AT&T CEO Says $85B Time Warner Deal Will Be Tremendous for Consumers

But public interest groups warn that media consolidation usually leads to higher prices.

Dec 7 2016, 3:57pm

Randall Stephenson (L) and Jeff Bewkes (R) speaking at a conference in October. Image: Steve Jurvetson / Flickr

AT&T's proposed $85 billion buyout of entertainment giant Time Warner will benefit consumers and boost industry competition by creating a powerful new rival against cable companies like Comcast, top executives from the two corporate giants told US lawmakers on Wednesday.

"Together, AT&T and Time Warner will disrupt the entrenched pay-TV models giving customers more options, creating more competition for cable TV providers," AT&T CEO Randall Stephenson said in prepared testimony before the Senate Judiciary Subcommittee on Antitrust, Competition Policy & Consumer Rights.

The proposed merger would combine AT&T's vast and wide-ranging wireless, home internet, and pay-TV networks—including its recently acquired DirecTV satellite distribution business—with Time Warner's valuable portfolio of entertainment properties, including HBO, CNN, and Hollywood studio Warner Bros.

"By joining forces, we will accelerate the development and delivery of the next generation of video services that provide consumers with greater choice, convenience, value, and affordability," Time Warner CEO Jeff Bewkes told lawmakers in prepared testimony.

The $85 billion deal would be one of the largest mergers in telecom history, and would transform the media landscape by combining a distribution giant (AT&T) with a content powerhouse (Time Warner). That's why many industry insiders and policy experts view it as a key litmus test for how other major corporate tie-ups will be handled under a Trump presidency.

Public interest advocates have warned that AT&T could be tempted to prioritize Time Warner content over rival programming for the telecom titan's subscribers, or extract higher prices for HBO, CNN, or Warner Bros. content from the company's pay-TV competitors. That could lead to higher prices for consumers.

"The proposed merger of AT&T and Time Warner could create a number of competitive harms, leading to higher costs and fewer choices for video services and lower-quality and less diverse programming," Gene Kimmelman, President of DC-based consumer advocacy group Public Knowledge, said in a statement. Kimmelman testified Wednesday on behalf of the public interest.

During the election campaign, president-elect Trump vowed to block the deal, in an apparent attempt to appeal to the growing, populist movement against corporate consolidation and wealth inequality that's rising up across the political spectrum. But since the election, Trump's position appears to have softened, according to published reports, leading Wall Street investors to take a more optimistic view of the deal's ultimate approval.

The proposed merger will be reviewed by the Justice Department on antitrust grounds, to ensure that the deal doesn't run afoul of important US laws designed to ensure competitive markets. The merger could also be reviewed by the Federal Communications Commission, if the transaction includes the transfer of broadcast licenses under that agency's jurisdiction.

By snapping up DirecTV in 2015, AT&T surpassed cable giant Comcast as the nation's largest pay-TV company. AT&T was already the nation's second largest wireless service provider, after Verizon. The telecom titan's combined customer base includes more than 100 million consumers across the United States.

"If a single company is able to control many of the key inputs to online video, from content production to last-mile transmission, then the competitive promise of this new market could be snuffed out, or at least limited, as familiar names seek to turn online video into Cable 2.0," Kimmelman warned.

Time Warner and AT&T executives argue that the tie-up would better position the combined company to compete with US cable TV leader Comcast at a time when consumers are increasingly ditching traditional pay-TV bundles in favor of of internet-based, or so-called "over-the-top," video options, especially on mobile devices.

For Stephenson, AT&T's 56-year-old CEO, the merger would be the pinnacle of a thirty-year telecom career, and would transform him one of the most powerful figures in media and entertainment. For Bewkes, a successful deal could lead to an ultimate payout of more than $300 million, if he sticks around to see the pact through.

AT&T and Time Warner executives are cautiously optimistic because the proposed deal would be an example of "vertical" integration, in which companies that offer different services merge, as opposed to "horizontal" integration, in which companies that provide similar services combine, like two cable TV companies.

Vertical mergers "are more difficult to challenge" than horizontal mergers, Glenn Manishin, a leading antitrust expert and managing director at Paradigm Shift Law, recently told Motherboard, because such deals don't involve direct competitors joining forces.

"It would be a gross mistake to view this transaction as anything but pro-competitive," AT&T CEO Stephenson told lawmakers on Wednesday. "AT&T's and Time Warner's businesses complement each other, and those complementary businesses, when combined, naturally result in consumer and competitive benefits."

The Senate does not have the authority to approve or reject corporate mergers, but the positions of individual senators, and the questions they ask during Capitol Hill hearings, can send signals that might influence regulators at the DOJ and FCC, especially at a time when these agencies are in the process of transitioning from Democratic to Republican control.