Antitrust Law Daily Senate lawmakers consider AT&T-Time Warner combination
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Wednesday, December 7, 2016

Senate lawmakers consider AT&T-Time Warner combination

By Jeffrey May, J.D.

The heads of AT&T, Inc. and Time Warner, Inc. defended their proposed combination at a Senate Judiciary Committee antitrust subcommittee hearing today. Randall Stephenson, Chairman & Chief Executive Officer of AT&T, testified that when the Justice Department reviews the proposed $85.4 billion deal, the facts will show that the deal is procompetitive and pro-consumer. Time Warner Chairman & Chief Executive Officer Jeffrey Bewkes also predicted that the deal would benefit consumers.

In a statement, Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) explained how the vertical merger would combine one of the nation’s largest phone and internet providers with a media entertainment titan that among other things, owns HBO, CNN, TBS, TNT and Warner Brothers studios.

He noted concern that a combined company will give preferential treatment—for example, favorable channel placement and zero-rating pricing—to Time Warner’s premium entertainment programming to the disadvantage of other content producers, in particular small independent producers.

According to Senator Patrick Leahy (D-Vt), ranking member of the Senate Judiciary Committee, the proposed massive consolidation of distribution and content raises serious questions. However, he pointed out in his statement that approval of the vertical merger will rest with the antitrust authorities, including the people President-elect Donald J. Trump nominates to positions at the Department of Justice, the FTC, and the Federal Communications Commission.

Subcommittee chairman Mike Lee (R-Utah) noted that, while the transaction involved no horizontal overlaps, vertical mergers nevertheless might still tend to substantially lessen competition in violation of the Clayton Act. He described the key question as: what will the incentives and opportunities be for the combined firm post-transaction?

AT&T CEO Stephenson explained the rationale for the company’s proposed acquisition of Time Warner’s stable of content. In his testimony, he said that AT&T’s ability to offer customers what they want has been constrained because the company owns very little of its own programming. Relying on third parties for content has made it difficult for AT&T to be flexible and pursue new business models.

"By facilitating and hastening AT&T’s ability to feature innovative new video services, the transaction will enable us to compete more effectively against cable incumbents," Stephenson contended. He also pledged to "continue to distribute Time Warner programming widely" in an attempt to resolve concerns raised by some critics of the deal.

Time Warner’s Bewkes also sought to allay concerns that the combined entity might not be willing to distribute content to rivals. "[O]ur strategy, and our ability to meet consumer demand in a highly competitive marketplace, depends on achieving the broadest possible distribution of our content and embracing innovative ways for consumers to watch what we have to offer," Bewkes testified.

Concerns of Senate Democrats. At the hearing, Senator Al Franken (D-Minn) continued his criticism of the deal. He expressed concern over a combined AT&T-Time Warner’s ability to control content distribution. He questioned the executives about the combined company’s financial incentive to use its leverage over content, such as HBO, to harm other content distributors. In October, Franken, who is the ranking member of the Senate Judiciary Committee's privacy, technology, and the law subcommittee, sent a letter to FCC Chairman Tom Wheeler and Attorney General Loretta Lynch, urging "the highest level of scrutiny" for AT&T’s proposed acquisition of Time Warner, Inc.

Senator Blumenthal (D-Conn), a self-described strong-supporter of antitrust enforcement, also said that he was not yet convinced that the deal’s benefits outweighed harms to competition and consumers. Blumenthal reminded the witnesses and his fellow lawmakers that President-elect Trump had said that he is going to block this merger during his campaign. The senator expressed concern, however, that Trump’s pledge, which is now in question, might have more to do with CNN’s coverage of his campaign than with the transaction itself.

While the deal would not likely be approved without some safeguards, antitrust conditions on the transaction could be difficult to monitor. A joint venture involving Comcast Corporation, General Electric Company (GE), and GE’s subsidiary NBC Universal Inc. that raised similar concerns in 2011 was approved with conditions. The consent decree resolved allegations that the transaction, as originally proposed, would lessen competition substantially in the market for video programming distribution by allowing Comcast, which was the nation’s largest cable operator and Internet service provider, to disadvantage its traditional competitors—direct broadcast satellite and telephone companies that provide video services—as well as emerging online video distributors (OVDs), such as Netflix. Compliance with the conduct restrictions placed on the parties to that transaction under the consent decree was questioned at the hearing.

Companies: AT&T, Inc.; Time Warner, Inc.

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