Brazil’s antitrust watchdog refuses to approve tie-up citing competition concerns.

Brazil’s antitrust watchdog on Tuesday revealed that it is unable to approve AT&T’s planned acquisition of Time Warner due to concerns it would damage competition in the country’s pay TV market and referred the case to a tribunal.

"The new company would have the capacity and incentive to discriminate in various ways against its competitors in both [the pay TV and content] markets, which could weaken the competitive environment," the Conselho Administrativo de Defesa Econômica (CADE) ruled.

The watchdog’s concerns stem from AT&T’s ownership of Sky Brasil and the fact that the Time Warner acquisition would also give it control of a sizeable portfolio of powerful media and content assets, including HBO and Warner Bros.

"Both Sky and Time Warner have significant market power," CADE said.

Brazil’s telecom regulator Anatel called on CADE to impose remedies on the proposed deal in June. Having analysed the situation, the watchdog’s superintendent general handed the decision over to a CADE tribunal, which has the power to approve or deny the merger. It could also impose remedies on the deal designed to address competition concerns, CADE explained.

AT&T announced its US$85.4 billion acquisition of Time Warner in October 2016 and is in the process of working through various regulatory and approvals processes with the aim of closing the deal by the end of this year.

AT&T acquired Sky Brasil when it bought DirecTV two years ago. There has been much talk of it divesting the company since then, fuelled by comments made in late 2015 by the U.S. operator’s CEO Randall Stephenson, who made it clear that he was not keen to hold to Sky or other LatAm properties, but equally was not in a hurry to sell due to the economic climate in the region.

Telefonica and Brazilian player Oi have both been linked with the asset.

Thus, it seems unlikely that CADE’s decision – and any remedies it imposes on the Time Warner deal – will trouble AT&T too much.

Furthermore, it appears that AT&T is keen to pay down debt before it takes on the additional burden of the Time Warner spend. The $1 billion it could reportedly gain from the sale of its Digital Life business might be a drop in the ocean of its $143.7 billion debt pile, but the income from a sale of Sky Brasil would make a more noticeable dent.