For obvious reasons, a lot has already been written about the $85 billion merger between telecom giant AT&T and media titan Time Warner. AT&T is the second-largest wireless carrier in the US after Verizon, while Time Warner is a massive media conglomerate that owns popular brand names such as CNN, HBO, and Warner Bros. The acquisition, therefore, has unsurprisingly sparked a lot of interest as to the motivations and implications of the deal. Since the merger isn’t a horizontal one, obvious concerns about increased market power and loss of competition can be ruled out.
On closer examination, the vertical integration of a content maker and a distributor isn’t as innocuous as it looks. The move isn’t unprecedented, with the 2011 Comcast-NBC merger making for an excellent example. In its defense, the Comcast-NBC merger was strictly a diversification deal and came with several clauses, including some related to net neutrality. In comparison, the largely under wraps AT&T-Time Warner deal has given dissenters reason to cast aspersions on it.
Several commentators have raised pertinent questions about an unhealthy saturation of power between a content maker and a content distributor. Whether or not AT&T’s acquisition of Time Warner shall lead to exclusive dealing, undesirable favoritism, impingement of net neutrality and/or other acts that constrict consumer freedom and choice with lower service quality are issues that will make themselves clear with time.
As of now, the public statement issued by AT&T’s CEO Randall Stephenson confirms that the merger shall enable the participant companies to integrate their operations, thereby increasing efficiency, lowering costs and boosting profits.
“The world of distribution and content is converging, and we need to move fast, and if we want to do something truly unique, begin to curate content differently, begin to format content differently for these mobile environments, and this is all about mobility,” he said.
The pro-merger faction avers that the deal is a smart move because telecommunications companies need to evolve beyond their ‘pipe’ existence in order to create value in the form of content and user experience.
“As we begin to work with content creators to develop content for this world of mobility, it’s proving to be very difficult to get to a world of content that’s really curated and formulated for the mobile experience,” says Stephenson.
However, this consolation has done little to dispel doubts in the minds of policymakers and the general public. The hope of new premium content is doing little to assuage the threat of AT&T using the opportunity to expand its dominance in the marketplace. The telecom titan is already guilty of pushing out DirecTV’s content on its network by zero-rating.
Given its track record, it wouldn’t be surprising if AT&T used Time Warner content to expand business by dangling the not-against-data-cap treat in front of content-hungry consumers. Time Warner content will become a bargaining chip for AT&T to draw new customers as well as track more users across screens and platforms, thereby impinging on customer privacy.
While consumers may benefit from a more holistic user experience, more targeted advertising will interrupt their screen time. Furthermore, the popular economic thesis that mega-mergers bring down costs is quite possibly only a theoretical truth. Historically, colossal mergers have only bolstered prices, confirms former FCC commissioner and now consumer interest advocate Michael Copps.
Copps says, “The sorry history of megamergers shows they run roughshod over the public interest. Further entrenching monopoly harms innovation and drives up prices for consumers.”
If AT&T does indulge in exclusivity and self-dealing, the visibility of competitor content will reduce drastically, making competitors vie for consumer attention. In the long run, this could slash competition (and media plurality), thereby raising prices. Either way, the verdict should be left to the reviewing authorities, and one can only hope that it rules in favor of consumer interests.