Last week the U.S. Department of Justice challenged the June 12 decision by Judge Richard J. Leon of the U.S. District Court in Washington to allow a merger between AT&T and Time Warner to go through, reports the New York Times. Judge Leon disagreed with the DOJ, who filed suit against the deal in November 2017,  that the merger would give the combined companies a competitive advantage and hurt consumers, approving the $85.4 billion merger. The decision essentially allowed AT&T and Time Warner to become Warner Media, a media and telecommunications behemoth with television stations, a movie studio, a wireless company and DirecTV.

In a 172-page memorandum opinion, Judge Leon said the two parties (DOJ and AT&T) had ‘a dramatically different assessment of the current state of the relevant market and a fundamentally different vision of its future development.’

‘Ultimately, I conclude that the Government has failed to meet its burden to establish that the proposed “transaction is likely to lessen competition substantially,”‘ wrote Judge Leon. ‘As such, based on that conclusion, and for all the reasons set forth in greater detail in this Opinion, the Court DENIES the Government’s request to enjoying the proposed merger.’

The Justice Department hasn’t commented on its appeal yet, but experts say this is a signal that the DOJ will continue to scrutinize such vertical mergers in the future, says the New York Times. In fact, after the AT&T – Time Warner merger was approved, talks were held by other companies in similar deals. Comcast and Disney are battling it out in a bidding war for the entertainment side of 21^st Century Fox.

If the DOJ wins its appeal, AT&T and Time Warner would have to separate. For now, it is business as usual.

AT&T doesn’t seem worried though. General Counsel David McAtee said in a statement, ‘The court’s decision could hardly have been more thorough, fact-based and well-reasoned. While the losing party in litigation always has the right to appeal if it wishes, we are surprised the DOJ has chosen to do so under these circumstances.’

The Verge says the DOJ’s decision to appeal is ‘a bit surprising’ because, in December, the Justice Department approved Disney’s acquisition of 21^st Century Fox, provided that Fox spins off its regional sports networks. After the ruling on this appeal, the losing party – AT&T or the Justice Department – could take the case to the Supreme Court. Either way, it will likely be months before a final decision is made.

Since the merger was approved last month, the new Warner Media has been busy. Earlier this month, Warner Bros. Digital Networks announced the fall launch of DC Universe, a new digital streaming subscription service featuring Superman, Wonder Woman, Batman and other DC Entertainment superheroes. The new OTT service will feature TV shows, live action movies, animated programs, breaking news, an interactive encyclopedia, merchandise, membership rewards and a curated library of modern and classic comics.

Around the same time, AT&T announced the launch of WatchTV, a new streaming service with 30+ live channels including AMC, CNN, Lifetime, TLC, TruTV, TBS and Boomerang. Initially, WatchTV will be available to customers who purchase one of AT&T’s two new unlimited data plans, but it will be available as a standalone subscription for $15 a month. AT&T also announced the increase in DirecTV Now subscriptions of $5 a month.

‘Our merger brings together the elements to fulfill our vision for the future of media and entertainment. We’ll bring a fresh approach to how media and entertainment works for you. This means new offerings that integrate content and connectivity,’ said AT&T in the news release. ‘You’ll see a new level of choice, innovation and value as we deliver a more personalized and immersive entertainment experience-from experimenting with new forms of content to offering new ways to access and view premium content, especially on mobile devices.’

Insider Take:

The Justice Department’s appeal of Judge Leon’s decision has far-reaching implications. If this vertical merger holds, large mergers of complementary companies could get the proverbial green light. If it doesn’t, companies like Comcast and Disney will have to look at their acquisition choices more carefully to see if they’ll be able to scale the requisite regulatory hurdles. Will the DOJ allow future mergers if doing so will create a virtual monopoly of a few major media corporations?