Jul 27, 2018
At over $102 billion dollars at close, including equity and debt, the deal combines one of the biggest telecommunications companies with one of the biggest corporate content-creation machines.
That means AT&T, often one of the only means of access to the internet, news and entertainment programming, will have control over a vast catalog of channels, media and movie studios, all of which it has a direct financial interest in seeing you spend your limited time consuming.
Last week the Justice Department lost its (poorly argued) case to block the merger, and the judge's approval of the deal is likely to embolden other media companies to merge. Already Disney and Comcast are in a bidding war over 21st Century Fox. These mergers will raise prices and diminish choices.
And in the absence of any Net Neutrality rules, companies like AT&T and Comcast will have the power and incentive to crush competition, limit access of new entrants to the media marketplace, stifle critical voices and promote their own content.
What happened in court?
The Justice Department is tasked with enforcing the country's antitrust laws and went to trial in late 2017 to block the merger, arguing that an AT&T-Time Warner conglomerate would lead to "higher monthly television bills" and the resulting company would engage in anti-competitive behavior.
However, the Department chose to fight with one hand tied behind its back. Due to the administration's attack on the Net Neutrality rules, it chose to focus on a narrow set of competitive harms regarding access to cable programming -- instead of the universe of harms we expect to see with AT&T now able to leverage its market power to discriminate against its competitors' video content across the internet and other platforms.
Despite the court's many options for reining in the behavior of the new AT&T, like requiring divestiture of parts of Time Warner, or setting merger conditions on how AT&T must behave in the market, U.S. District Court Judge Richard Leon blessed the union of the two companies, potentially paving the way for other companies to attempt similar mergers.
Judge Leon urged the Justice Department not to seek a stay of his ruling, a decision that allowed the merger to be finalized last week. However, it remains to be seen if the Department will appeal the decision to a higher court while its antitrust division chief mulls over possible "next steps".
AT&T's power in a world without Net Neutrality
The Trump FCC's repeal of the 2015 Net Neutrality rules, which prevented blocking, throttling, paid prioritization and other anti-consumer practices, went into effect on June 11. That means companies like AT&T now have a whole suite of previously illegal practices they can use to maintain their market dominance and leverage that power to favor the content they own on the internet, instead of having to provide the unfettered access to the entire internet as they were previously required to.
This means AT&T has the legal right and perhaps the financial incentive to:
Block or degrade access to online video services it doesn't own. This would make it harder, or slower, to access services like Hulu, Netflix or YouTube -- and easier to access HBO, which AT&T now owns.
Prioritize AT&T's vast new media library, which includes CNN, the Turner cable networks and the Warner Bros. movie studios. It can do this by either speeding up access to this content or providing financial incentives to its customers to access it.
Leveraging its market position as the world's biggest telecom company to charge new entrants to the media marketplace for access to its customers -- turning the internet into something like cable TV.
Don't take our word for it. Since the deal closed, AT&T CEO Randall Stephenson told CNBC that "The more distribution points and customers we enable to consume premium content, the more we want to own and invest in premium content itself."
He added that the company plans to leverage its "170 million direct-to-consumer relationships" to facilitate the delivery of content it owns, including Time Warner's vast advertising network, to further inundate its customers with online advertising.
While AT&T hasn't yet announced that it will play games with network traffic to steer its customers to media it owns, the company has deployed its significant market power to offer customers access to part of its content library for free through a new product called "AT&T Watch TV". Customers who aren't on the AT&T wireless unlimited-data plan will have to pay an extra $15 per month to access the bundle of TV channels on the service.
AT&T is already exploiting its newfound market power to put its thumb on the scales of the video and content marketplace. We won't be surprised if there's more to come.
Buying Time Warner increases AT&T's incentive to violate its customers' privacy
In late 2016, the FCC passed strong privacy rules that prevented internet service providers like AT&T from snooping on their customers' internet traffic.
However, those were among the first rules the new Republican Congress axed in early 2017. Since these rules were reversed, people must rely on the FTC (an agency with little rule-making authority) to enforce broadband providers' meager promises that they won't spy on customers and sell their personal information to data brokers and other companies -- a deal the ISPs can change at any time.
Now that AT&T owns a massive media company it has a huge platform to monetize the massive amount of personal information it can collect from its customers to serve them ads and use their browsing habits to shape the media they consume and have delivered to them.
By positioning itself as the gatekeeper to so many millions of people in the United States, AT&T has the ability to set the terms by which new media makers, especially those from marginalized communities without access to vast amounts of capital, can access their customers. This is antithetical to the principles of the open internet and the idea that -- on the internet at least -- a good idea should be able to speak for itself and creators should not have to ask permission, or pay extra to an ISP, to get access to anyone online.
Unless the Justice Department appeals the decision or Congress finally addresses the problem of media consolidation the merger is on the books. It's bad news for competition, the open internet and privacy. Free Press will continue to oppose mergers and to fight consolidation in the media and internet marketplace.
For now, however, people will face higher prices and even fewer choices online.
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