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WASHINGTON — A former Federal Communications Commission bureau chief remembers being in the room for a meeting after America Online announced its merger with Time Warner Inc. in 2000. The talk from the two companies then had been about innovation and synergy.

Someone in the room asked whether the FCC had jurisdiction over the Internet. There was a pause, silence and some puzzled looks before an agreement that, indeed, it did.

“Unspoken and lingering in the air was the thought that this is far too big for us not to have jurisdiction,” said the former official.

The question of the FCC’s role in reviewing another big merger involving Time Warner — this time, a $107.8 billion acquisition by telco AT&T — was again hanging in the air last week. This time, the question was whether the FCC would have any role in reviewing the deal and whether, regardless of who vets it, that deal would go through.

JURISDICTIONAL HOOKS

The FCC reviews mergers when licenses change hands, but Time Warner owns only a single TV station, WPCH-TV in Atlanta. It could spin off the station (the former superstation WTBS, now operated under an local management agreement by Meredith Corp.) to avoid that potential review.

Time Warner also has a handful of earth-station licenses it uses to distribute cable networks HBO and TBS, which would seem harder to unload in order to get out from under FCC oversight of the deal, though analysts suggested AT&T and Time Warner were busy trying to figure that out.

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The former FCC official said it would be interesting to see if the agency can resist finding some other way into the deal if that happens, adding, “This one will be a real thrill to watch.”

It could be an extended thrill ride. Given the size of the deal and the intervening presidential election and change in administrations, a decision isn’t likely to be reached until late next year.

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AT&T’s bid for Time Warner appeared to be a pivot toward broadband video distribution after its purchase only a little over a year ago of satellite-TV provider DirecTV, which the telco also pitched as making it a stronger competitor to Big Cable.

Clearly, positioning the deal as creating competition for cable and more access for online content was a pitch aimed at Washington, where the Obama administration is always looking to create more video competition and access, particularly online.

But securing the deal could come at the price of monetizing all that new Time Warner content if the quid pro quo is making it accessible to others.

The FCC has made it clear that it has authority over the distribution of content over the Internet, which is what the deal announced last week — combining killer content from CNN, Warner Bros. TV and films with mobile broadband — is all about.

But even if the antitrust-focused Justice Department is the lead dog and if it concludes that AT&T-Time Warner deal could hurt competition for online content or shelf space, it could sue to block the deal, seek spinoffs or apply deal conditions. (For instance, Time Warner’s 10% interest in OTT platform Hulu could be problematic, if the DOJ is concerned about that online video programming asset in combination with planned over-the-top TV service DirecTV Now.)

It was the Justice Department that took the lead in imposing conditions on the Charter Communications-Time Warner Cable, merger preventing contractual impediments to that online competition. The DOJ can also consult with the FCC for its expertise whether or not it is an official participant.

FIRST TIME FOR EVERYTHING

Deal defenders, including AT&T, were pointing out repeatedly that the Department of Justice had not nixed any vertical deals. “In the modern history of the media and the Internet, the U.S. government has always approved vertical mergers like ours, because they benefit consumers, strengthen competition, and, in our case, encourage innovation and investment,” David McAtee, AT&T senior executive vice president and general counsel, blogged last week.

There is a first time for everything, and as AT&T itself pointed out, this is the first deal combining content with a wireless broadband company. It billed the merger as the next revolution in video.

It would also be the first big media merger review of a potential Hillary Clinton administration. Clinton has pledged tougher merger reviews. That could translate to trying to block or condition the deal based on the conclusion that AT&T-DirecTV had both the incentive and the ability to restrict other online providers from access to its content.

The deal vetting will start as a new presidential administration comes in, which could delay the proceedings and bifurcate the process.

WASHINGTON — Wall Street analysts expect the government to ultimately bless the meld of AT&T and DirecTV, but not without some major conditions — more than the companies have offered so far — and not until after a long look by regulators.

Telco AT&T announced May 18 it was proposing a $67.1 billion debt-and-equity offer for satellite-TV provider DirecTV, the No. 2 U.S. pay TV provider with 20.2 million customers.

AT&T, whose U-verse TV fiber platform is the No. 6 multichannel-video provider with about 5.3 million subscribers, pledged to expand high-speed broadband to 15 million customers, mostly in rural areas, plus offer standalone broadband; establish nationwide pricing for DirecTV service; and abide by the Federal Communications Commission’s 2010 network-neutrality rules, whether or not they are restored. The combined AT&T-DirecTV would join Comcast and, if their deal goes through, Time Warner Cable in that commitment.

AT&T also said it would make a big-bucks bid in the broadcast incentive-forward auction — at least $9 billion and perhaps much more.

The announcement shifted a little of the focus from Comcast’s proposed merger with Time Warner Cable. That distraction was likely just fine with the first- and third-largest multichannel video providers, as anticonsolidation activists are now taking shots at a new target.

Craig Moffett, principal amd senior analyst at MoffettNathanson, has advised investors in blog posts that he thinks the AT&T-DirecTV deal will still pass muster with regulators, only with a little more “perspiration” than originally thought.

There is the size of the combined company and its potential buying power, the same concerns that Comcast- Time Warner Cable raises among the anti-consolidation community.

But there is also the issue of reduced horizontal competition, according to Moffett.

According to MoffettNathanson’s analysis, the deal would reduce pay TV competition in 25% of the markets where there is currently a choice among DirecTV, Dish Network, AT&T’s U-verse TV platform and a cable operato If U-Verse continues to be offered, as AT&T has said it will, there would still be four choices, even though two would be from the same company.

Using the Herfindahl-Hirschman Index that the Justice Department often employs to determine market concentration, the DOJ might view the deal as creating some highly concentrated markets such as Dallas, Houston and Miami, where both DirecTV and U-verse are major players.

“This analysis strongly suggests the agencies will presume that the deal is likely to enhance market power in the traditional pay TV market, a presumption AT&T and DirecTV would have to rebut,” MoffettNathanson said.

The HHI is far from the only measure, but defining the market is a key factor, and Justice might include Netflix or other over-the-top offerings, or look at the majority of markets that already only have three or fewer players to judge their competitiveness.

Then there are the voluntary conditions the companies have already offered, like national pricing and expansion of rural broadband.

MoffettNathanson said it is “still of the view that the deal will get done. Regulators are not mechanically bound by HHI analyses, and this feels like a deal where the competitive impact will be relatively muted in spite of what the math suggests.”

Bernstein Research said it also expects government approval, but suggests that won’t come for a full year — until the second quarter of 2015 — and will have numerous conditions.

The research firm sees the overlap between DirecTV and U-verse as the key competition issue, and sees the FCC and DOJ requiring footprint-wide pricing to discourage price increases where the two overlap.

Bernstein also predicts a requirement that both companies offer standalone broadband, probably more than the 6 Megabits per second standalone service that AT&T has offered. They will likely have to make network neutrality commitments for both wired and wireless broadband networks, and expand deployment and adoption beyond what the companies have already promised.

What’s an HHI? 

WASHINGTON — The HHI, or Herfindahl–Hirschman Index, is a measure of market concentration the government uses when vett ing mergers. It is calculated by adding the squares of the market shares of the competitors in a market. So, if only one company had 100%, the HHI would be 10,000. If there were 10 companies with 10% each, it would be 1,000.

The lower the HHI, the less concentrated the market. The HHI increases as the number of competing firms decreases and as the disparity in share of the market increases.

Generally speaking, an HHI of 1,500 to 2,500 is considered to be a moderately concentrated market, and above 2,500 a highly concentrated market. Transactions that boost the HHU by more than 200 points in already highly concentrated markets are presumed to “likely” enhance market power.