Possible AT&T/Time Warner Seen Raising Multiple Regulatory Concerns
AT&T buying Time Warner likely would face regulatory concerns about programming and also could be a springboard for regulators to dive into other issues, like zero rating, industry lawyers and experts told us Friday. Given the increased regulatory attention paid to competitiveness and transaction issues in recent years, "I don't think they are necessarily going to have smooth sailing," said Public Knowledge attorney John Bergmayer. Some question whether the FCC would even have a role in overseeing the possible deal, but AT&T's last major acquisition was national satellite multichannel TV provider DirecTV. AT&T and TW didn't comment Friday. Several news reports Friday suggested a deal could be announced as early as the weekend.
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Regulators almost surely would want to be confident TW programming would be available for other multichannel video programming distributors and online video providers and to ensure TW-affiliated programming wouldn't show favoritism, said multiple industry experts. Lawyers also said the FCC likely wouldn't confine itself to transaction-related issues and could seek to require broadband-related conditions like AT&T expanding its broadband footprint, increasing broadband speeds or providing more low-income broadband support. Approval of Comcast buying NBCUniversal also contained conditions about program diversity, and the FCC could seek similar for AT&T/TW, especially in light of program diversity now a prominent issue before the agency with an NPRM looking at the issue (see 1609290036), said one lawyer with several cable industry clients.
Charter Communications pre-empted discussions of zero rating and data caps out of the gate in its buys of Time Warner Cable and Bright House Networks, with its commitments (see 1506250039). It wouldn't be surprising if those also were a point of engagement in any AT&T/TW review, the cable lawyer said. A proposed deal surely would face many months of regulatory review, but a Hillary Clinton win in next month's presidential election likely would bring the next FCC to explore the same kind of merger conditions recent transactions have faced, the lawyer said.
Broadband footprint overbuild conditions like those in Charter/TWC might not be a focus in AT&T/TW since the deal doesn't involve a distributor buying a distributor, and conditions likely will focus more on programming than distribution, said one lawyer with MVPD clientele and transaction experience. TW is a frequently discussed takeover target because it doesn't come with distribution baggage, the lawyer said, saying if it's taken off the board, the next likely major consolidation targets are Viacom -- which could itself join back with CBS (see 1610050039) -- or a movie studio.
Many of the issues that came up in Comcast's purchase of NBCU likely would be revisited in AT&T/TW, given their similarities, Bergmayer said. That includes conditions on zero rating of affiliated content, he said, though this deal wouldn't seem to affect broadband competition. Bergmayer also waved off the argument AT&T/TW would pass regulatory scrutiny because Comcast/NBCU did: "You judge a merger based on the conditions of the marketplace today. Antitrust ... doesn't just grant a merger of a particular style." He also said that most Comcast/NBCU conditions expire in 2018 might be relevant to the market.
A key issue might be whether the FCC even has a hand in the overview, multiple parties said. The two might try to engineer the deal so it avoids FCC review, like Verizon did with AOL, said one cable lawyer with transaction experience. TW owns one station, WPCH-TV Atlanta, and it likely would try to divest if a deal was to occur, the lawyer said. If DOJ were solely responsible for oversight of the deal, it would mean a lower bar for getting approval than if the FCC were involved, and fewer concessions to be made by AT&T/TW, the lawyer said.
New Street Research analyst Jonathan Chaplin, in a note to investors Friday, also called AT&T/TW "a difficult deal to block" regulatorily, given the Comcast/NBCU precedent and that the FCC might not even have cause to review since license transfers may not be involved. DOJ likely doesn't have a good theory of harm argument that would withstand court challenge, he said.
Buying the content that comes with TW would bolster AT&T in its increased competition with Comcast, given that Comcast "may have an advantage over AT&T" in the core broadband, pay-TV and enterprise markets and likely is launching a wireless offering within six months, Chaplin said. Comcast hasn't yet used content to drive its other products, but it might, Chaplin said, and AT&T buying a similar content portfolio "may be a good defensive move."
Predicting a lengthy antitrust review with uncertain results, Credit Suisse analyst Omar Sheikh said in a note to investors Thursday that may give pause to both sides or even potentially scuttle talks. But he said TW is a particularly attractive merger partner given its valuable networks, TV and film studio assets and no blocking or family shareholder issues.
Wells Fargo analyst Marci Ryvicker in a note Thursday also raised the specter of regulatory hangups on an AT&T/TW deal, calling it "maybe too big with regulatory ‘baggage,’” saying regulators may have regrets over approving Comcast/NBCU.