Senate Subcommittee Raises Plenty of AT&T-Time Warner Issues

By the time the Senate Antitrust Subcommittee oversight hearing on the proposed AT&T-Time Warner merger had been gaveled to a close after more than two and a half hours Wednesday, it had become clear that both Republicans and Democrats had lots of issues, or at least potential issues, with the deal but ones that the chief executives of those companies assured them were either off base or could be resolved via conditions.

The hearing focused on the Justice Department's antitrust review, which made sense given where it was being held. There were almost no mentions of the FCC, save for a by couple of senators, notably media merger critic Al Franken (D-Minn.), suggesting it should get a crack at the deal.

AT&T CEO Randall Stephenson said that it was still working through the 100 satellite licenses Time Warner holds—for things like delivering CNN content from field trucks to studios—to see which might need transferring and which not. If the answer were "not" for all of them, the FCC would not have an official deal review role, though Stephenson said he expected the FCC would get a say—supplying its expertise to Justice, for example—whether or not it was submitted to the FCC. He also said the companies would keep the FCC in the loop whether or not it was submitted there for review.

The principal issues for the senators on both sides of the aisle was the potential for the combined companies to favor their own online content or services or deny that content to competitors and what that would mean for consumer prices, choice and independent and diverse voices.

Stephenson and Time Warner CEO Jeff Bewkes said they had no incentive or ability to favor or withhold and pledged not to. Stephenson said that he expected any continuing concerns about either could be addressed by conditions imposed by the Justice Department.

Stephenson said it would not make any sense to pay $100 billion, including debt, for Time Warner and then mess with the model of broad distribution and access on which that model was based.

Subcommittee chairman Mike Lee (R-Utah) set the tone early in the hearing, going through a litany of potential concerns, including the size and reach of the combined company, the content assets, the potential for raising costs to rivals or degrading their distribution, forcing rivals into a "Hobson’s choice" of higher prices or limiting access to high-value content like CNN or HBO.

He talked about zero rating as a "siren song" that appeared to be customer-friendly but that critics said turn distributors from neutrals to gatekeepers, citing the FCC's concerns that the business model may obstruct competitors in favor of DirecTV content.

Stephenson points out that AT&T provides other content providers the same opportunity to sponsor data and at the same rate as DirecTV, which he said was the lowest wholesale rate.

Sen. Franken asked how AT&T could prove that. Stephenson said DOJ could look at the data and judge for itself.

The hearing featured a rare moment when Sen. Franken was at a loss for words after suggesting AT&T had taken the FCC to court over the initial FCC network neutrality rules. In fact, AT&T was part of a coalition, including cable ops and others, who worked with FCC chairman Julius Genachowski on those compromise rules, which the industry saw as a less nuclear option than Title II.

Franken had been trying to get Stephenson to update a statement he had made before the election suggesting one of the governors on the deal would be net neutrality rules. Those rules are not in jeopardy under a Trump Administration.

Stephenson did not respond directly to how getting rid of the latest rules would affect the deal after Franken said AT&T had historically been anti-net neutrality. Stephenson countered that AT&T had supported the no-blocking, no discriminating, no paid prioritization rules, just not the FCC's second version that reclassified ISPs as Title II common carriers.

Franken then said AT&T had opposed the previous rules, and Stephenson said no, that had been Verizon. Franken was silenced, then said he was done and that he guessed he was wrong, which he said would not be the first time.

Among the Democrats with clear concerns about the market power of the combined company, in addition to Franken, were subcommittee ranking member Amy Klobuchar (D-Minn.), Judiciary Committee ranking member Patrick Leahy (D-Vt.) and Richard Blumenthal (D-Conn.). Blumenthal also raised issues about President-elect Donald Trump's CNN coverage-related threats against the deal, which he called "absolutely abhorrent" and a threat to free speech.

Klobuchar said the three key questions that needed answering were: 1) would the deal increase the companies' incentive and ability to suppress competition; 2) will the deal produce pro-consumer benefits; and 3) if there were problems that needed remedying, would deal conditions do so.

Stephenson's and Bewkes' insistence that the obvious answer to number one as "no" seemed the one legislators were having the most trouble with. Not that the deal could not be structured to prevent that but just the suggestion it did not provide either an incentive or ability.

Among the answers to number two the execs provided were innovation that would bring down costs and increase choices and in the process be a disruptive competitor to traditional cable, a point AT&T and Time Warner have been pushing. The execs suggested that the problems with independent access to programming were associated with that old model they were trying to disrupt.

As to whether remedies would be effective, some legislators pointed to the years it took Bloomberg to resolve its dispute over a no news neighborhooding condition in the Comcast-NBCU deal.

But Stephenson and Bewkes both said their companies had good, actually they signaled "spotless," records in complying with deal conditions in previous mergers.

Taking aim at the deal were witnesses Gene Kimmelman from Public Knowledge and Daphna Ziman of independent channel Cinémoi. Joining Bewkes and Stephenson for the defense was billionaire online media pioneer Mark Cuban, who argued that the deal was pro-consumer since it created a company that could better compete with the web players he said were the big competition: Amazon, Apple, Facebook, Google and Microsoft.

Ziman told the senators that women control $14 trillion in wealth and 70%-80% of household spending," yet only two networks are owned and controlled by women. "Women deserve presence in the media," she said. "The airwaves AT&T utlizes belong to the American people, bestowed upon the MVPDs by the people, for the people, and AT&T has a fiduciary responsibility to utliize this resource in the best public interest. That obligation includes creating opportunities for cultureal diversity and democracy of voices."

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.