AT&T-Time Warner: More than a Vertical Merger

            Proponents of AT&T’s $85 billion acquisition of Time Warner simplistically frame the deal as vertical integration by a content creator and a conduit provider.  Such combinations of non-competing enterprises typically trigger less antitrust concern and regulatory scrutiny.  However, such a characterization ignores the potential for this combination to harm consumers and both competing content providers and carriers. 

            Even opponents to the deal miss a major harmful consequence having the potential for equal or greater impact than the usual reference to raising competitors’ costs and denying access to “must see” content.

            Consider a scenario where AT&T seeks to extract even higher content carriage payments from competing cable, satellite and streaming operators.  Even if the company could demonstrate that it is not gouging, but retaining existing profit margins, AT&T can accrue two benefits from having the Time Warner content inventory, coupled with multiple content delivery services.  First, AT&T can use its multiple conduit buying power to extract bulk discounts.  Having DirectTV, UVerse wireline broadband and wireless broadband offer three delivery options for “must see” content.  Second, AT&T has multiple carrier flavors to offer a service alternative to disgruntled subscribers of competing conduit operators.

            In a time when video content subscribers have grown weary of triple digit monthly bills, some facing even higher rates, will migrate from an AT&T competitor to an AT&T video conduit option.  Rather than lose revenues from cord shavers, AT&T stands to gain new subscribers when a Comcast or Cox subscriber migrates to AT&T’s DirecTV, UVerse or broadband streaming using an AT&T wired or nationally available wireless option.

            Note also that the FCC Republican majority has disclaimed any reason—or jurisdiction—to investigate the acquisition.  This stand offish FCC does have jurisdiction to investigate disputes about the availability and cost of content to AT&T competitors and also channel placement and tiering issues.  The Commission has displayed little interest and competency to resolve disputes.  Can you recall the last time the FCC conducted a full evidentiary hearing?  Did you know the full Commission reversed the findings of an Administrative Law Judge addressing program access issues?

            It looks like AT&T wins even if it has to make structural accommodations to secure regulatory approval.