AT&T/Time Warner Seen Getting Regulatory Approval, Though Not Easily

All big media deals in recent years that have run into trouble were horizontal mergers, said AT&T CEO Randall Stephenson in a conference call with analysts, "This is vertical." He said regulators might have concerns, but "we are convinced these kinds of issues can be handled with conditions." The deal is roughly akin to Comcast's purchase of NBCUniversal, though much bigger, but "seven years on, we have a very different climate," said Free Press Policy Director Matt Wood. "From a politics and popular standpoint, each additional brick on the load is not necessarily a good thing. Being second into that derby of 'let's put together a media giant' … might not play very well.”

AT&T/TW faces "a lengthy and uncertain" DOJ regulatory review, UBS analyst Doug Mitchelson wrote investors Monday. The two aren't competitors, he said, but "on the 'con' side is the pro-forma combined company's enormous size and scale." In another investor note, MoffettNathanson' Craig Moffett said the odds of approval "tend to fall rather than rise as the process drags on ... and as opponents of the deal have time to mount their opposition." AT&T said Monday it expects the deal to close by the end of 2017.

DOJ's focus would be on ensuring no disruption in the competitive landscape -- an issue helped by the fact AT&T isn't buying a competitor, said Boston College associate law professor Daniel Lyons. Justice may get conditions, but it's likely to approve the transaction, he said. With Time Warner having a minority stake in Hulu (see 1608030033), those curbs might look at limiting post-transaction AT&T's control of the online video distributor, Lyons said. Justice didn't comment.

The FCC has more regulatory leeway under its public interest standard, and likely would be more concerned with content nondiscrimination and exclusivity conditions to prevent the new AT&T from offering TW content to itself at cheaper rates than to competing multichannel video programming distributors, Lyons said. The FCC already has some oversight through program access rules, he said, and the agency could use conditions to clarify those rules, much as it did for Comcast's purchase of NBCUniversal. The FCC might also look to repeat the conditions it put on Comcast/NBCU about selling content rights to virtual cable systems, Lyons said. The FTC likely wouldn't have a role in overseeing the deal since AT&T is a common carrier, he said. The FCC, as it did in Comcast/NBCU, might be interested in broadband-related issues like network overbuilding or low-income broadband provision because those are seen as desirable and to prevent against bundling and tying approaches AT&T might take, Wood said.

The type and the scope of voluntary conditions AT&T and TW might offer "depend on what regulators they’re trying to please," Lyons said, saying if the FCC is involved in regulatory review -- an issue that isn't clear -- there will be more expansive voluntary conditions up front, such as restrictions on zero rating. When asked what sort of regulatory reception he expected AT&T's zero-rating plans to receive, Stephenson said, "I can't prejudge any of this; we’ll have to get into the process. The sausage will come out the way the sausage comes out."

AT&T/TW undoubtedly will "make as few concessions as humanly possible," Parents Television Council President Tim Winter told us. He also said he hopes regulators, particularly DOJ, seek conditions requiring the offering of a la carte video offerings with the argument that conditions like most-favored-nation clauses and forced carriage on tiers are "prima facie example[s] of antitrust." "I realize it's a long putt, but it is not impossible," he said.

Conditions on Comcast/NBCU and Charter Communications’ purchase of Time Warner Cable and Bright House Networks will likely be a starting point for regulator talks with AT&T and TW, a cable lawyer with takeover experience said Monday. Some of those issues might not face the same reception, though, the lawyer said, saying AT&T might have a different response to possible concessions about data caps than did Charter.

Talk of possible conditions is "very, very early," emailed Adonis Hoffman, chairman of Business in the Public Interest, but there could be structural conditions that would require divestiture of some TW assets, behavioral conditions akin to what was imposed in Comcast/NBCU, or some of both. But he said the acquisition likely will get approval. His firm doesn't represent parties to AT&T/TW.

Owning content is key to what AT&T wants to do, Stephenson said. The company had long been a reseller of DirecTV, but "you could never get the tight integration of the customer experience" it sought until it bought the DBS company, he said, saying a year after buying DirecTV, the telco had added 1.2 million DirecTV customers. While AT&T had worked unsuccessfully for three to four years on crafting a mobile-centric content package, those content rights talks similarly got done after buying DirecTV, he said.