Time Warner's live program programming. In particular, CNN and sports, and also HBO. And of course, you're combining those assets with AT&T's distribution network, including Direct TV and U-verse.

                                                In addition, this case was unusual because, as I mentioned in the opening, vertical mergers are generally presumed to be pro-competitive, although this presumption can be overcome with evidence that the deal will harm consumers. But even if consumers could be harmed by a transaction, they're typically cleared with behavioral remedies, or conduct remedies, an agreement between the government and the merging parties that they'll behave in a certain way, they'll behave in a way that will not harm competition. But the deal, nonetheless, can go forward. So typically, that's how these types of mergers are ultimately resolved.

                                                And in fact, as AT&T has pointed out, this is exactly what the DOJ did in 2011 when it reviewed and ultimately cleared the acquisition of NBC Universal by Comcast. That deal, like this one, combined a cable provider with a producer of television and film content. The DOJ challenged that suit and alleged that post-merger, Comcast could cut off access or raise the price of competitors, and those allegations are pretty similar, if not identical, to the claims the DOJ is making in AT&T Time Warner. But I think those decisions left many observers to predict that DOJ would resolve any competitive concerns with AT&T with similar kind of behavioral remedies.

                                                But that didn't happen, which is why we're all gathered here today. So first I'll talk a little bit about how we arrived at the point we are today, and then, I'll talk a little bit about the issues that'll be contested at trial. So how did we get here? You've all seen the press reports that there were settlement discussions between AT&T and Time Warner. During those discussions, Time Warner was pushing for behavioral relief, or behavioral remedies. The DOJ was unwilling to accept those remedies, and they countered by insisting on structural relief. And by structural relief I mean they were seeking divestitures. And it appears the DOJ was willing to give the parties a choice.

                                                If they wanted their deal to go forward, they could either divest the Time Warner content, or they could divest Direct TV. That offer didn't do much for AT&T. Probably, and almost certainly because they felt that to divest either of those sets of assets would destroy the value of the transaction. So that left AT&T in the position where they either had to abandon their transaction, or take their chances in court. And so how did they end up in court? So there's two theories that are floating out there as to how this transaction ended up in litigation rather than getting resolved through a behavioral consent decree.

                                                The first theory is the theory that the media likes, and that is the litigation was motivated by President Trump's personal vendetta against CNN, and that President Trump directed the antitrust division to challenge this transaction. And there are a few dots out there that could be connected to support this theory. Trump, during the campaign, said he felt the deal should be blocked. And since the campaign, he's made repeated attacks on CNN. And then, when you look at Makan Delrahim, the Assistant Attorney General for antitrust, when the deal was announced, he also made public statements that he thought the deal was likely to be cleared and likely didn't present significant competitive concerns. And of course, Makan was at the White House before joining the Department of Justice.

                                                So whole Makan was probably certainly aware of President Trump's views on the merger, and perhaps politics may have played some small role in his decision to challenge this transaction, we will not learn much about this theory during the trial. That's because AT&T attempted to take discovery of the Department of Justice. They alleged that the DOJ engaged in improper selective enforcement in bringing a suit against AT&T to block the deal. They sought discovery of documents, or at least a privilege log, from the government. They named Makan as a witness on their witness list. That matter was presented to the court, and the judge denied AT&T's motion to take that discovery.

                                                I think one reason the judge did that was the only evidence of selective enforcement was the Comcast NBC-U deal where the government settled the lawsuit by consent decree, whereas in a similar deal, the AT&T deal, it chose to litigate. The court found that was well within the government's discretion, and found no evidence of selective enforcement. So I guess for those of us who were looking forward to a little fireworks at trial, we won't be seeing the assistant attorney general testify. So given that we ended up in litigation, something of you out there might be saying, "Well, wait a minute. Hold on here. We elected a conservative president. He appointed a conservative Assistant Attorney General, and the first action he takes within a week or two of assuming his position at DOJ is to challenge a vertical merger for the first time in 40 years. I mean even Presidents Obama and Clinton didn't do that, so what's going on?"

                                                There is an alternative theory as to why DOJ brought this action. And it could be that DOJ had legitimate antitrust concerns that they felt could not be addressed adequately through behavioral remedies. And there is some support for that. People who feel that the DOJ always approves vertical deals with behavioral remedies, that's a misreading of recent history. The Comcast, NBC-U deal from a few years ago was abandoned. That was a vertical deal. The Lam KLA Tencor in the semiconductor field, another vertical deal, was also abandoned. And in both cases it was because the parties were unable to agree on an appropriate remedy.

                                                And Makan Delrahim has said that he is going to take a stricter view on behavioral remedies. He doesn't believe such remedies are consistent with competition. In his view, they're overly regulatory, and the government shouldn't be endorsing overly regulatory consent decrees. And I also think part of what was driving the decision is the government has entered into these types of decrees, and there is a view out there that these types of complex remedies are difficult to enforce and often fail. There's been much criticism of Comcast NBC-U. There's been much criticism of Ticketmaster LiveNation, another vertical transaction that was cleared by consent decree, and perhaps these experiences made DOJ more reluctant to accept a vertical fix in these circumstances.

                                                So I do think the DOJ found itself in a difficult position. It didn't see a viable fix. Maybe it thought there was harm and it really had no place to go other than to court. But then you're going to say, "Well whoa, hold on, that doesn't make much sense. I still don't understand why this isn't an example of government overreach. You have a pro-competitive deal and they're suing to block it." That's a more difficult question to answer. All I can say is I think the DOJ felt there was, again, competitive harm that couldn't be addressed through behavioral remedies and I think they probably perfectly well understand the risk they are taking in bringing this case to trial, because proving a vertical case is by no means an easy task.

                                                So let's see how they're going to do a trial here. So the DOJ in a vertical case has given up a significant advantage they have in challenging horizontal mergers. In a horizontal merger, there is a legal presumption that if you can prove the merged parties have greater than 30% share in a properly defined market, there's a presumption that that merger is anti-competitive, which shifts the burden to the defendants to come forward with evidence that offsets that harm. For example, they can argue entry is easy. Or they can argue there are efficiencies that should be considered. And only if they come forward with affirmative evidence does the burden shift back to the DOJ to show on balance ... To show actual evidence of harm.

                                                In a vertical case, the government's not going to get that presumption. So they are going to have to come forward and prove affirmatively, not only the structure of the market, but affirmative evidence that the merger will harm competition, it will harm consumers. So in your typical merger case, usually the big contested issue is relevant product market. In a horizontal merger case, if you can prove relevant product market, and you can show the parties have over 30% share, that's typically game over. You get the presumption of harm and courts I don't think have ever upheld a merger that was presumptively unlawful because the parties came forward with some kind of efficiency defense.

                                                So here, the government is alleging the market is multi-channel video programming distribution. The companies that operate in that market are like cable companies, Comcast Cox, satellite companies like Dish. The market also includes virtual, what they call MCMVPDs. They deliver the exact same programming, but over the internet, something like a Sling or Direct TV now. So that's the market the government's alleging harm in. They're excluding subscription video on demand provider, company like Netflix, Hulu, Amazon Prime, aren't in that market.

                                                So turning to the two theories of harm the government's alleging, one is pretty straight forward, one's kind of complicated. So you'll have to bear with me a little bit, but the government believes this merger will harm consumers in two ways. One is input foreclosure and raising rival's costs. Those are the technical terms they used, but what this typically means is an input foreclosure case typically involves the acquiring firm purchasing a unique input that the acquiring firm's downstream competitors also need to compete. So here, AT&T is a distributor of content, they're acquiring Time Warner content that AT&T's downstream competitors, a Cox, a Comcast, also need to compete.

                                                So the question for the court will be whether Time Warner, as a standalone business, it had every incentive to license its content to all comers. It's happened to licensed AT&T, Comcast, RCN, Dish. The question is will the merger change AT&T's incentives so that it is unwilling or less willing to license Time Warner content. So the competitive concern is whether the merged firm will have the ability and incentive to raise the price of Time Warner content to downstream rivals. And they also have to show that some portion of that price increase will be passed on to consumers. So how is AT&T going to do this?

                                                The government's theory is a bargaining leverage theory. For you fans of A Beautiful Mind, this is the Nash Bargaining Theory. The DOJ is arguing that the merger will increase AT&T's bargaining leverage, and that increase in leverage will enable it to charge more for Time Warner content than Time Warner could have charged pre-merger. Now, this theory, it's recognized in economics. Nash won a Nobel Prize for it. It has only been applied a handful of times in antitrust merger cases, and both those cases involved hospital mergers. So I think, I'm not positive, but I think this is the first time the DOJ has filed a litigated case pleading a bargaining leverage theory of harm.

                                                So to give you a sense as to how this plays out, you have to look at the pre-merger world. In the pre-merger world, a distributor and a content provider will enter into negotiations. When they enter into those negotiations, each party has a price target in mind, but they also negotiate against the alternative of no deal at all. And in such negotiations, the parties will usually find a way to split the difference as opposed to walking away and having no deal at all. With no deal at all, the content owner gets no licensing fees. With no deal at all, the distributor has no content to distribute. So in the pre-merger world, that's how the DOJ sees the pre-merger world.

                                                So what changes? How does this merger change that world? The DOJ is arguing that AT&T will have a greater incentive to negotiate to no deal at all, that post-merger, AT&T will be willing to walk away from a deal because it knows that if a competitor does not have access to Time Warner content, some of those competitor's customers will switch to AT&T to gain access to Time Warner's content. And what gives AT&T ... It's a math problem for AT&T. Yes, they will give up licensing and advertising revenues, if for example, they don't license Time Warner content to say Cox. However, they can more than make up that difference by gaining new subscribers by recapturing subscribers who are on Cox and say, "Well, if I don't have access to Time Warner, like March Madness is on, Time Warner's got that. If I don't have access to that, I'm switching to a company that does have ... That can provide access to that programming."

                                                So the calculation is yes, AT&T post-merger gives up licensing and advertising revenue, but they can more than make up for that loss through added subscribers who switch, who are recaptured. And the last piece of the theory is AT&T's competitors understand this change in negotiating dynamic. And because they understand there's been a change, they will agree to pay a higher price for Time Warner content than they would have paid pre-merger. So hope you're able to hang with me on that. I know it's a bit ... It's a complicated theory, but again, so that's ... In any event, that's the DOJ's theory.

                                                Now, they've hung some numbers off this theory. They've hired a economist, Carl Shapiro, who's among the best economist who have run the numbers. And according to the DOJ's expert, this increase in bargaining leverage will cost between $23 to $36 million a month in increased costs, or $271 to $436 million per year. And those are the increased costs that will be passed along to end consumers. So according to the government, all us end consumers will, over the course of a year, pay anywhere from $300 million to $400 million a year in addition, in added costs, because of this merger.

                                                So that's the government's story. As you might imagine, AT&T is not impressed with that story. They don't buy it. So they have a number of counter arguments. First, AT&T is going to argue that its incentives haven't changed between pre-merger and post-merger. If AT&T withholds content, it will suffer massive losses in licensing and ad revenues, and losses that it can't be assured it will even come close to recovering by recapturing customers who switch from a competitor to AT&T. This is true pre-merger, this is equally true post-merger.

                                                The second line of attack is AT&T will argue that DOJ's economic models are flawed in several respects. I won't bore you with those details. And they will argue that the models created by DOJ to model the cost increases don't reflect actual negotiating dynamics. The other argument, perhaps you've seen this in the papers, is even if you assume the DOJ's model is just fine, that the inputs it's putting in there are correct, then what the DOJ is actually alleging is a price increase of only 4% per customer, or only 45 cent price increase per subscriber per month. And they argue that first of all, that price increase won't happen, and even if it does, that's not a substantial enough price increase to justify blocking the merger.

                                                Their final argument, and probably the more interesting argument on this point is that the DOJ has not taken into account AT&T's proposed fix to the deal. So here's what AT&T has proposed. If a distributor is unable to reach an agreement with AT&T on terms for Time Warner content, then the dispute will be submitted to a baseball-style arbitration. For those of you who don't follow baseball arbitrations, that's where both sides submit their best offer and then an arbitrator selects the offer that is most appropriate or most approximates the fair market value of the baseball player, or in this case, the Time Warner content.

                                                In addition, during the arbitration process, they'll be no blackout. So in other words, the AT&T competitor, say it's Comcast, will have access to Time Warner content, they won't be blacked out, while the arbitration proceeding is going forward. The final element is this proposal is good for seven years. So AT&T argues that with this process in place, there can be zero harm to consumers because with a procedure like this in place, AT&T cannot have any leverage in bargaining, because they've given up their leverage. Their leverage is going a black out. If AT&T agrees they won't blackout their competitor, they've given up all their leverage.

                                                This is an interesting point because this is what is called litigating the fix. So the DOJ filed a motion to exclude testimony about this proposed baseball-style arbitration remedy to the merger. And what the DOJ wanted was for the court first to find whether or not the merger was anti-competitive. If it was anti-competitive, then DOJ proposed the parties to go forward and have a hearing to determine the appropriate remedy to address the harm. The court rejected that and said it would consider the fix during this phase of the trial, which frankly makes perfect sense to me.

                                                So if the court does conclude that the merger will raise rival's costs, it will have this harm to consumers, it will next consider whether the proposed fix is adequate to address that competitive harm. So you expect to see a lot of talk about this fix, and see whether this harm is addressed. Now, the DOJ's position on this fix I think is something along the lines of there are procedural problems with it, its unworkable in several respects, but at a higher level, at a policy level, the DOJ is taking the position that even for vertical mergers, if the government shows competitive harm, the only appropriate remedy is structural relief. In other words, divestitures.

                                                The government will likely argue that this type of fix is fake competition. An arbitrator, who will be deciding what's the appropriate price for Time Warner content, an arbitrator simply can't replace the operation of a competitive marketplace, and a competitive marketplace should be setting price, not an arbitrator. So we'll have to see how that plays out. A key factual issue on this first theory, this input foreclosure theory, and something to watch for because sometimes litigation can make parties take strange positions, and I think this is one of those cases.

                                                So the government is arguing that Time Warner has must-have content, content that you have to carry. You can't be a content distributor without some of the programming that Time Warner has. So as I mentioned, we're all watching March Madness, that's Time Warner property, query whether if you're a Comcast or a Dish, would you lose subscribers if you couldn't offer your customers programming like March Madness. So what's interesting here is AT&T is taking the position, kind of ironically, that, "Eh, our content, not that great. It's not that important." In an overall content market, they say, "We have a six percent share. Of the 500 top sports programs, we only have six in the top 500. Time Warner content, not so special."

                                                So it's kind of interesting that for purposes of litigation, they've adopted an argument that their content may not be all that special. So I mentioned there were two theories the government's pursuing. The second theory is a coordination theory. This is a separate and independent theory of harm. Perhaps it's a hedge for the DOJ if they lose on their rising rivals cost theory of harm. So the story goes something like this. The merger will facilitate coordination among AT&T Time Warner and Comcast. And that's because they are the only major vertically integrated distributors.

                                                So the way this could theoretically work, the DOJ has to put forward some type of coordination that could occur between AT&T and Comcast. And the one they're offering up is that AT&T and Comcast, unlike their other competitors who aren't vertically integrated, they have a shared interest to protect their traditional MVPD business from increasing competition from virtual MVPDs. So this works without an actual agreement between AT&T and Comcast. It just requires them to sort of mutually recognize they have this common interest and act on it. And if AT&T and Comcast both act on this mutual interest, what they will do is they will deny virtual MVPDs access to both Time Warner and NBC content.

                                                The theory being if they were to do that, things like Sling and other virtual competitors would be killed off. And the incentives are sort of the same as we talked about before, "Well why in the world would AT&T do that? That doesn't make any sense." You want to distribute your content as widely as possible. The argument would be the lost revenues in licensing your programming and in advertising, those are more than offset by stanching the loss of subscribers to virtual competitors. So that's their story.

                                                AT&T's story is sort of similar to what we talked about before. They have no incentive to do that. If they did that, they would lose far more than they ever gained. It's a strategy that doesn't make sense. And they point out that the market is changing significantly. Millennials are demanding this content, and they're moving to virtual MVPDs and AT&T can't ignore that trend. So the theory makes no sense. Another big issue, or the last big issue I'll talk about is efficiencies. AT&T has a very compelling efficiency story for this merger. So even if DOJ can establish there might be some risk that AT&T can raise its rival's costs, that there is some risk that Comcast and AT&T could coordinate post-merger, even if they can demonstrate that, AT&T is going to put forward an efficiencies or a synergy story and argue that these benefits swamp any likely competitive harm.

                                                AT&T has a number of efficiencies, I'll highlight a few. One argument is that AT&T has a lot of consumer data. Time Warner doesn't have consumer data, but they've got to compete against something like a Netflix and an Amazon and a Google who have not only content, but lots of consumer data. This merger will combine AT&T's consumer data with Time Warner content, and the merged company will be better able to compete in a broader advertising market, competing against the likes of Google and Facebook. Another benefit they tout is combining AT&T's wireless platform with Time Warner's content. A lot of viewing is moving to mobile devices, and this will position AT&T for that move.

                                                And then, they also argue that the merger will create synergies, annual savings of over 2 billion per year, and that should all offset any potential competitive harm. So at a very high ... I'll stop talking now, but at a very high level, that's how this case ended up in court. As you see this play out, those are the two, the three major themes you're going to see play out through the experts, the documents, the market participants who testify, talking about will this raise rival's costs? Will those costs be passed on consumers? Is there a risk of coordination and what about all these efficiencies that this merger will bring? Shouldn't that offset any potential harm? So Wesley, with that, I'll turn the floor over to you and anyone on the line who has questions.

Wesley Hodges:                Thank you, Jim, for the very thorough analysis. Let's go ahead and open to audience questions. In a moment, you'll hear a prompt indicating that the floor mode has been turned on. After that, to request the floor, and give your question, just enter the star key and then the pound key on your telephone. When we get to your request, you will hear a prompt, and then you may ask your question. We'll answer all questions in the order in which they are received. Again, if you'd like to ask a question, just enter the star key, and then the pound key, on your telephone. Jim, I see that there's one question in the queue right now, and we have plenty of time for more. Audience, if you have any questions. Are you okay moving to the first caller?

James Tierney:                  Fire away.

Wesley Hodges:                Okay, here we go.

Speaker 4:                           Hi my question is about the pricing issue, the fact that AT&T has described it as really a 45 cent per month increase. How much do you think the DOJ's going to have to rely on their argument that beyond price, there's innovation or quality or choice issues here?

James Tierney:                  I think they'll rely on that pretty heavily. It's a difficult question whether 45 cents per subscriber per month is substantial, because for each one of us individually, it doesn't amount to anything or much. In fact, we seem to pay price increases for our cable services every day without much complaining. But I do think it is substantial that it does total up to a significant amount of money. But I do think innovation is a big concern to the DOJ. I think you will hear a lot about that. This merger, they will argue will prevent, will reduce AT&T's incentives to innovate. And that'll be an interesting battle, because I think AT&T is ... The reason they're doing this merger is to innovate. So that'll be an interesting dynamic at trial.

Wesley Hodges:                Thank you for your question, caller. The queue is currently open, so if you have a question, just enter the star key and then the pound key. Jim, while we wait for any more questions, just one for you. Perhaps an obvious question, but what would you say are the implications for future merger enforcement, depending on what way this case goes?

James Tierney:                  It'll either have a major impact or very little impact. So if the government loses this case, I think it'll have a major impact on enforcement in vertical cases. It wouldn't surprise me if they lose this, they're not going to get good law coming out of this. There are some open questions. For example, on efficiencies, in a horizontal merger, efficiencies have to be merger-specific. You have to show that the efficiencies couldn't be gained but for the merger. So in other words, if you could gain the same efficiencies through a partnership, or through a contract relationship, they are not credited.

                                                The other thing is efficiencies have to be tied to the market where the harm is alleged. In this case, MVPD. There's not a lot of law on efficiencies in vertical mergers, so it's an open question whether in a vertical merger, where you're not eliminating competition, do the efficiencies have to be merger-specific? Or do they have to be specific to the market under investigation? If someone would conclude that this merger may harm consumers for MVPD services, should those be offset if you can demonstrate that the merger will provide benefits in the wireless space, or in an advertising market? It's not clear. So if you could get some challenging law out of this, but if the government loses, I think it's going to be a long time before they bring another one of these.

                                                Even if the government wins, I'm not sure it would signify a significant change in the government's enforcement policy for vertical mergers. You could almost look at ... This case might be a unicorn, or I guess it exists, so maybe not quite a unicorn. But you could almost ... This is kind of a unique case, kind of unique circumstance. In a particular industry that there's a lot of concern out there about competition, so it may not signal a significant change in enforcement policy. I think the change you are going to see though is you're still going to see a reluctance to accept behavioral remedies in a vertical case that are highly regulatory and difficult to administer. But I don't think a win would signal a significant uptick in enforcement against vertical mergers.

Wesley Hodges:                Thank you, Jim. Looks like we do have another audience question. So let's go ahead and move to the next caller.

Speaker 5:                           I'm sorry I missed the first part of this, but it seems to me that whenever you're dealing with communications, the last mile is [crosstalk 00:43:08]

James Tierney:                  Well, maybe this merger will improve all that.

Speaker 5:                           You mean in the last mile? Because I mean, Time Warner is involved in cable isn't it? Don't they have cable services? And AT&T certainly has telephone services, and wireless services. Is that going to reduce the competition between the provider's transmitter or central office and another provider that may overlap in certain geographic areas?

James Tierney:                  Well, the government is only alleging harm in a single market, and that's for MVPD services.

Speaker 5:                           And what is that? MVPD?

James Tierney:                  Multi-video distribution. So distributing things like sports programming, television shows, that sort of thing. Packaged ... It's video programming distributors. It's not ... There's no allegation of harm in any other market.

Speaker 5:                           And in this market, is there ... Do the two providers compete with each other on the ground? Or just [crosstalk 00:44:36]

James Tierney:                  No.

Speaker 5:                           They don't.

James Tierney:                  They don't, no.

Wesley Hodges:                Thank you for your question, caller. The audience queue is currently open, and we do have several minutes left, so if anyone would like to ask question before we end today, just go ahead and enter the star key then the pound key. I just want to look at I guess the schedule for the week. This case is scheduled to begin on Wednesday. It was pushed back for evidentiary reasons. Do you have any comments for that, Jim?

James Tierney:                  No. I mean, I think ... I don't know what's going on. A big problem with these cases is they involve a large volume of confidential information. And usually, a sticking point right before trial in the typical merger case is how to handle that confidential information. You have to have rulings. The judge has to rule whether it is confidential, and then obviously if it is, you can't disclose it in a public hearing. They may be discussing issues like if you have to discuss confidential information, can you do it without revealing the information? Do you have to clear the courtroom of the public to discuss these topics?

                                                And courts have handled it different ways. In the District of Columbia, I think courts are more willing to clear the courtroom for limited amounts of testimony. And I've been involved in other cases where they don't do that. A court might review evidence in chambers, or require the parties to ask questions in such a way you don't reveal the confidential information. But yeah, usually these things are hard to work through, and I'm sure ... And I think they're also arguing over the admissibility of evidence, whether certain documents or certain testimony should come in and whether it should be excluded.

Wesley Hodges:                Thank you. It does look like we have another question, so let's go ahead and turn to our next caller.

Speaker 6:                           Hello. I'm just interested in the process here. Is this a single judge that's making this decision, and then there's an appeal process possibly after that?

James Tierney:                  Yes. So I assume everybody hears the questions as I do. So yes, there's a single judge, Judge Leon will be the only judge hearing this case. He will issue his ruling and if a party is dissatisfied with the outcome, they can appeal to the DC circuit.

Speaker 6:                           Okay. One other quick question. In regards to the issue of the bias from the administration, this is the judge threw out the idea of bringing that into the case. So it seems unlikely that there's any other avenue for AT&T to bring that issue back up.

James Tierney:                  Yes. I think that's correct.

Speaker 6:                           Okay. Very good, thank you.

James Tierney:                  I mean, they may try, but I would think the judge wouldn't have much patience for that.

Speaker 6:                           Got it. Thank you.

Wesley Hodges:                Thank you, caller. The queue is currently open, so if anyone would like to ask perhaps our last question of the day, just please enter the star key then the pound key on your telephone. Seeing no further questions, Jim, do you have any closing remarks for us today?

James Tierney:                  No, not really. I think this is an important case. You don't see many of these. It's going to go on for awhile. I'd encourage people to follow it, and if there are any economists out in the audience, I think the battle of the economists in this case is going to be fascinating, because all the raising rival's costs arguments depend on data in economics. And you've got two of the best economists in the business involved in this case, Carl Shapiro and Dennis Carlton. So that should be a battle of the titans, see how that plays out.

Wesley Hodges:                Thank you, Jim. And I'm sure this case moves forward and we get a decision eventually, we'll have to have another one of these.

James Tierney:                  Be happy to pitch in.

Wesley Hodges:                Thank you. Well, on behalf of the Federalist Society, I'd like to thank you for the benefit of your valuable time and expertise today. We welcome all listener feedback by email at [email protected]. Thank you all for joining us. This call is now adjourned.

Speaker 7:                           Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast, and other Federalist Society multimedia, please visit the Federalist Society's website at FedSoc.org/multimedia.