AT&T turned heads over the weekend when it announced plans to buy entertainment giant Time Warner for a whopping $85.4 billion in cash and stock. Experts say the deal may have a tough time passing muster with regulators.
If a deal involving a large internet provider and a media giant sounds familiar, it's because many of us have seen this story before. Seven years ago, cable giant Comcast made a move to acquire NBC Universal. The megamerger made headlines for more than a year before it was finalized.
Experts say a lot has changed in Washington, and around the country, in the years since the Obama administration approved that merger.
"There are similar concerns to the previous deal, of course," said John Bergmayer, a staff attorney for Public Knowledge, a nonprofit that deals with copyright, telecommunications, and Internet law. "But the market has changed since then, the political environment has changed, and policymakers have learned from the experience of how effective the Comcast-NBC conditions were."
To help you understand the regulatory hurdles that face AT&T and Time Warner, we've put together this FAQ.
How is the Comcast-NBC Universal deal similar to AT&T's proposed merger with Time Warner?
Like the Comcast-NBC Universal deal, the tie-up between AT&T and Time Warner is called a "vertical" merger. These companies don't directly compete with each other. Via its wireless, broadband and satellite TV networks, AT&T distributes the content Time Warner creates.
This differs from AT&T's failed T-Mobile deal in 2011, which was considered a "horizontal" merger. In that scenario, AT&T was attempting to buy a direct competitor. Its businesses and customers overlapped almost all of T-Mobile's footprint. If the deal had been allowed to go through, there would have been one less competitor in the wireless market.
If regulators thought the Comcast-NBC Universal deal was OK, shouldn't they be all right with AT&T buying Time Warner?
Not necessarily. For one, this is a much larger merger both in terms of value and the scope of the networks involved. The price tag of the Comcast-NBC Universal deal was $45.2 billion, about half what AT&T will pay for Time Warner.
AT&T is also a bigger service provider than Comcast. Since its takeover of DirecTV last year, AT&T is the largest paid-TV provider in the country, with 20 million DirecTV customers. It's also the second-largest wireless company, with 130 million subscribers. In total, its subscriber base is at least five times as big as Comcast's was when the NBC deal was announced.
But that's not the only issue. This deal is likely to get more scrutiny because regulators will be studying what didn't work in the Comcast-NBC Universal deal. "No one is thrilled with how the Comcast-NBC conditions turned out, except perhaps the Roberts family and Comcast shareholders," said Matt Wood, policy director at Free Press, a consumer advocacy group.
What are the specific complaints people have with the Comcast-NBC Universal merger?
The biggest issue is that many of the 150 conditions put on the deal are hard to enforce, and Comcast has been accused of not doing what it promised.
For instance, the financial network Bloomberg sued Comcast, accusing it of purposely making its channel hard to find. Comcast put Bloomberg's network hundreds of channels away from the NBC Universal financial news channel CNBC in an effort to give CNBC an advantage, according to Bloomberg.
Comcast has also been criticized for not following through on its promise to promote a standalone broadband option, which is a requirement of the merger. Free Press has complained about the slow ramp-up and overly narrow initial target audience for Comcast's Internet Essentials program, which focuses on providing broadband to low-income families.
Wood said there's a long list of other complaints.
"Regulators, competitors and real people alike realize they got a raw deal there," he said.
Would you expect regulators to put conditions on this deal?
Definitely. But critics have said AT&T, like Comcast, has demonstrated that it doesn't honor its merger commitments. They point to complaints from the early and mid-2000s when AT&T was gobbling up smaller phone companies, such as SBC and Bell South.
How important is the political climate to getting this deal approved?
To borrow a phrase from Republican presidential nominee Donald Trump, it's "yuuuuuuge!"
We're only two weeks from electing a new US president, and Trump has already said he will block the merger because it will "concentrate power in the hands of too few." Democratic nominee Hillary Clinton and her running mate Tim Kaine have expressed concern over the deal too.
Sen. Bernie Sanders said in a tweet Sunday that the deal will lead to "higher prices and fewer choices for the American people." And Sen. Al Franken, a staunch critic of Comcast's 2009 merger with NBC Universal and AT&T's DirecTV merger, has already sent letters to FCC Chairman Tom Wheeler and US Attorney General Loretta Lynch urging the highest level of scrutiny for the deal.
"Combining these behemoths would create a mega media conglomerate with both the incentive and ability to use its platform to harm consumers and competitors alike," Franken said.
The antimerger sentiment fits well with the Obama administration's antitrust efforts. It has blocked several deals over the past year, including the mergers of two big health-insurance companies.
"If there is a clear takeaway from the Comcast experience, it's that politics matter," Craig Moffett, a principal analyst at MoffettNathanson, said in a research report.
How confident are the companies' executives that the deal will get approved?
AT&T Chief Executive Randall Stephenson said Tuesday during an interview at the Wall Street Journal conference that he's so confident in the deal, he wishes he could buy Time Warner stock in advance. He thinks the market is being too pessimistic about the regulatory hurdles.
"I think anyone who characterizes this as a means to raise prices is ignoring the basic premise of what we're trying to do here," Stephenson said. He went on to add that this merger will not change the structure of either the wireless or media markets.
"When we wake up after this deal's approved, the wireless market will look exactly the same as it does today and the media market will look the same as it does today," he said. "It is by every technical definition a vertical merger integration...and vertical integrations are historically approved."
What do you think will happen?
With so many moving parts, it's really hard to say what will happen. Moffett gives the merger only a 50 percent chance of getting approved.
For one, the presidential and congressional elections could play a role in the outcome. Also, it's unclear which agencies will review the merger.
The Department of Justice and the Federal Trade Commission are expected to weigh in on the deal, according to White House spokesman Josh Earnest. The deal could also be reviewed by the Federal Communications Commission because Time Warner owns a TV station in Atlanta. In order to transfer that license to AT&T, the FCC would have to review the transaction. There's a chance AT&T and Time Warner will decide not to include the TV station, to avoid a review by the FCC.
This is a big deal. While the Department of Justice examines the merger for antitrust concerns, the FCC evaluates whether it's in the best interest of the public. This standard can be influenced more by political pressure, notes Moffett.
AT&T hasn't said either way what it plans to do. A spokesman for the company said it's still determining which licenses, if any, will be transferred to AT&T as part of the transaction.
Even if the FCC isn't involved, experts say the DOJ's approval isn't a slam dunk. The agency could still find antitrust issues even though AT&T and Time Warner don't compete against each other.
If the agency's approach to Comcast's recent mergers is any indication, the DOJ may find AT&T's distribution network of wireless, satellite and broadband problematic. That's what happened when Comcast tried to acquire fellow cable operator Time Warner Cable last year. The DOJ blocked the deal, saying it feared Comcast would use its power as the largest broadband provider in the country to restrict access to content or charge exorbitant prices for its content to competitors like Netflix.
Since AT&T is the second-largest wireless provider, with more than 130 million subscribers nationwide, it's not unreasonable that the DOJ might have a problem with this.
The bottom line: This is a still a risky deal from a regulatory perspective.