AT&T wants to buy Time Warner in a monster $85 billion deal, but some are concerned the government, particularly under Donald Trump, will move to block it.
“In an example of the power structure I’m fighting, AT&T is buying Time Warner and thus CNN — a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few,” Trump said while campaigning.
AT&T, however, is telling Wall Street not to worry.
At RBC's recent Technology, Internet, Media and Telecommunications (TIMT) Conference in New York, AT&T management suggested there wouldn't be any trouble with the merger.
The FCC question
One big reason AT&T is smiling is because the company believes the merger won't be under the jurisdiction of the FCC.
"The only scenario in which the FCC would have jurisdiction is if Time Warner transfers certain broadcast licenses to AT&T," RBC analyst Jonathan Atkin, who viewed the presentation by AT&T's Chris Womack and Michael Black, wrote. "The company believes these licenses (primarily business radio licenses and licenses related to Time Warner’s ownership of the WPCN superstation) can be offloaded easily, obviating the need for an FCC review."
That would mean the merger would only need to clear the Department of Justice, which AT&T is optimistic about.
"The major difference between an FCC and DOJ review is that a DOJ review provides AT&T legal recourse while the FCC, if it chooses not to support the deal can defer the issue to an administrative law judge, a process that can last upwards of three years, usually resulting in the dissolution of the deal," Atkin wrote.
AT&T likes its odds, and expects the timeline on the merger to be 12-14 months.
Why Time Warner?
In the presentation, AT&T also outlined some of the rationale for the Time Warner deal.
Here's the most interesting bit: "AT&T hopes to strengthen its quad-play offering by zero-rating Time Warner content, which the company believes will provide consumers an incentive to adopt the AT&T bundle," Atkin wrote.
"Zero-rating" is when wireless carriers don't count data used with certain streaming services against your data cap. So for AT&T-Time Warner, it could mean that you never have to pay for data to watch HBO. You won't have to worry about data overages when you're watching "Game of Thrones."
This sounds great for the customer on the surface, but the FCC has said it has "serious concerns" about the way AT&T is using zero-rating, particularly with regards to its upcoming DirecTV Now streaming TV service.
AT&T has said it will treat its rivals (and friends) equally when it comes to zero-rating. That likely means that every company, from Netflix to Showtime, will have to pay a certain fee to have their video zero-rated. No freebies for HBO. But since AT&T would own HBO, that "fee" money would just be shifting from one pocket of AT&T to another. That's a place AT&T could potentially act anti-competitively.
That said, there have been some indications that a Trump administration might be very friendly to zero-rating, so AT&T might have a clearer path moving forward.
At the conference, AT&T provided a few other reasons for the Time Warner merger, as well. Here they are:
AT&T thinks it could help reduce churn (cancellations) in its wireless business.
It could help AT&T maintain control of content distribution in the face of potential rivals like Amazon, Google, and Facebook, as video shifts toward over-the-top (OTT) delivery.
AT&T thinks it can boost ad revenue. "In internal trials, the company has successfully increased sales of certain products by as much as 80% through targeted advertising," Atkin wrote.
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