AT&T TIME WARNER MERGER - DEAL OR NOT?
THE POSSIBLE TAKEOVER OF TIME WARNER BY AT&T HAS ALREADY PROVED CONTROVERSIAL WITH BOTH US PRESIDENTIAL CANDIDATES RAISING CONCERNS. JAMES PEARCE TAKES A LOOK
AT&T’S decision to buy Time Warner in an $85billion deal could give the operator the chance to dominate how we consume content – if is approved by regulation.
When the US carrier announced the takeover alongside its Q3 financial results last month, it said it wanted to “bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers.”
The agreement will see AT&T take control of all three of Time Warner’s business arms: Warner Brothers film studios, premium content service HBO; and Turner Broadcasting System, which oversees TV channels CNN, HLN, TNT, TBS and the Cartoon Network.
“Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen,” said AT&T CEO Randall Stephenson. “We will have the world’s best premium content with the networks to deliver it to every screen. A large customer pain point is paying for content once but not being able to access it on all devices, anywhere the customer wants it.
“Our goal is to solve that. We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications. It’s it a great fit, and it creates immediate and long-term value for our shareholders.”
When the deal was announced on 23 October this year, it came in for immediate criticism. Both presidential candidates raised concerns. Democratic candidate Hillary Clinton warned of a “number of questions and concerns” about the deal, while Republican nominee Donald Trump said he would block the deal should he take the White House in this month’s election.
It won’t be the president who decides on the deal, with the final ruling up to the US Department of Justice (DOJ). It could also be subject to scrutiny from the Federal Communications Commission over licenses that will be transferred to AT&T as part of the deal.
In order to block it, the DOJ would need to prove that it harms competition. However, the FCC can block any deal or transfer of licence which it oversees, if it finds it is not in the ‘public interest’.
Stephenson remained confident that regulators would see the benefits of the deal for consumers. He explained on an analyst call: “If the deal were blocked, it could prove costly for AT&T. As part of the agreement, the carrier will be obligated to pay Time Warner a break-up fee of $500 million if regulators stop the acquisition from going through.
This is the latest example of a major US carrier attempting to diversify its portfolio, but it is also one of the biggest. Rival Verizon Communications snapped up AOL, formerly part of Time Warner, for $4.4 billion in a deal sealed in June 2015. AOL and Time Warner merged in 2000, but the former was spun off in 2009 as a digital media company.
Verizon is also in the process of buying Yahoo, although a shadow of doubt has been cast over that acquisition since it was revealed that Yahoo was subject to a data breach that saw hackers access the details of more than 500 million users.
Though Verizon has not commented on the AT&T buyout, T-mobile chief executive John Legere did make reference to it through his Twitter page. Legere accused AT&T of using the acquisition to divert attention away from a disappointing quarterly financial report.
Although moving into content could be key for all carriers going forward, the price of the deal raised eyebrows. It remains to be seen if it will prove a failure like Time Warner’s last major merger (with AOL) – if it even overcomes all of the regulatory hurdles expected to spring up.
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