By Matthew Radman
Money and Investing Writer
Rigorous legal proceedings are the last obstacle holding back the recently negotiated $85.4 billion acquisition of media mammoth Time Warner Inc. (NYSE: TWX) by telecom titan AT&T (NYSE: T).
The Department of Justice (DOJ), the next President of the United States, and potentially the Federal Communication Commission (FCC) have their work cut out for them digging through this complex deal.
While the two corporations await the final ruling, the public can begin on their own assessment, being that this deal is as far reaching as it is.
Everyone from AT&T’s wireless customers to fans of Time Warner’s subsidiary HBO’s Game of Thrones could be affected by how this merger finalizes.
AT&T CEO Randall Stephenson is shaping up the deal to be a customer-oriented decision. He has been pitching the idea for new and innovative content.
As demand for premium content increases among consumers, AT&T promises to be at the forefront of delivering a seamless media consumption experience.
The proposed combined company would be able to compete seriously with the largest cable companies, citing the soon-to-come 5G networks as the Holy Grail of content delivery methods.
The vertically-integrated company could also create a seamless consumption platform owning both the content through Time Warner’s repertoire including HBO, CNN, and Warner Brothers and delivery through AT&T’s vast telecommunications systems.
Those delivery methods, however, are part of what is causing such controversy over the deal. AT&T’s new ‘zero rating’ model is giving streaming competitors qualms about how this could hurt fair competition among them.
Since the July acquisition of DirecTV (NYSE: DTV), AT&T has been integrating the service into its network by creating DirecTV Now, a platform that allows streaming DirecTV content while not counting that streaming content against a customer’s monthly data allowance.
The issue lies in that AT&T wants to charge streaming services such as Netflix (NASDAQ: NFLX) and Dish Network’s (NASDAQ: DISH) Sling TV for the honor. The DOJ will review how much this model, and the deal in general, behaves like an anti-competitive one.
The FCC may also become involved due to Time Warner’s collection of broadcast television licenses.This zero rating controversy does not give a good impression on which to begin the regulation process. Suspicion surrounding AT&T’s rapid rate of media and telecom acquisitions as well as their extremely generous $84.5 billion offer, being larger than the anything-but-stingy Apple Inc. (NASDAQ: AAPL) was interested in offering, to Time Warner puts into question AT&T’s end goal.
This overvaluation could only rationally imply that AT&T sees immense value in the synergy of the two companies coming together.
This value-assessment could prove to be a risky bet as many are experiencing déjà vu over a similar deal involving Time Warner Inc. back in 2000. The deal was a proposed merger with one of the, then, largest internet companies in the world, AOL Inc. (NYSE: AOL).
The deal initially seemed like a match made in financial heaven, however, led to $99 billion loss that caused increased caution of large technology and media mergers that followed. AOL-Time Warner set a precedent for concerns over, as Columbia Business School professor Rita Gunther McGrath refers to it, transient advantage. This idea is about the cycle of erosion of a once-prominent set of capabilities due to a new form of competitive advantage.
This early into the deal, it is hard to visualize how a successful merger between the two companies would look. While nobody wants to see a similar scenario to the failure of the AOL-Time Warner merger, regulators are also wary about AT&T and Time Warner combining and becoming too successful to the level of being anti-competitive.
While those regulators begin the process of setting restrictions and conditions on the proposed merger, the court of public opinion can start making their assessments on how this new media company could bring the next wave of innovation in media consumption.
A version of this article appeared in the Tuesday, November 8th print edition.
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