Consumer Cost Emerges As Key Issue In Grilling Of AT&T-Time Warner Merger

Dec 7, 2016
Originally published on December 7, 2016 4:17 pm

When AT&T, a leading Internet provider, proposed a massive merger with Time Warner, a huge media conglomerate, the question many people asked was: Will I have to pay more for my TV?

On Wednesday, members of the Senate Judiciary Committee quizzed the CEOs of the two companies — over and over posing basically the same question: What will the $85.4 billion merger mean for the prices that consumers may have to pay?

AT&T is the second-largest wireless Internet provider and one of the largest broadband Internet providers. It already owns satellite TV company DirecTV. With the Time Warner deal, AT&T would also own CNN, HBO, Warner Bros. studios and other media assets.

In response to concerns — including from the Republican chairman of the antitrust subcommittee, Sen. Mike Lee of Utah — AT&T CEO Randall Stephenson kept making the promise that the merger would actually result in more choices and lower prices.

"I can and intend to represent to you," Stephenson told Sen. Amy Klobuchar, D-Minn., "that by virtue of innovation with Time Warner and going head-to-head against the cable providers with new products and new capabilities that we will bring the consumer better-priced options than we have today."

The proposed merger is facing a review from the Department of Justice, which will decide whether it violates antitrust law. In this case, AT&T and Time Warner argue their deal is in the clear because it's vertical, meaning the two companies don't directly compete and therefore their union wouldn't eliminate any competitor.

Typically, the Federal Communications Commission would also review such a merger, sizing it up against a much broader standard of whether it's in the public interest. But the FCC's involvement in this merger is unclear — the agency wouldn't have direct oversight power if the deal did not involve FCC licenses issued to Time Warner, and AT&T has yet to reveal whether it will dump such licenses from the transaction.

The trajectory of both regulatory bodies is also in the air as President-elect Donald Trump is shaping a new administration — and that could mean a more influential role for Congress during the leadership shift.

Trump himself did weigh in on the proposed deal during the campaign, saying at a rally that AT&T's merger with Time Warner was "a deal we will not approve in my administration because it's too much concentration of power in the hands of too few."

His team hasn't spoken about the merger since the election and has not yet nominated the new Republican chief to the FCC. And so analysts and observers are not discounting the possibility that a more traditional Republican approach could prevail, paving the way for the merger with conditions.

On conditions, however, the shadow of Comcast's 2011 merger with NBCUniversal continues to loom over AT&T's proposed deal with Time Warner. That vertical merger was approved with numerous conditions, but consumer interest groups have criticized their effectiveness.

AT&T's Stephenson and Time Warner CEO Jeff Bewkes both pushed back against concerns that their merger would also open the door to self-dealing by the two companies, allowing them to shut out or overcharge competing video distributors.

"I can't see a case where that would make any sense at all," Bewkes said. He and Stephenson argued that such decisions wouldn't make for good business and could drive away customers.

Stephenson also pointed to the company's latest offering called DirecTV Now, which is taking on the cable companies by specifically targeting cord-cutters. It offers a lineup of cable TV streamed over the Internet for prices starting at $35 a month for 60 channels.

But Gene Kimmelman, the head of the Public Knowledge consumer advocacy group and a former antitrust lawyer at the Justice Department, argued that business incentives might change after a merger.

"The real fear is whether the combined company, once it looks at its overall interests, will favor itself and potentially harm competitors. So that's where the rub comes on the prices," he told lawmakers. "They might offer a better price and they may offer it for some time, but in the long run will the competitive process be benefited? That's where I think the enforcers will need to look at."

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