AT&T, Time Warner Pitch Hill on Merger's Public Interest Benefits

While AT&T and Time Warner will not be providing a public interest statement to the FCC as part of the filing of their proposed merger—because they are not filing it with the commission—they have provided one to the Hill in an extensive reply to senators questions.

The companies say the deal means more attractive bundles, deployment of faster broadband, "strengthen AT&T’s ability to compete against cable companies," and provides viewers with greater value and choice.

“This merger will unleash a new wave of innovation in the video marketplace and bring much-needed competition to cable providers," they said. "Market realities refute any concerns about anticompetitive effects. And the Justice Department will vigilantly defend the public interest in its own independent review of this merger. We look forward to working with the Department in that review," the companies said.

A dozen Democratic senators (Independent Bernie Sanders made it a baker's dozen) wrote AT&T CEO Randall Stephenson and Time Warner CEO Jeff Bewkes last month asking for a public interest statement given that the companies were planning to "avoid scrutiny" by "circumventing" the FCC review.

They structured the deal so that Time Warner's FCC satellite licenses—for internal communications like CNN-to-studio links—did not change hands, so the deal only needed to be registered with the Securities and Exchange Commission and submitted to the Federal Trade Commission and Justice Department for antitrust review—they divvy them up, with Justice usually getting communications mergers.

Related: Time Warner Shareholders Approve AT&T Merger

The senators said they wanted, by Feb. 17, "a comprehensive and detailed explanation of whether and how the proposed transaction would produce consumer benefits, encourage competition, remedy all potential harms, and ultimately serve the public interest," including by "deploying services, particularly to rural and underserved areas, ensuring non-discriminatory access to communications networks, improving network reliability, promoting diversity of ideas and voices in the marketplace, and encouraging the free flow of information via Telecommunications services."

Among those asking for the info were Sens. Al Franken (D-Minn.), arguably the Senate's strongest media consolidation critic, and Sen. Ed Markey (D-Mass.), a close second (or perhaps third behind Sanders).

“I appreciate AT&T’s response, but I plan to continue my investigation and solicit viewpoints other than the ones proffered by the companies involved in this deal," said Markey. "It’s not surprising that AT&T would claim the proposed deal benefits consumers, but we need an objective review from the Justice Department and the FCC to truly evaluate how merging two massive companies into one behemoth will benefit my constituents and consumers from coast to coast.”

"While I'm glad they responded to me, their letter does little to address my concerns and essentially asks American consumers to trust that the combined company won’t engage in anticompetitive behavior, raise prices, violate the principles of net neutrality, or decrease access to diverse voices," said Franken. "But we’ve seen some of these behaviors before—both as a result of past mega-mergers and straight from AT&T itself." Franken posted the letter online asking for input. "I want to hear from all of you—do you think that this deal is really in your interest? 

AT&T and Time Warner replied in a letter signed by AT&T’s executive VP Tim McKone and Time Warner senior VP Steve Vest. While the companies did not share their correspondence with Congress, they did outline the responses to the senators concerns, with the following excerpts.

Consumer Benefits of the Merger

“Put simply, this merger is about giving consumers what they want. Together, AT&T and Time Warner will create exciting new ways for consumers to enjoy video anytime, anywhere, and on any device, with unprecedented levels of customization and interactivity. The merger will allow us to offer customers more attractive bundles of broadband and video services, prodding cable companies and other competitors to respond by improving their own services.  And the merger will further incentivize AT&T and other wireless carriers to deploy lightning-fast 5G wireless technology faster and deeper in their networks.  As a result, this deal will increase competition and accelerate the innovation/investment cycle, all to the benefit of American consumers.”

DoJ’s Extensive Review

“Of course, the Department of Justice will thoroughly scrutinize this transaction after receiving input from a vast range of market participants, government agencies, and public interest groups. Congress entrusted the Department with broad merger-review authority to protect the public’s interest in competitive markets.  In contrast, any additional FCC review of mergers is limited to the merits of FCC license transfers between the parties.

“Finally, the competitive questions raised in your letter are precisely the issues under review by the Department of Justice, which Congress has entrusted with protecting competitive markets. As in other major mergers, the Department will receive input from competitors, customers, and suppliers of the two companies, from trade and public interest groups, and from the public more generally. The Department will take all of these views into account when evaluating the transaction.”

The Role of the FCC and Its Role in Similar Deals

“Although our plans are subject to change, we currently anticipate that Time Warner will not need to transfer any of its FCC licenses to AT&T to maintain its business operations. Almost all of Time Warner’s existing licenses are used only for internal communications anyway; they do not provide FCC-regulated services to the public. As a result, the Department of Justice will be the U.S. agency responsible for reviewing this transaction, just as it (or its sister agency the FTC) has in other transactions affecting the communications marketplace, including Comcast’s acquisition of Dreamworks Animation, Verizon’s acquisition of AOL, Google’s acquisition of YouTube, and Facebook’s acquisition of Instagram. We look forward to working with the Department of Justice to answer any questions it may have about this transaction.”

Transaction Is Responding to Dynamic Marketplace

“This merger responds to an ongoing sea change in the video marketplace.  Consumers today want their favorite video content anytime, anywhere, and in formats designed for all of their devices—from televisions to computers, tablets, game consoles, and smartphones.  Consumers are also demanding programming packages tailored to their particular interests and lifestyles.  They are calling for more interactive programming that they can integrate with other content and then share on social media platforms.  And they are spending more and more time consuming video content from powerful, vertically integrated providers such as Netflix, Amazon, Google, and Facebook.

“This merger will only strengthen AT&T’s ability to compete against cable companies by enabling it to offer more innovative video packages and services. The combined company will be able to offer customers more programming options at attractive prices. AT&T’s DIRECTV NOW product is a great start, giving customers highly affordable online access to more than 120 streaming channels.  But this transaction will enable us to give consumers more of what they want, and do it faster.  Together AT&T and Time Warner will innovate more quickly, experiment more readily, and adjust their offerings more nimbly in light of customer response.  In the end, consumers will benefit from new options, better value, and greater choice.”

Competitive Issues Raised

“As Mr. Stephenson explained in his Senate testimony, 'Time Warner’s programming is more valuable when distributed to as many eyes as possible,' and AT&T has every incentive to maximize that value.  In contrast, restricting distribution of Time Warner content would not only sacrifice revenues, but also damage Time Warner’s reputation and relationships in the entertainment industry. In Mr. Stephenson’s words, '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.' AT&T did not agree to pay $100 billion for Time Warner to sabotage that successful business model.

“In addition, neither AT&T nor Time Warner even approaches the market dominance that both would need to hobble distribution competitors and thereafter 'raise prices to consumers' (1/25 Letter at 1). When a programmer sells cable network programming to a pay-TV distributor, it earns revenues both from the pay-TV company and from increased advertising revenues or, in the case of premium channels, subscription fees.  Thus, if the combined AT&T/Time Warner withheld programming from other pay-TV companies, it would lose many millions of dollars in revenue.  For two reasons, AT&T could never make up for those massive losses through additional pay-TV revenues.” 

“First, while Time Warner’s programming is high-quality, its basic cable channels in the aggregate account for only about eight percent of viewership of all basic cable and broadcast television networks.  That is only about half of the viewership of Comcast-NBC, of Disney, and of Fox—each.” 

“Second, AT&T’s second- or third-place status in local pay-TV markets would make such a strategy unprofitable even if Time Warner content were critical to pay-TV customers.  Again, AT&T lags far behind cable companies in pay-TV markets across the country.[2]  If the combined company withheld programming from cable companies, which typically account for the majority of pay-TV viewers, it would suffer ruinous programming revenue losses.”

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.