AT&T/TW Planning Seen Focusing on Whether to Steer Clear of FCC Review
AT&T and Time Warner possibly could structure a deal that doesn't require FCC oversight, but their executives likely are still grappling with the issue of whether it's worth the difficulty, some deal watchers say. Not everyone is convinced such terms are in the offing, given the plethora of licenses TW has for broadcast auxiliary services and other operations. "You can't cancel them all," broadcast lawyer Peter Tannenwald of Fletcher Heald told us, saying if the FCC has the political will to get involved, it will find a way. Whether the FCC would have a hand in reviewing the deal has been a question mark (see 1610260022).
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DOJ has started its antitrust review of the $108.7 billion deal, AT&T CEO Randall Stephenson said at a UBS investor conference Tuesday. Despite the transaction's scale, he said, AT&T and TW "do not compete -- this is a classic vertical merger and the day after we close this deal there will be no fewer competitors in any market in the United States than there are today in distribution or media and entertainment." Calling Justice review "pretty straightforward," Stephenson said the company "expect[s] a good outcome," with the possibility also of conditions that address concerns. He said the carrier doesn't know still whether it's going to assume any TW licenses.
Stephenson said that more broadly, he hoped to see the FCC take “a more moderate approach to some … regulations." TW CEO Jeff Bewkes, in a separate UBS presentation, said the deal still is expected to be done by the end of 2017 and it sounds like it's on track, Wells Fargo analyst Marci Ryvicker emailed investors. Both CEOs will defend the deal at a Senate Judiciary Committee hearing Wednesday (see 1612060065).
While those licenses could be sold to an outside party, New AT&T would then have greater business risk that comes with having less direct control of operations, Tannenwald said, saying some licenses likely would be ineligible to be held by a third party. Conversely, Chairman Tom Wheeler could decide any transfer of licenses to a third party is too controversial and not touch it, he said. Regardless, during the bulk of the review, the FCC is expected to be led by a Republican named by Trump, even if on an acting basis (see 1611180043).
TW's broadcast and broadcast auxiliary service licenses exist for a reason, and a spin-off or sale of them -- even not to AT&T -- would still have to go through the FCC, a cable lawyer with transaction experience told us Tuesday. The lawyer also said the business rationale for the deal overrides any regulatory considerations -- particularly since the incoming Republican administration will likely tend to be more market oriented, making AT&T/TW approval less burdensome than it could have been. Some, though, are convinced commission review won't occur. "The FCC is unlikely to review the deal," Cowen & Co.'s Paul Gallant wrote investors Tuesday, as he has forecast before. Neither company commented for this story.
"With or without FCC review, the prospects for the merger's approval improved on November 8," emailed Business in the Public Interest Chairman Adonis Hoffman, whose firm doesn't represent parties in the deal. "Likelihood of potentially onerous or dubious conditions being imposed were diminished. Given the state of market competition, and as a vertical merger, there should be no impediment to the deal. If the early moves are any indication, there appear to be some cost benefits to consumers in addition to a suite of new services. Politics aside, this should be an early test of the 'Trump Doctrine.' "
The telco also potentially could not need FCC review through buying TW assets and leaving behind a shell company that controls the spectrum licenses, but such a direction doesn't seem likely given the complications and how it could affect valuation, Public Knowledge Senior Staff Attorney John Bergmayer said. AT&T also might not particularly care about an FCC review since a Trump administration is likely to be more mergers and acquisitions friendly, he said.
Free Press Policy Director Matt Wood said AT&T has strong incentives to not want FCC review atop a DOJ one, but whether it can isn't clear. Given the freeze on transferring broadcast TV licenses due to the inventive auction, there could be structural impediments to TW selling WPCH-TV Atlanta as some expect (see 1610240046). Meanwhile, if AT&T/TW tried to put those licenses in a blind trust and still use them, there's a good argument that such a "paper transfer" actually lets a company avoid FCC scrutiny, but whether the FCC would challenge that's "all very up in the air," given the administration transition, Wood said. Such a blind trust move likely wouldn't affect DOJ's separate antitrust review, he said, but it could make for a harsher political climate against AT&T/TW, he said.