2016 can be characterized as an exceptionally moody year, one with highs and certainly lows for us all. In the telecommunications industry, the big news of 2016 was AT&T’s proposed $85.4 billion merger with Time Warner.
Since then, the value of the deal has increased to an incredible $109 billion megamerger. In the political landscape, the merger has been met by significant opposition from both parties, including President-Elect Donald Trump and Democratic Senators Al Franken and Tim Kaine.
Industry experts are also hesitant to warmly accept the news of the megamerger, as many believe that it will enable AT&T to use Time Warner content for commercial surveillance of its 400 million customers. According to Jeffrey Chester, executive director of the Center for Digital Democracy, “…with Bugs Bunny and a host of other popular Time Warner brands, AT&T is going to be better positioned to lure you to buy its service and begin collect huge amount of data in your TV, on your mobile device, what you buy in the store, etc.”
Time Warner shareholders are scheduled to meet on February 15th to determine whether or not they will approve the deal. Any deal of this magnitude in the industry must gain the blessings of both the U.S. Justice Department (DOJ) and the Federal Communications Commission (FCC).
If you recall, the Justice Department and the FCC once prevented a similar deal in 2014 between Comcast and Time Warner Cable. However, a recent filing with the U.S. Securities and Exchange Commission (SEC) indicates that the AT&T deal may very well bypass FCC regulations, a major obstacle in “sealing the deal”. As a governmental agency that regulates interstate and international communications by various media, the FCC is responsible for regulating merger deals when communications licenses are transferred from one company to another.
Consequently, the FCC merger review process can choose to block any deal that is not regarded in the “public interest” and can be easily manipulated to fail by any commissioner against the deal. However, a recent SEC filing notes that AT&T and Time Warner do not plan to transfer Time Warner’s FCC licenses to AT&T as a part of the deal, effectively ensuring that the FCC is not involved in the review process of the merger. Although the DOJ will review the merger to make sure it is complying with antitrust laws, it is likely that the deal will easily pass the DOJ investigation, which is subject to court oversight and must meet very specific legal requirements to rebuff the merger.
The deal still faces significant opposition from Democratic and Republican legislators, many of whom believe that the megamerger will constrain the freedom of the press and award too much power in the hands of one entertainment conglomerate (AT&T). In retaliation to the news of the megamerger, Verizon CEO Lowell McAdam has hinted at his plans of buying Charter Communications or Comcast in order to increase Verizon’s distribution of content and giving the company increased leverage to negotiate large entertainment programming deals.
McAdam and Verizon have not officially begun negotiations with either Charter or Comcast, however such a deal could potentially give rise to a David meets Goliath struggle for influence in the telecommunications industry between major conglomerates.
Time will only tell whether or not regulators and lawmakers will choose to put a stop to things before they have the potential to spiral out of hand in this major industry.