By Shalini Ramachandran and Thomas Gryta
AT&T Inc. will have significant hurdles to surmount in its
ambitious pursuit of Time Warner Inc. beyond just negotiating a
takeover price. Former regulatory officials and analysts say it's
an open question about how tough it will be to win approval for a
deal.
The best case for the acquisition, which is likely to top $100
billion including debt, rests on the fact that it would be a
vertical merger, meaning that the companies aren't direct
competitors but are part of the same supply chain. Time Warner,
with its Turner cable TV channels and HBO premium network, supplies
channels to AT&T, which is a distributor of pay-TV and offers
wireless service.
That's distinct from a horizontal merger, like AT&T's failed
attempt to acquire wireless carrier T-Mobile in 2011, which would
have combined two direct competitors offering the same service.
The deal would need to win approval from the Justice Department
and require at least some review by the Federal Communications
Commission. AT&T is expected to offer up some concessions
upfront, such as assuring that other pay-TV distributors and
wireless operators would still get access to Time Warner
programming, regulatory analysts said.
In a research note, Credit Suisse analysts said they expect a
"lengthy antitrust review" with an "uncertain outcome."
Some former regulatory officials say a precedent for approval
was potentially set with Comcast Corp.'s prior acquisition of
NBCUniversal, which similarly combined distribution and content,
though it was also handed stringent conditions.
"Without knowing the details, this transaction has a structure
that we have all seen before, in a different iteration. There
should be some comfort level," says Michael Regan, a former top
regulatory executive at 21st Century Fox Inc., who helped the
company study Time Warner during its failed 2014 pursuit. The main
issue, he says, "is going to be size."
AT&T, which is the second-largest wireless carrier with
almost 90 million retail subscribers and which became the largest
U.S. pay-TV provider after acquiring DirecTV last year, already has
a massive reach into people's homes and mobile devices.
If AT&T and Time Warner are able to complete a deal
agreement, they will be in for a lengthy regulatory review and, at
the very least, tough conditions. The scrutiny is likely to range
far beyond pay television, into how AT&T's control of a major
content company will affect online video distribution.
"The government's shown that it's interested not just in the
traditional pay-TV market, but in broadband and mobile as well,"
said former FCC Chairman Julius Genachowski, who oversaw the agency
when it blessed Comcast's NBCUniversal deal. "It's a big hurdle to
block a deal, and generally the discussion is around whether and
what conditions make sense."
One question is whether the deal will receive a close review
from the FCC. Time Warner owns one broadcast station, WPCH-TV in
Atlanta, which falls under the FCC's jurisdiction, and may also
have other distribution operations under FCC oversight. AT&T
would need to apply for a license transfer for at least the
station, and the agency would review whether that falls in the
public interest, an FCC official said.
If Hillary Clinton wins the presidency, FCC Chairman Tom
Wheeler, who has taken a tough stance on big mergers, is likely to
stick around for several months, even into the late summer. One
person close to Mr. Wheeler said that he is likely to get involved
somehow to influence the review.
Other hurdles remain. Jonathan Sallet, the former FCC general
counsel who built the case that ultimately led to blocking the
Comcast-Time Warner Cable deal, now works at the Justice Department
in the antitrust division. During the Time Warner Cable deal
review, it became clear that both FCC and Justice Department
officials had serious concerns about whether the conditions they
imposed on Comcast for its NBCUniversal purchase were tough
enough.
Some consumer advocates said the merger could raise significant
worries.
"AT&T would be in a position to favor [Time Warner] content
and deny access to cable, wireless and online competitors," said
Gene Kimmelman, president of Public Knowledge, a public interest
group and a former Justice Department antitrust official.
Justice Department officials have spent a considerable amount of
time in recent years studying the intersection of
telecommunications and the rapidly evolving market for video
content.
A Justice Department spokesman declined to comment.
--Joe Flint, John McKinnon, Brent Kendall contributed to this
article.
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
October 21, 2016 19:01 ET (23:01 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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