Denunciations of the deal by politicians may have weighed less than fear that rivals might pre-empt them with synergy of content production and distribution

The dealmakers behind the proposed mega-merger of AT&T and Time Warner have accomplished the impossible: uniting Hillary Clinton, Donald Trump and Bernie Sanders in their condemnation of the deal.



Trump, needless to say, has been the most vituperative. The merger would “destroy democracy”, he said. But pretty much everyone in Washington has publicly come out against it. Sanders, Clinton’s opponent for the Democratic nomination and now campaigning on her behalf, is already preparing to battle a future Clinton administration to ensure that anti-trust regulators turn thumbs-down on the deal. Lining up beside him? Powerhouse senator Elizabeth Warren.

The two companies and their bankers must feel that they have walked straight into a buzzsaw. The Senate will hold a hearing on it on 7 December, after the election. Will tempers have cooled by then? Maybe, maybe not.

So, what on earth drove Time Warner and AT&T to sprint to the altar during an election season in which populist politicians are dominating the airwaves and the debate? Insanity? Desperation? A sense that there was an opportunity that was just too good to pass up? Or simply an urge to annoy the politicians?



The word to bear in mind might simply be “panic”.

It’s no shock to anyone who keeps an eye on these worlds that companies that distribute all the content that we consume, and the companies that produce it (translation: AT&T as the party of the first part, and Time Warner as the party of the second part) have a vested interest in forging alliances among themselves. The closer and more seamless those alliances are, the faster and more creatively they can work on developing and delivering more of that content for all our devices, especially those smartphones and tablets from which we are unable to wean ourselves.

Those that get it right have captive audiences simply because they are delivering a growing proportion of that content. It’s an enticing prospect.

Analysts have been expecting that we’d see yet another wave of convergence – a buzzword in this media/telecommunications universe for the better part of two decades now, having been behind the merger that formed Time Warner itself in 1995 – for several years.

This time, it’s happening in different ways, not always via mergers. Apple and Time Warner’s HBO have linked their brands already, with Apple distributing the HBO Now service. Imagine what might happen if Apple – with its cash mountain – decided to snap up HBO’s parent company, Time Warner, and pursue the myriad potential synergies between its own platforms and Time Warner’s content?

I suspect it’s safe to say that the folks at AT&T did just that – and panicked.

Or else they considered what might happen if another giant rival with the potential to build a mammoth platform and plenty of cash – like Google, which has already pushed into live-TV streaming – pre-empted them. Or they allowed companies like Amazon or Netflix to get further ahead with their own plans.

Facing that kind of strategic risk, a little bit of political risk may not look like anything terribly threatening. Sure, the politicians may indulge in a lot of saber rattling for the benefit of voters, especially since the deal was announced in the final days of the presidential election campaign. But it will be many months before regulators will rule on it – even if a deep-pocketed rival doesn’t muscle in and outbid AT&T for Time Warner.

Will the public outrage endure? The dealmakers and the board members at both companies seem to be making a calculated decision that the answer is “no”.

That seems optimistic. We already pay far more than citizens in most other parts of the world for basic broadband access, thanks to the fact that most communities offer very limited options to their citizens. Most telecommunications services are equally pricey, relative to those offered elsewhere, from mobile phones to cable television services. The number of cord-cutters continue to grow.

What will AT&T's acquisition of Time Warner mean for customers? Read more

The two companies have an idea of what they’ll do to keep their own customers loyal. “Premium content always wins,” said Randall Stephenson, CEO and chairman of AT&T, in the company’s press release announcing the transaction. “We’ll have the world’s best premium content with the networks to deliver it to every screen. A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that.”

At what price, though? Stephenson does refer to delivering “value” to customers, and certainly, you can expect to hear Time Warner and AT&T insist that because their proposed match is a “vertical” merger rather than a “horizontal” one, this should pose less of an antitrust threat. In other words, consumers won’t see prices soar as a result of reduced competition.

In a horizontal transaction, two companies that compete to provide roughly the same kind of services or goods (think, Cox Communications and Comcast), merge and become one, meaning that there are fewer entities involved in setting prices for content as purchasers, or for services as providers. In a vertical transaction, such as the proposed merger, companies that are in different parts of the business (in this case, content and distribution) join forces.

But in markets where competition is already restricted – such as, say, the internet – price increases could be a result of even vertical mergers. That’s the conclusion of studies by one economist, John Kwoka of Northeastern University, who found that of the 1,000 mergers of all kinds that he evaluated over the last two decades, at least a third generated price increases in excess of 10%. A remarkable 80% of them raised prices to consumers to some degree; the average increase was about 7%.

Ponder that, antitrust regulators.

There are plenty of ways in which this could happen. For instance, all of the programming that Time Warner produces could suddenly become unavailable to competitors to the newly merged entity’s rival distributors, except at a much higher price. You have an AT&T smartphone and want to watch the latest episode of Game of Thrones? Congrats – you can do so on any device you own for half the price you’d pay if you have a Verizon phone and want to watch on your iPad.

It’s up to the politicians not just to be blowhards about the deal or threaten to axe it. Consumers may end up with great, efficiently delivered and fairly priced content as a result of mergers like the one that AT&T and Time Warner are proposing. The trick is to ensure how that potential is realized. Will the regulators do their job?

That’s why what happens in the weeks following the election is going to be so crucial. Who will the new president choose to advise her (or him) on issues like commerce and telecommunications? Who will (s)he tap for membership on the Federal Trade Commission (which governs antitrust issues) and the Federal Communications Commission (which oversees telecommunications policy, and of which the next president must name a new chairman), two of the key regulators associated with this industry?

Regulators have the ability to lay down the law and make the deal much more consumer-friendly in any number of ways, demanding (for instance) that the new company make HBO shows available more readily via apps or streaming, meaning that we wouldn’t be forced to sign up for costly packages.

For once, all the heated political rhetoric might come in useful, if it ensures that the regulators keep their eye on the ball. I wish I was confident that the attention span of outraged politicians was as long as that of the strategic thinkers and panicky dealmakers – but I’m not.

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