Business

Why the AT&T–Time Warner Deal Is So Unpopular

It takes a particularly complicated type of merger to unite Hillary Clinton, Donald Trump, and Wall Street in their skepticism of it.

By Adam Chandler
Shannon Stapleton / Reuters
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Almost as quickly as the details of telecom giant AT&T’s plans to buy the media behemoth Time Warner emerged over the weekend—the $85 billion price tag, an executive meet-cute dinner on Martha’s Vineyard—came the backlash, and bipartisan backlash at that. Donald Trump, addressing a crowd in Gettysburg, said his administration would not approve the deal because “it’s too much concentration of power in the hands of too few.” Trump was echoed by Tim Kaine, speaking on behalf of the Clinton campaign, as well as Clinton’s former rival Bernie Sanders, who said that the deal “would mean higher prices and fewer choices for the American people.”

On Monday, in another rare instance of bipartisanship, one Democratic senator and one Republican senator jointly called for a hearing on the merger in a heavily-emojied announcement on the grounds that might run afoul of U.S. antitrust regulations.

At the heart of the opposition to the merger is the fear that it will allow AT&T, as Brian Fung at The Washington Post put it, to “control both the pipes of distribution and much of the shows, movies, and other content that travels through the pipes.” In other words, AT&T, as America’s second-largest wireless company and third-largest broadband provider, could potentially privilege Time Warner’s content, including CNN, HBO, and Warner Bros., therefore limiting consumers’ access to competitors’ content (or perhaps limiting non-AT&T subscribers’ access to Time Warner’s content). Such an outcome would chafe at the cherished American idea of fair competition—in a sense, impeding on the democratic spirit of the American market.

There are other reasons the deal is so complicated. One is AT&T’s 2015 purchase of DirecTV, the country’s biggest satellite television company. As Reuters noted, an AT&T-Time Warner deal would constitute the first-ever joining of “a major U.S. media company with a wireless network, satellite TV distributor, and high-speed Internet service provider.” That’s the sort of corporate fusion that makes many people uneasy. Further, some worry that affixing a media wing onto a massive telecommunications conglomerate  could undermine public trust in the existence of a free press. “The deal would give a huge corporation the opportunity to influence news reporting on itself and on topics in which it’s interested,” wrote Michael Hiltzik at The Los Angeles Times.

In a public effort to appease early critics, executives at AT&T and Time Warner have emphasized that because the deal wouldn’t merge any companies in direct competition, the competitors of all the companies involved would face similar markets as before. This kind of deal is also known as “vertical integration,” a characterization that is meant to mask its potentially deleterious effects. Speaking to analysts on Monday, AT&T’s CEO, Randall Stephenson, offered, “I’m not sure I know of a situation where vertical integration has been blocked by the government in our two sectors.” Stephenson added that whatever issues regulators might have with the deal “can be handled with conditions” that would set rules on how AT&T operates after the merger.

For a sense of the regulatory intricacies are at play here, one need look no further than the NBC show 30 Rock, in which the fictional NBC executive Jack Donaghy (played by Alec Baldwin) is summoned to testify at a congressional hearing, where he must explain why the company’s merger with a major cable company will not be bad for consumers. Before decamping to Capitol Hill, Donaghy grimly explains the concept of vertical integration by pointing out how a corn-chip producer might be interested in tweaking digestibility of its food if it merged with a company that sold stomach-relief medication.

The episode later shows Donaghy deftly dispensing with the initial opposition to the deal among hapless lawmakers, and there seems to be a similar amount of doubt that the government could effectively impose regulations on AT&T should its deal with Time Warner go through. As Hiltzik argues, the 2011 NBC-Comcast merger (upon which the 30 Rock episode is purportedly based) is proof that it is difficult to impose conditions on huge companies. “The conditions didn’t work,” he wrote. “There have been constant complaints about unfair treatment of rival services and channels, as Comcast’s well-paid legal staff worked overtime to find every possible loophole in the restrictions.”

And that was with the involvement of the Federal Communications Commission (FCC), which, as Fung noted, antitrust experts say would bring the best prospects for regulations that looked out for consumers. But, according to a Reuters report on Monday, AT&T can apparently avoid the FCC altogether if Time Warner divests from the one local station that is overseen by the agency.

In addition to the tepid political response, which has been influenced by a broad anti-mega-merger sentiment among the media and the public, the reaction to the proposed deal on Wall Street has not been optimistic. Following the announced deal, shares of both Time Warner and AT&T dropped on Monday morning. One fund manager speculated to The Wall Street Journal that the deal only appears to have a 40 percent chance of going through.

From a business standpoint, analysts worry that AT&T has its hands full after devoting lots of energy and cash to its $48 billion purchase of DirecTV last year. While some suggest consumers and democracy at large seem poised to suffer from this merger in the long term, what may be worse for everyone in the short term is that AT&T will now have to divert more resources and energy that could be spent on improving its services to pushing through a deal that few people seem to want.