Two ‘800-pound media gorillas’ unite. Should consumers be worried?

AT&T’s tentative marriage with Time Warner could have a substantial impact consumers.

CREDIT: AP Photo/Richard Drew
CREDIT: AP Photo/Richard Drew

AT&T is going for its second major merger in two years as it seeks to acquire New York-based cable provider Time Warner, Inc.

The telecom giant announced the deal over the weekend with AT&T CEO Randall Stephenson calling it “a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers.”

AT&T finalized its $48.5 billion acquisition of DirectTV last year, readying itself to move in on Time Warner. Comcast attempted to snag Time Warner last year but was killed under a slew of public and political criticism. In both cases, policy experts and government warned that such mergers can harm consumers by giving them fewer options to buy cable, read news, and get wireless services. Those concerns haven’t dissipated as AT&T tries to bring Time Warner into its more than $400 billion fold.

“This [merger] is taking two 800-pound gorillas in the room and smushing them together.”

“There isn’t an upside for consumers,” said John Gaspirini, a policy fellow for the telecom-focused think tank Public Knowledge in Washington, D.C. “This is a business deal that makes sense for their bottom line.”

Gaspirini emphasized that it’s still unknown exactly how the deal, if it survives regulatory scrutiny, will affect consumers or the industry. “The deal isn’t expected to close until the end of 2017. It could go either way,” depending on the election, he said.

Politicians are already calling for scrutiny of the deal and Democratic presidential hopeful Hillary Clinton’s campaign has expressed concern the deal could be anti-competitive. GOP contender Donald Trump’s economic adviser released a statement, saying the candidate would “break up the new media conglomerate oligopolies that have gained enormous control over our information, intrude into our personal lives, and in this election, are attempting to unduly influence America’s political process.”

“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers.”

Beyond the public criticism, there’s a convoluted history regarding these mega-mergers: The Federal Communications Commission (FCC) blocked AT&T from acquiring T-Mobile in 2014. Time Warner had an approved but historically failed merger in 2000 with AOL, which Verizon bought in 2015. Verizon is also trying to finalize its Yahoo acquisition deal.

AT&T’s proposed merger puts it in heated competition with Verizon because the wireless giant is lacking the content department even if it successfully buys Yahoo. That means Verizon will likely face pressure to make a similar high-stakes acquisition soon to compete with AT&T.

But all of this shuffling around, buying and acquiring of telecom companies, is more than just confusing; it’s part of a decades long trend. Over the last 20 years or so, the telecommunications industry has been consolidating, buying and merging with one another since antitrust and communications regulators busted up Ma Bell in the 1990s, giving birth to companies like AT&T and Verizon.

“There isn’t an upside for consumers…This is a business deal that makes sense for their bottom line.”

Historically, consumers lose in high-profile mergers like the AT&T-Time Warner deal. According to the National Bureau of Economic Research, mergers and acquisitions tend to result in higher costs for consumers and have little to no effect on a company’s productivity or administrative costs.

The NBER looked at mergers and acquisitions from 1997 to 2007 across all U.S. manufacturing industries to determine their effect on the marketplace. Markups or price increases for acquired companies ranged from 15 percent to 50 percent, researchers found.

Because the AT&T-Time Warner deal combines a content distributor (AT&T) with a content creator (Time Warner), customers would could be limited in their choices for what they watch and how they watch it— even if they don’t have cable.

If AT&T inks the deal, it will own programming and the infrastructure needed to distribute it, creating a vast ecosystem that could be hard for consumers to escape. It would be “one company moving around money on it’s balance sheet,” Gaspirini said, and “it violates the spirit of the open internet.”

A bulked up AT&T could also oppose regulations that could lower consumer costs or support regulations that raise costs for competitors such as Netflix and Hulu.

“There’s so much that we don’t know about how this will impact consumers,” Gaspirini said. “There’s a ton of questions and ton of unknowns here that AT&T doesn’t address in its short press release.”

The best thing for consumers to do right now, he said, is “pay attention and ask questions.” The FCC is expected to consider broadband privacy rules Thursday, which are a part of the net neutrality rules passed last year.

“AT&T is opposed, this [proposed] merger gives them more information on what consumers want,” Gaspirini said. “This isn’t Ma Bell. This is a company with considerable influence and leverage over what we watch, how we consume it, who we text and call…This is taking two 800-pound gorillas in the room and smushing them together.”