Lawmakers change tone on AT&T-Time Warner deal
WHEN AT&T and Time Warner announced their $85.4 billion deal in back October, lawmakers greeted the acquisition frostily. Now their tone is changing.
At a hearing on Capitol Hill on Wednesday that was being closely watched for how mega-mergers will be viewed in the coming Trump administration, members of a Senate Judiciary subcommittee that oversees regulatory agencies that decide on mergers said the deal merited tough scrutiny. The chief executives of AT&T and Time Warner were grilled at the hearing about a range of issues related to the deal.
But in a change from previous comments, lawmakers also questioned whether traditional ways of evaluating mergers are growing outdated as Silicon Valley companies like Facebook and Google become massive media platforms that threaten the television industry. Their tone was more circumspect than those that immediately followed the deal’s announcement, when lawmakers had been more critical.
“We want to ensure that competition thrives in this critical market and we don’t stifle innovation or deter the emergence of cutting-edge technologies that customers demand,” said Charles E Grassley, who heads the full Judiciary Committee. Grassley said Google, Facebook, Amazon and Netflix have transformed the video landscape.
Senator David Perdue said the deal would combine companies that did not directly compete against one another. “The consumer is benefited from the aggregation,” he said. “That is called capitalism.”
Overall, senators were asking “hard questions,” said Larry Downes, a pro- fessor at Georgetown’s McDonough School of Business. But, he added, “they seem to be open-minded about the changing nature of competition in the information sector.”
AT&T, a telecom giant, and Time Warner had said in October AT&T would buy Time Warner to create a mobile video powerhouse. The hearing may have implications beyond this deal, with the comments potentially encouraging more acquisitions by companies that have been waiting out the Obama administration, which has rejected several mergers.
Members of Congress do not review mergers, but the hearings provide guidance for antitrust regulators at the Justice Department and the Federal Communications Commission. AT&T and Time Warner have not officially submitted their deal for regulatory review; the review might not include the FCC.
“The DOJ pays particularly close attention to Senate and House antitrust subcommittees because they oversee the DOJ,” said Paul Gallant, an analyst at Cowen and Co, who added that the committee’s commentary “bears watching for its potential effect on the DOJ.” Members of the Justice Department attended the hearing.
When the deal was announced, days before the presidential election, leaders of the Senate Judiciary Committee issued strong cautionary statements about it. Donald Trump, on the campaign trail at the time, said he would block the merger if elected. He has singled out CNN, the cable news network owned by Time Warner, with particular rancor for its election coverage.
As president, Trump will have no direct power over mergers, but he will greatly influence which ones are approved depending on whom he picks to be the assistant attorney general for antitrust or the chairman of the FCC. AT&T’s chief executive, Randall Stephenson, told CNBC before the hearing that he had not had contact with the Trump transition team.
During the hearing, the firms pitched a message that catered to the new administration: a promise of lower prices and the potential to build more wireless infrastructure through the merger. While AT&T and Time Warner are powerhouses, they presented themselves as weaker rivals to the cable industry and Silicon Valley tech companies.
Stephenson said in prepared remarks that cable companies dominated the broadband and television market, serving high-speed internet to 8 of every 10 American homes that have broadband service. To experiment with new mobile video technologies, he said, AT&T needed to have in-house content to quickly try new streaming services at a lower cost. He added that AT&T had just introduced a streaming service with 100 channels for less than most cable television packages.
“It is only the beginning of what we want to bring to the marketplace to threaten cable’s entrenched and stilldominant market position,” Stephenson said. He said AT&T would give CNN editorial independence if the merger were approved.
Jeff Bewkes, the chief executive of Time Warner, said “it is not enough to deliver great content.” Their competitors have multiplied, he said.
No lawmakers at the hearing said the merger should be blocked, but several expressed scepticism.
“I have serious concerns about this transaction,” said Senator Richard Blumenthal. The deal “potentially has serious negative impacts on competition and on consumers.”
Consumer groups rejected the characterisation of AT&T and Time Warner as disadvantaged rivals, saying a combined company would create a powerhouse that all cable providers and networks would have to negotiate with. Streaming providers like Sling TV and Hulu would face a major new competitor, with AT&T’s access to 110 million wireless and satellite subscribers and premium television networks under the same roof, the groups said.
“If a single company is able to control so many key inputs to online video, this new market could be snuffed out,” said Gene Kimmelman, president and chief executive of Public Knowledge, a nonprofit consumer group, at the hearing.