While past major acquisitions provide some clues for how the federal government would scrutinize the transaction, a big uncertainty is just who would be in the position to say yea or nay to such a deal.
The next president may very well mean new heads of the Department of Justice’s antitrust division and, assuming that the FCC also has oversight over any transaction, a new chairman or chairwoman.
Analysts and antitrust experts on Friday pointed to Comcast’s acquisition of a majority stake in NBCUniversal in 2011 to offer examples of the type of concerns that regulators would have over such a big combination of distribution with content. That deal took more than a year to clear — but it got done with significant conditions.
“It’s going to get close scrutiny,” said Mark Ostrau, chair of the antitrust and unfair competition group and partner at the law firm of Fenwick & West in Mountain View, Calif. “It is going to be very similar to the Comcast/NBC Universal combination, where you have one of the few pipeline providers and a major content provider merging.”
He added, “As they say, this would be deja vu all over again.”
AT&T and Time Warner have the advantage of limited competitive overlap. But Ostrau noted that the regulatory environment has changed a bit in the five years since the Comcast/NBCU transaction was approved.
“The administration is taking an unusually public position with their concerns over consolidation in a couple of key industries, and communications is a big one,” he said. “There is a lot of the political atmosphere that will be brought to bear here as well.”
Comcast’s proposed merger with Time Warner Cable was blocked, even though the companies argued that they were not removing competition in any one market. AT&T’s own proposed merger with T-Mobile was rebuffed. AT&T did win approval last year for its acquisition of DirecTV.
Amy Yong, analyst at Macquarie Capital, said that she thinks that areas where AT&T may have to agree to concessions would center around broadband distribution, over-the-top services and exclusivity of content.
Among the areas that would be likely to invite scrutiny:
Online video market. In recent transactions, government regulators have zeroed in on the impact that media mergers will have on the emerging market for online video — over-the-top ventures and streaming services.
Groups like the Writers Guild of America have been very vocal of the possibility that consolidation will stifle startups at the very moment that content creators are enjoying greater opportunity.
AT&T, since its purchase of DirecTV, has announced the launch of an online service, in what may position it to be a stronger competitor to cable.
But John Bergmayer, senior staff attorney at public interest group Public Knowledge, said that of concern is whether DirecTV would favor Time Warner content by “crowding out or refusing to carry alternative and independent programming that viewers might prefer.”
In its transaction, Comcast/NBCU agreed to a condition that prevents it from demanding licensing terms that would limit an online platform’s access to content.
NBCU also had to relinquish its management rights in Hulu. Time Warner does have a 10% stake in Hulu in August, but it does not have a place on its board of directors.
Time Warner programming. HBO, CNN and Turner networks are the jewels in its content empire, and the DOJ would likely look at the potential for AT&T to impose unreasonable terms on its competitors to carry such channels.
“AT&T might also make it more expensive or difficult for competitors to DirecTV or to its streaming service to access Time Warner programming, hoping to drive customers to its own platforms,” Bergmayer said.
That was a concern with the Comcast/NBCU transaction. In one of their conditions, they agreed to not retaliate against any broadcast network, cable programmer, production studio or content licensee for licensing content to a competing cable, satellite or telephone company or an online video distributor. The FCC also set up an arbitration mechanism to resolve disputes — ostensibly to avoid the years long process of pursuing a complaint.
Net neutrality. The FCC’s net neutrality rules prohibit Internet providers from discriminating against certain types of content — for obvious reasons a big deal in the case of AT&T. It is among the plaintiffs seeking to overturn those rules. It is very possible that the court challenge will have played out by the time a merger is finalized. If not it is not entirely out of the question that the federal government would seek a condition that the company agree to abide by the rules no matter what happens in the courts.
That’s essentially what Comcast did as a condition for its merger with NBCUniversal. It agreed to abide by a previous set of net neutrality rules that were overturned in the courts.
Political environment. AT&T is well versed in the levers of power. It ranks in the top 10 among D.C. lobbying spending so far this year, according to the Center for Responsive Politics. Its longtime chief policy official in Washington, Jim Cicconi, just retired, right after endorsing Hillary Clinton despite a long history of backing Republicans. His successor, Robert Quinn, has generally donated to Democrats.
But there is also a risk of appearing to assume that a merger is all but inevitable. Critics of Comcast’s proposed merger with Time Warner Cable only seem to escalate their attacks on the transaction as Comcast hired on more lobbyists and advertised in the Washington Post and other places. Ultimately, the merger was blocked.
The current FCC chairman, Tom Wheeler, has aggressively taken on industry lobbyists in areas where he believes competition falls short — like the availability of high-speed broadband and the grip that pay-TV providers have on certain areas of the market, like set-top box rentals. Much would depend on who succeeds him.
“AT&T has been down this road before,” Ostrau said. “Some of [their proposed] mergers have worked and some have not.” What that means is that the company understands what “they will have to come through with in assurances and agreements to make this palatable.”