It's judgment day for AT&T's merger with Time Warner

A federal judge will decide Tuesday whether AT&T can acquire Time Warner for $85 billion.

Why it matters: Today's court decision will shape the media and telecom landscape, as it will set off chain reactions for other media mergers and will help determine how viewers watch video content for decades to come.

There are a range of possible outcomes. Judge Richard J. Leon could choose one of two straightforward options: clearing the deal or blocking it outright.

But he could also green-light the purchase only if certain conditions are met, regardless of whether he finds that it violates antitrust law.

• Leon could order that arbitration be used to defuse concerns about AT&T using Time Warner's content as leverage to gain an advantage over competitors in the video space, after AT&T already indicated it may be open to using that process.
• That could, in theory, allow programming negotiations to take place without the threat of a "blackout," where a programmer pulls its content from a distributor when they can't reach a deal.
• He could tell the merging companies to sell off key assets, which would be less palatable to AT&T.
• Selling either DirecTV or the Turner networks (or a portion of them), including CNN and TNT, would undermine the central benefits of the deal for AT&T. DOJ requested some divestitures before filing its lawsuit, and AT&T refused.

Between the lines: A win for AT&T would probably make it easier for TV networks to merge with a tech or telecom company — essentially fusing the content delivery systems with the content itself.

• Other deals at stake: If AT&T prevails, it could cause 21st Century Fox to seriously consider Comcast's higher offer over Disney's bid. An AT&T win also bolsters T-Mobile's case to regulators that it should be allowed to buy Sprint.
• Beyond tech and telecom deals: It would signal to all U.S. companies that a vertical merger — combining with a company they don't directly compete with — has a decent shot of getting regulatory approval.

On the other hand: A win for DOJ will raise questions about a slew of outstanding deals, including in media and telecom as well as industries like healthcare, where CVS is trying to buy Aetna, and Cigna wants to acquire ExpressScripts.

The back story: The verdict follows a more than six-week long trial after the government sued to block the mega deal.

• There were rumblings that the DOJ's lawsuit seeking to block industry consolidation — a surprising position for a Republican administration — came in response to political pressure from the White House. President Trump was critical of the merger on the campaign trail because Time Warner owns CNN, whose coverage he dislikes.
• AT&T originally tried to discredit the DOJ's lawsuit by claiming political bias, but leaned more heavily on the argument that it needs to acquire Time Warner to compete with Silicon Valley tech companies, like Google and Facebook, after a judge denied them access to key documents they would have needed to make that charge.

What we're hearing: News coverage and analysts' notes over the past several months have suggested that the DOJ failed to deliver a compelling argument to block the merger. But those headlines could be over-simplifying the logic of the case.

• All the DOJ needs to prove is that the merger may substantially lessen competition. The DOJ claims the merger could increase TV bills by hundreds of millions of dollars a year by 2021, though that balances out to an increase of less than $1 on a customer's monthly bill. It's up to the judge to determine whether that number is enough consumer harm to stop the deal.

What to expect: Leon has called reporters and stakeholders back to the court room to issue an official ruling Tuesday afternoon. This is highly unusual for a district court judge, and could foreshadow a complex ruling.