AT&T CEO Randall Stephenson spoke at a Senate antitrust subcommittee hearing today about his company’s proposed $85.4 billion purchase of Time Warner and denied that the merger will bring any harm to customers or competitors.
Senators and witnesses at the hearing said AT&T and Time Warner combined might restrict valuable programming such as HBO to AT&T’s TV services or charge rival TV providers a higher price to carry it. They also discussed AT&T’s zero-rating, which exempts the company’s own video content from mobile data caps while requiring online video providers to pay for the same data cap exemptions.
Merger concerns boil down to AT&T controlling both distribution and video content instead of one or the other. AT&T is already one of the country’s largest providers of home and mobile Internet service, and it's the largest cable or satellite TV provider thanks to its acquisition of DirecTV last year. AT&T controls distribution of video by operating these Internet and TV services.
Buying Time Warner—the owner of HBO, CNN, Turner, Warner Bros., and more—would also give AT&T control over much of the programming that is viewed on its Internet and TV services. (Note that Time Warner is completely separate from Time Warner Cable, which was recently purchased by Charter.)
But there’s nothing to worry about, Stephenson said. Although limiting access to Time Warner content might benefit AT&T’s distribution business, such limitations would cripple the business model of Time Warner, he said. AT&T wouldn’t spend $85.4 billion on Time Warner if it planned to impair that business dramatically, he said.
“The business model's fundamental premise is wide and broad distribution of content into every home, particularly in the United States of America,” Stephenson said in response to questions from senators.
There is no “reason to believe we could use Time Warner programming or AT&T networks to hurt related markets,” he also said in prepared testimony. “Simply put, it would be irrational business behavior to do so. Time Warner’s programming is more valuable when distributed to as many eyes as possible. Moreover, in order to have great programming, it is imperative that we attract great creative talent to develop it. The best way to attract that talent is through widespread distribution of Time Warner content.”
“The solution is not even less competition”
AT&T argues that it can create a more effective competitor to cable TV companies by putting DirecTV and Time Warner content on its mobile network and letting the video stream without counting against data caps. AT&T also wants to be a bigger competitor in the online advertising market against Google and Facebook.
But any benefits must be weighed against potential disadvantages for Americans, said Sen. Amy Klobuchar (D-Minn.).
“The solution for less competition is not even less competition,” Klobuchar said.
Video distributors have complained that AT&T could raise the prices competitors pay for Time Warner content or deny access to that content, she said. Independent content creators worry that AT&T will favor Time Warner programming over content made by smaller companies, stifling diversity of viewpoints, she also said.
Sen. Al Franken (D-Minn.) disputed AT&T and Time Warner’s argument that it wouldn’t be able to attract programming talent if it limited distribution. HBO attracted the talent necessary to put on shows like The Sopranos even though the channel was “exclusive” to those cable customers who were willing to pay extra, he said.
Just as The Sopranos pushed customers to subscribe to HBO, exclusive access to Time Warner programming could push customers to DirecTV’s satellite and online services or HBO’s standalone streaming service, Franken argued.
AT&T would have incentive to limit access to Time Warner video because AT&T's distribution network is so large, with more than 130 million wireless subscribers and 25 million TV subscribers in the US, said Gene Kimmelman, CEO of consumer advocacy group Public Knowledge.
Time Warner CEO Jeff Bewkes, who also testified at today’s hearing, recently said that restricting content to AT&T’s network “would be like selling toothpaste and not putting it in [drugstore chain] Duane Reade. It doesn’t make any sense.”
Franken said that analogy doesn’t make sense. “It’s more like selling Game of Thrones and not letting Comcast subscribers watch it,” Franken said. “Or making Comcast pay more for the privilege of having Game of Thrones or Veep or the rest of the lineup.”
“Nothing is preventing a combined AT&T/Time Warner from going to any of its competitors in the pay-TV market and charging double,” Franken also said. “I don’t think these hypotheticals are outlandish at all; you’d have every reason to do this if you could make more money. This is the incentive that's created by the merger.”
Bewkes testified today that “it would make no sense to not sell HBO on the Comcast system, on the Verizon system.” He also argued that AT&T and Time Warner together still wouldn’t have enough market power to significantly raise competitors’ prices.
Online video may face threat
An even bigger threat will be posed to online video companies that don’t have the same negotiating power as Comcast, Kimmelman said.
“I'm not worried about Comcast not getting Time Warner content,” Kimmelman said. “I'm worried about the online distribution… not being able to get exactly what it needs to be a player and a competitor.”
While AT&T’s purchase of DirecTV helped the combined company offer better video and broadband bundles, the AT&T/Time Warner merger doesn’t seem to provide any similar efficiencies that benefit customers, Kimmelman said. Any improvements that AT&T can make by owning Time Warner could also be achieved by striking business deals while remaining separate companies, he said.
“They could contract to do those same things without the risk of a merger,” Kimmelman said.
The merger’s fate will be decided by the Department of Justice and possibly the Federal Communications Commission. The purpose of the Senate hearing was to provide a public forum for evaluating the merger’s effects.
The merger's relation to net neutrality rules for Internet providers was raised by Sen. Patrick Leahy (D-Vt.). Noting that the rules could be overturned under President-elect Donald Trump, Leahy said, "any weakening of these rules will cause serious harm to consumers—harm that will only be further exacerbated by mergers in this industry."
It wasn’t just Democratic senators who raised problems with the deal. Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) discussed concerns about the merger’s implications for a “free and diverse media.”
“This is something I recently experienced, because on weekends when I’m at the farm I always watch channel 349 on DirecTV,” Grassley said, referring to Newsmax, a channel recently dropped from DirecTV. "I found out it wasn’t there anymore… I found out what is going on is an unfair contract negotiation."
Grassley described several other points detailed by merger critics and said they should be carefully analyzed:
There’s 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. There’s concern about AT&T/Time Warner’s ability to leverage their assets to negotiate better licensing arrangements or raise the price of their content to the detriment of other distributors. There’s concern about the merged company’s ability to employ “bullying” tactics to dictate rates and terms to other networks. There’s concern that this acquisition will concentrate too much power into one conglomerate, resulting in higher prices and fewer programming options for consumers...
These are all serious concerns which should be scrutinized carefully by the antitrust regulators tasked with reviewing this transaction.
AT&T has reason for optimism
Although Trump once vowed to block the AT&T/Time Warner merger, AT&T executives were reportedly encouraged by recent meetings with Trump’s transition team.
AT&T could benefit from regulators evaluating the merger against market power exerted by newer companies like Google and Facebook. Quoting the American Enterprise Institute, Grassley said that “with tech giants like Google, Facebook, Amazon, Netflix and others changing the way consumers access content, it’s legitimate to ask whether ‘what looks straightforwardly anti-competitive in the old industrial-merger models might not be so simple in the merger of modern media platforms.’”
reader comments
85