The AT&T-Time Warner Merger: What Are The Pros And Cons For Consumers?

Oct 25, 2016
Originally published on October 25, 2016 12:03 pm

Telecom giant AT&T has reached an $85.4 billion deal to buy media titan Time Warner. The news of this transformational merger has shaken up both industries, raising eyebrows on Wall Street and drawing criticism from lawmakers and even the presidential campaigns.

The deal is expected to face stringent scrutiny from regulators: the Department of Justice, which considers antitrust laws, and potentially also the Federal Communications Commission, which broadly weighs whether deals are in the public interest. (The FCC's involvement depends on whether the deal ends up involving broadcast licenses.)

The companies underscore that their deal would combine two entities that don't directly compete in a so-called vertical merger. AT&T is the second-largest wireless carrier, one of the top broadband providers and — thanks to its recent purchase of DirecTV — also a major pay-TV provider. Time Warner (not to be confused with Time Warner Cable, which was recently bought by Charter Communications) is a massive media and entertainment conglomerate, owner of CNN, HBO, Warner Bros. studio and other assets.

A merger of two noncompeting companies — a content distributor and a content supplier — may not face a public interest test, says New Street Research analyst Vivek Stalam. "So you don't necessarily need to prove that it's absolutely good for the public interest, you just have to prove that it's not bad."

But that's the top question on many consumers' minds: What does this merger mean for me? Below are some of the proposed deal's pros and cons.

PROS

The promise of new kind of content

AT&T forecasts a new phase of video innovation — and argues that this deal will unleash it.

CEO Randall Stephenson says the company's customers are demanding "more and more premium content" for their mobile devices — and they want it created, formatted and curated in a way specifically set up for mobility. "As we begin to work with content creators to develop content for this world of mobility, it's proving to be very difficult to get to a world of content that's really curated and formulated for the mobile experience," Stephenson tells NPR's David Folkenflik.

The idea is that having one of the biggest content creators on your side would overcome hurdles in contract and rights negotiations, resulting in more experimentation with mobile video — or "interactive programming" touted by AT&T's general counsel in a recent blog post — or whatever comes next.

Potential competitor to cable

AT&T also argues that one day, when the mobile networks reach super-fast 5G, the carrier's nationwide reach combined with Time Warner's success in content creation would offer an alternative to existing choices in cable and pay TV.

"You'd have more packages. If you want a package of more channels, fewer channels, you want it mobile, you want it in your house across all your screens," Time Warner CEO Jeff Bewkes told CNBC.

He also argued that this kind of arrangement would draw in advertisers that would (1) cover some of the costs of programming to lower prices for consumers, (2) use AT&T's data on its subscribers to better target them with more relevant offers. The latter is AT&T's hope to compete with Google and Facebook, which dominate digital advertising.

NEUTRAL

"It's not immediately obvious how (the merger) could potentially hurt consumers versus the current environment," New Street's Stalam says. "There are no clear harms from this deal."

And that's a major argument of the companies. "There's no telecom consolidation, not one bit. There is not one bit of media consolidation," Stephenson tells NPR's Folkenflik. "This is a vertical merger; it is not a horizontal merger. This has no effect on competition."

CONS

Potential risk of exclusivity or self-dealing

Stephenson tells The New York Times that it wouldn't make business sense for AT&T to restrict the distribution of Time Warner's content, but naturally, that is one of the key issues the regulators are likely to tackle.

The companies' competitors and consumer interest groups are worried that AT&T would use Time Warner's programming as a bargaining chip. "DirecTV, for instance, might favor Time Warner content, crowding out or refusing to carry alternative and independent programming that viewers might prefer," advocacy group Public Knowledge has argued, also positing that AT&T might try to toy with prices to drive customers to its platforms or exclude Time Warner content from data caps on its broadband networks.

A related matter is the question of consumer privacy, with advocates raising questions about AT&T's plans to safeguard consumer data as it pushes to track users across even more screens and platforms.

Consolidation and risk of higher prices

This is the antithesis to the idea that the colossal merger would create a competitor to cable and digital advertising giants, potentially lowering prices.

Historically, consolidation does not tend to lower costs for consumers, partially because that's not something regulators typically can prescribe as they place conditions on deals.

"The sorry history of megamergers shows they run roughshod over the public interest," says former FCC commissioner and now consumer interest advocate Michael Copps. "Further entrenching monopoly harms innovation and drives up prices for consumers."

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