DOJ OK for AT&T/TW Still Seen, With Conditions That Experts Dispute
Antitrust experts are at odds over how AT&T's proposed buy of Time Warner could shake out at DOJ's Antitrust Division, at least on conditions on approval, though OK is expected. There are questions about what kind of changes a Trump administration would represent in how Justice approaches antitrust (see 1611180043), but agency leadership appointees are consistent with what one would expect in a traditional Republican administration, likely indicating a traditional approach, said an antitrust lawyer. The Trump DOJ is likely traditionally Republican on antitrust -- more accommodating and permissive -- but "there will be the occasional lightning strike," said Brian Quinn, Boston College associate law professor, but "If there's going to be a lightning strike, [AT&T/TW] is going to be the deal." AT&T and DOJ didn't comment.
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Judging by precedent, the market and publicly released letters from Capitol Hill, DOJ's Antitrust Division likely is focusing on AT&T zero-rating policies, particularly any new AT&T attempts to exempt its own video services from mobile and home data caps it applies to competitors, said former FCC Enforcement Bureau Chief Travis LeBlanc of Boies Schiller. He said the department also likely is considering price floors -- provisions AT&T might require of competitor programmers to sell directly to consumers only above a certain price -- as well as what competitor distributors can charge for TW content: "Bread-and-butter DOJ issues."
Justice is likely to require AT&T to hire an independent compliance officer and appoint an internal one -- a condition that would be relatively easy to advocate given precedent of those requirements for AT&T/DirecTV (see 1507240055), LeBlanc said. He said Justice likely won't seek an AT&T commitment to comply with the existing open Internet rules, since the company pledged to eschew blocking and throttling (see 1705310027). Limits on zero rating would have been expected under the previous administration, but since the FCC under Chairman Ajit Pai has said it doesn't have objections to zero-rating practices, it's unlikely Justice will make an issue of it, BC's Quinn said.
Ongoing conditions of any kind seem unlikely given DOJ's penchant for "clean" deals that don't require monitoring, Quinn said. That could point to the agency, if it makes any requirements, wanting to focus on divestitures or spin offs, he said, pointing to CNN. Requiring independent outside monitoring is "a second-best solution" in DOJ's eyes, Quinn said. Some have speculated TW ridding itself of CNN might be necessary to mollify the administration (see 1701130018).
AT&T still expects to close on TW by year's end and the Justice review process is continuing, Chief Financial Officer John Stephens said in a quarterly earnings call Tuesday (see 1707250066). Asked about post-merger management (see 1707140052), Stephens expects Randall Stephenson to remain chairman and CEO "for a long time." He also said TW content is "going to be great for us to bundle with our products" and be sold to other distributors "who may want to bundle their products."
AT&T's TW plans apparently are to keep it largely separate, with aggressive cross-marketing largely aimed at using DirecTV and TW to aid the wireless business, MoffettNathanson analyst Craig Moffett emailed investors Tuesday. Evidence includes the price of HBO being cut $5 to help sell DirecTV Now subscriptions, with DirecTV Now being discounted $10 to help cut wireless churn, he said, saying the downside is the HBO price cut risks angering competing distributors while the DirecTV Now price helps the wireless segments but not AT&T's entertainment segment. Moffett said AT&T needs to have a strategy for TW content beyond just using it for discounting.