Breaking News
Home / Business / AT&T’s merger with Time Warner goes on trial

AT&T’s merger with Time Warner goes on trial

AN ANTITRUST trial over AT&T’s $109bn acquisition of Time Warner, which begins on March 19th, will have more keen observers than one courtroom can handle. Disney, Comcast, 21st Century Fox, Verizon, Charter Communications, CBS and Viacom will be watching. So will Netflix, Amazon and Google.

The reason is simple. If AT&T wins the case against the Justice Department, and the “vertical merger” of the distribution and content businesses goes through, a wave of consolidation deals will follow. Companies that rely on large numbers of people to watch video will want to bulk up to compete with each other and Silicon Valley’s mightiest.

Get our daily newsletter

Upgrade your inbox and get our Daily Dispatch and Editor’s Picks.

Comcast may make a hostile bid for Fox’s assets, setting off a bidding war with Disney, which has already agreed a $66bn deal with Fox. (Comcast already wants to buy Sky, a European satellite provider that is part of the Disney-Fox transaction.) Other pay-TV and mobile firms, like Charter and Verizon, will feel emboldened to go after content companies such as CBS or Lionsgate. All are watching the case with “bated breath”, says Craig Moffett of MoffettNathanson, a research firm.

Historically, antitrust actions have targeted horizontal mergers between firms operating in the same area. But in November the Justice Department sued to block the Time Warner purchase on the ground that it would give AT&T, which has 25m pay-TV customers and national reach with DirecTV, too much leverage over competitors. AT&T could extract higher fees from other cable operators for Time Warner’s popular Turner channels, or simply offer them exclusively on its own cable services in order to poach customers from rivals. The government adds that AT&T could employ this anti-competitive tactic in cahoots with Comcast, a competing operator which already owns valuable programming via NBCUniversal.

AT&T retorts that it makes a lot of money selling content; withholding it from other operators would be commercially self-defeating. Calculations by independent analysts, such as Ben Thompson of Stratechery, a tech newsletter, suggest that AT&T would have to lure more than 15% of its competitors’ customers for such a strategy to be profitable. The government’s own witness on the issue reckons that 12% would switch. In its pre-trial brief the company claims that its pay-TV business is in structural decline, losing millions of high-paying customers to the likes of Netflix.

Vertical integration, AT&T will try to persuade the court, would enable it to target advertising more effectively, levelling the playing field against the tech titans. In reality, most analysts think the merger only makes sense if the Justice Department’s worries are founded. AT&T now has the awkward task of talking this sound business case down.

This article appeared in theBusinesssection of the print edition under the headline“Vertically challenged”

Check Also

So long, farewell

IT IS an enormous privilege, and responsibility, to write for The Economist and capture a small sliver of readers’ attention. All told, there have been well over a thousand posts on this blog (the site history runs for 98 pages) as well as 546 print columns (the last will appear at the end of the week). The first post, back in February 2009, was written in the depths of the crisis and “was looking for signs of hope, although without any confidence it can call the bottom exactly.” In fact, the market bottom occurred only a few weeks later. There have been a few wobbles along the way but that bull run is still going. The irony would be that, just as the start of this blog heralded the upswing, the last post might signal the demise of the great bull market.

This blogger has been a bit gloomy during his tenure, too gloomy as it turns out. So as well as three signs of danger, I wanted to close with three signs of optimism. First, the...Continue reading

Leave a Reply

Your email address will not be published. Required fields are marked *