Why AT&T Should Be Encouraged to Purchase Time Warner

Publisher�s Outlook

Why AT&T Should Be Encouraged to Purchase Time Warner

By Rich Tehrani, Group Editor-in-Chief, TMC  |  January 16, 2017

At first glance, allowing AT&T (News - Alert), a large, powerful telephone company, to purchase the invaluable media assets of Time Warner makes one wonder if the resulting organization will be too rich and powerful. The answer is, if executed properly – hopefully better than AOL (News - Alert)'s attempt, it will be a whopper of an organization that has a limitless list of valued assets such as CNN, Warner Bros., DC Comics, HBO, and TNT. 

Keep in mind, AT&T has multiple modes of distribution from wireless to wired and satellite. So really, even at second glance, it would seem we are putting together an organization with so much market power, competitive companies will be slaughtered.

Regulators will likely force AT&T to divest some assets or agree to some stipulations that will keep the market from being excessively harmed. But let's discuss what the new AT&T could do in a worst-case unconditional buyout scenario.

You can already stream unlimited DirectTV on the AT&T Wireless network at no additional cost, giving the carrier an advantage over other wireless carriers. This market, however, is in a price war, so consumers are looking to spend less. Adding value with deals on Time Warner assets is certainly an effective way to get even more consumers to choose your service over the others.

Verizon, of course, has content like The Huffington Post and, soon, Yahoo. But no one will likely consider any of it an added value like say HBO.

AT&T will have a slight competitive advantage in the primary wireless space it competes in if the merger is allowed.

The real competition in the future, however, comes from Apple, Amazon, Facebook, and Google (News - Alert).

Google was providing fiber for a while, but arcane state regulations made it very difficult for the company to turn this into a real business. Google hedged with balloon-powered internet. Facebook (News - Alert) is experimenting with drone-powered internet. White space or unused spectrum internet will eventually be a real thing as well. Micro-satellites could become a market mover too.

For all practical purposes, Apple has a device and service monopoly; Amazon has an ecommerce monopoly, and very strong content and cloud arms; Google has a search advertising monopoly; Facebook has a social advertising monopoly. All of these companies are gunning for AT&T, and they are all flush with cash and experimenting with ways to take Ma Bell out. They've even invested in undersea cable. 

An effective counterbalance would be to allow AT&T to have prized content – if for no other reason than to thwart the advances of the tech companies encroaching on its turf.

The losers in this deal will be less well-financed competitors like T-Mobile and Sprint (News - Alert) – although T-Mobile CEO John Legere thinks the deal will take AT&T's eye off the wireless ball. This should give regulators some hope that the deal won't be terribly anti-competitive.

To summarize: If you had to weigh the positives and negatives of the deal for consumers, it’s likely 60/40 positive. I do have some lingering concerns about AT&T being too powerful, but in the last 10 years we've seen the smaller wireless carriers and Silicon Valley in general do very well with a strong AT&T in the market. If AT&T gets stronger, the competition will likely still be able to thrive. 

Edited by Alicia Young