PROMISES, PROMISES FROM AT&T
AT&T’s $85.4 billion acquisition of Time Warner would transform it from a landline, wireless and satellite TV company into one of the most important media gatekeepers in the country, giving it a strong financial incentive to use its programming to hammer competitors.
The company agreed to pay Time Warner, which owns Warner Bros. studios, HBO, CNN, TNT and other TV channels, a 35 percent premium over its market value. AT&T executives say the deal would benefit its customers by leading to new innovations. But it would only be logical for the company to use Time Warner’s trove of movies and TV programming to keep and attract subscribers to AT&T while making it harder or more expensive for competing telecom and streaming companies to get access to that content.
AT&T already has enormous power in this market. More than 25 million American households buy TV service from the company’s DirecTV and U-Verse units. The company also has 130 million wireless subscribers and 15 million broadband customers. Add Time Warner to that collection and AT&T could gain even more clout by, for example, choosing not to carry shows created by other media companies. Some entrepreneurs might not want to create rivals to CNN or HBO if they feared that they would not get access to 25 million households.
Economists, lawmakers and judges have long recognized the problems with “vertical integration” that combines companies operating in different industry segments. In the 1940s, for example, the Justice Department successfully forced movie studios to sell their theater chains, a step that helped end the dominance of the Hollywood studio system. That led to a renaissance in independent films because producers not connected with the studios could more easily get their films shown in theaters. And in 1972, the Supreme Court agreed with the federal government that Ford shouldn’t be allowed to acquire a supplier of spark plugs. The court said Ford was seeking to establish “virtually insurmountable barriers to entry” to competitors because Ford was the biggest buyer of spark plugs from independent auto parts suppliers.
AT&T executives say they are not trying to squelch competition or limit consumer choice. They assert that the company wants to use Time Warner’s content to develop new ways of delivering entertainment over its wireless network; licensing content from other media companies can take too long, they say. This argument isn’t persuasive because others, like Netflix, Amazon, Dish Network and even DirecTV, have or are developing new business models in this area. There is nothing stopping AT&T from coming up with better and faster wireless technologies without the merger.
The Justice Department’s Antitrust Division has two main options to consider. It could choose to reach a deal with AT&T that prohibits the company from giving preferential treatment to its own content or discriminating against competitors. The department used that approach to deal with Comcast’s acquisition of NBCUniversal in 2011. Comcast has generally abided by those conditions, but it is too early to know whether the requirements were sufficient. A more important problem is that such agreements are temporary — most of the Comcast conditions end after seven years, in early 2018. It can also be hard to enforce them, because many competitors are unwilling to complain about a telecom-media giant that they cannot avoid doing business with.
Or, if the Justice Department felt that imposing conditions would not work, it could seek to block the deal in federal court. That approach could backfire if courts decide that the merger doesn’t violate antitrust law.
Regulators need to keep in mind that the AT&T-Time Warner deal could spur even more consolidation in a very concentrated media and telecommunications industry. In most parts of the country, just one or two companies offer high-speed internet service. Four providers effectively control the wireless business, and six media giants dominate the TV and movie business. The question for antitrust regulators is whether this deal would invariably lead to even less competition.