AT&T/Time Warner deal could be approved without any FCC merger review

Advocacy groups are urging US regulators to consider blocking AT&T’s purchase of Time Warner Inc., but AT&T may be able to avoid any review by the Federal Communications Commission.

The merger will be analyzed by the Department of Justice (DOJ), but AT&T has said the FCC will be involved only if any FCC licenses are transferred to AT&T. A TV station is an example of something that requires an FCC license, but AT&T said that itself and Time Warner are still “determining which FCC licenses, if any, will be transferred to AT&T in connection with the transaction.”

The reason for this uncertainty is that “despite its big media footprint, Time Warner has only one FCC-regulated broadcast station, WPCH-TV in Atlanta,” Reuters reported. “Time Warner could sell the license to try to avoid a formal FCC review, several analysts said.” (Time Warner Inc. is completely separate from Time Warner Cable, which was sold to Charter this year after an FCC review.)

WPCH-TV, which is unaffiliated with any major network, is a small station that broadcasts re-runs and old movies, and it’s likely worth very little relative to the $85.4 billion AT&T/Time Warner deal, Bloomberg reported. “Companies use sales, transfers, and spinoffs around larger deals in order to face friendlier regulatory review ‘all the time,’ Bloomberg Intelligence analyst Geetha Ranganathan said in an interview,” Bloomberg wrote.

Antitrust and the public interest

AT&T has frequently clashed with the FCC over net neutrality rules and other regulations, so it wouldn’t be surprising if AT&T wants to avoid review by the agency. AT&T has said one of the benefits of owning Time Warner is that the company is less heavily regulated than AT&T’s existing businesses.

The DOJ and FCC follow very different processes when reviewing mergers. The FCC can block a merger if it doesn’t serve the public interest, and the burden is on the merging parties to prove that Americans will benefit.

The DOJ can block mergers by suing in federal court, but the federal agency faces the burden of proof and must convince a court that the merger would violate antitrust laws. The DOJ and FCC coordinate on merger reviews when they’re both involved, and their combined influence was enough to sink Comcast’s attempt to purchase Time Warner Cable in 2015 and AT&T’s attempt to purchase T-Mobile USA in 2011. With AT&T/Time Warner, the DOJ could be going it alone.

The FCC says that its own decisions on mergers “must be based on the public record” developed through the public comment process. By contrast, the DOJ’s antitrust authorities “conduct a confidential investigation, and if they believe that consummation of the merger would violate the antitrust laws, they must go to court to stop the merger or get approval for a settlement that will prevent any competitive harms.”

Still, the DOJ by itself could either try to block the merger or allow it to proceed only if AT&T signs a consent decree with conditions designed to prevent competitive harm, similar to the decree signed by Comcast when it bought NBCUniversal. Consumer advocates, AT&T’s competitors, and lawmakers may try to influence the DOJ by speaking out against the deal.

Potential harm to competitors

Consumer advocacy group Public Knowledge argued that the merger raises many competitive concerns. As Public Knowledge Senior Counsel John Bergmayer said:

Vertical integration between programming and distribution in particular raises a number of issues. [AT&T-owned] DirecTV, for instance, might favor Time Warner content, crowding out or refusing to carry alternative and independent programming that viewers might prefer. AT&T might also make it more expensive or difficult for competitors to DirecTV or to its streaming service to access Time Warner programming, hoping to drive customers to its own platforms. AT&T could also give preferential treatment to its own programming and services on its broadband networks—indeed, it has already announced that it plans to zero-rate its upcoming online video service. Increased vertical integration could also increase AT&T’s opportunities for data collection, which has relevance to FCC privacy initiatives. Similar sorts of self-dealing and discrimination issues have been at the center of the review of similar deals in the past, such as Comcast’s acquisition of NBCUniversal.

Bergmayer said the merger highlights the importance of the FCC’s proposal to impose new privacy rules on ISPs, which would require ISPs to get opt-in consent from consumers before sharing Web browsing data and other private information with advertisers and other third parties.

Opposition to AT&T/Time Warner may also come from the American Cable Association, which represents small- and medium-sized cable companies that compete against AT&T’s home Internet and TV services. “As the FCC has found in past mergers, combining valuable content with pay-TV distribution causes harm to consumers and competition in the pay-TV market,” the group’s CEO, Matthew Polka, said. “If an AT&T/Time Warner deal is forged as reported, the vertical integration of the merged company must be an issue that regulators closely examine.”

US Sen. Al Franken (D-Minn.) pledged to scrutinize the deal, saying that he’s “skeptical of huge media mergers because they can lead to higher costs, fewer choices, and even worse service for consumers.” Sens. Mike Lee (R-Utah) and Amy Klobuchar (D-Minn.), leaders of the antitrust subcommittee, said that “an acquisition of Time Warner by AT&T would potentially raise significant antitrust issues, which the subcommittee would carefully examine.” Sen. Bernie Sanders (I-Vt.) urged regulators to block the merger.

Republican Presidential Nominee Donald Trump said his administration would block the AT&T/Time Warner merger “because it’s too much concentration of power in the hands of too few.” A spokesperson for Democratic nominee Hillary Clinton said she “certainly thinks regulators should look at it.”

AT&T argues that customers will benefit from the merger by receiving “enhanced access to premium content on all their devices, new choices for mobile and streaming video services, and a stronger competitive alternative to cable TV companies.”

With AT&T’s wireless network and Time Warner’s programming, “the combined company will strive to become the first US mobile provider to compete nationwide with cable companies in the provision of bundled mobile broadband and video,” AT&T said. “And it will deliver more innovation with new forms of original content built for mobile and social, which builds on Time Warner’s HBO Now and the upcoming launch of AT&T’s [online streaming] offering DirecTV Now.”

AT&T says it expects to close the Time Warner merger by the end of 2017.