Senate Democrats Press for AT&T/TW Public Interest Statement

“To ensure a greater understanding of the impact of AT&T'S proposed acquisition of Time Warner, we respectfully request that by February 17, 2017, you provide us with a public interest statement that includes a comprehensive and detailed explanation of whether and how the proposed transaction would produce consumer benefits, encourage competition, remedy all potential harms, and ultimately serve the public interest,” said the senators in a letter, dated Wednesday and led by Sen. Al Franken, D-Minn., a member of the Judiciary Antitrust Subcommittee. “In providing this information, the statement should demonstrate how the deal would further the broader policy goals of the Communications Act, including deploying services, particularly to rural and underserved areas, ensuring non-discriminatory access to communications networks, improving network reliability, promoting diversity of ideas and voices in the marketplace, and encouraging the free flow of information via telecommunications services.”

The Senate’s Antitrust Subcommittee held a hearing on the deal last month (see 1612070058), where Franken questioned executives on the merits. Spokespeople for the House Judiciary Committee didn’t say Wednesday whether a similar hearing may be in the works.

“As Ranking Member of the Antitrust Committee, I have long had concerns about the ATT-Time Warner transaction, which the Department of Justice is currently reviewing,” Klobuchar told us in a statement. “Chairman Lee and I held a hearing in December to press for answers on the impact of this proposed transaction on consumers and competition. While I share the views of the senators who signed the letter and am glad they sent it, I felt it was best to do a bipartisan letter with Chairman Lee to outline concerns about the merger to the new Attorney General and his staff. Chairman Lee and I decided to wait to send the letter once the new Attorney General is in place, otherwise we would have sent it late last year.” Senate Judiciary held a confirmation hearing on Sen. Jeff Sessions, R-Ala., the administration’s nominee for attorney general, earlier this month. It plans a committee vote on his position Tuesday (see 1701240003).

Franken’s letter this week included no Republican signatures. Backers were Sens. Ed Markey of Massachusetts, Sherrod Brown of Ohio, Bernie Sanders of Vermont, Ron Wyden of Oregon, Patrick Leahy of Vermont, Elizabeth Warren of Massachusetts, Cory Booker of New Jersey, Patty Murray of Washington, Dick Durbin of Illinois, Maria Cantwell of Washington, Jeff Merkley of Oregon and Richard Blumenthal of Connecticut.

“We are always happy to answer any questions about the merger and, of course, will follow all processes required by law, including the extensive Hart-Scott-Rodino review process at the Department of Justice through which we will produce millions of documents, and extensive analyses,” an AT&T spokesman responded. “As we testified recently before Congress, the merger will create more competition for cable TV providers, giving consumers more options and accelerating next generation wireless broadband.”

The senators noted the companies’ divestiture of certain licenses that would have compelled FCC review of the deal. As a consequence of no FCC review, “the public is left largely in the dark about how the deal would impact the affordability and quality of their phone, internet, and video services,” they wrote. “While we appreciate your testifying before the Senate Judiciary Committee in December of last year, we remain concerned about how a deal of this size could affect consumers and competition. AT&T is already the world's largest pay TV provider and the largest telecommunications company. Combining it with one of the world's largest producers of content gives AT&T-Time Warner both the incentive and ability to use its platform to harm competitors, and as a result, consumers. The combined company could promote its own programming above that of other content companies' or restrict other distributors' ability to offer its highly-desired content. As a result, the merger could raise prices on consumers, reduce access to independent programming; and harm small businesses, content distributors, and innovative new business models.”

Franken focused on FCC review in tweets Wednesday. “Media consolidation should only be permitted if it results in better, more affordable phone, TV & internet service for consumers,” Franken wrote. “That’s why it's troubling that AT&T & Time Warner are avoiding @FCC review so they don't have to prove the deal would serve public interest.”

FCC Chairman Ajit Pai is likely to be amenable to transactions, “so it’s an interesting question as to why AT&T would structure the deal to avoid FCC review,” Public Knowledge Senior Attorney John Bergmayer emailed us. “To keep opponents of the deal from digging too much into it, perhaps?” He also said the AT&T/TW has a particularly specific fact pattern with TW holding spectrum licenses that are “in effect dispensable.” Thus most other deals that would want to avoid FCC review wouldn’t be able to follow that same route.

Also saying Pai will be “a rubber stamp for mergers,” Free Press Policy Director Matt Wood said AT&T’s strategy “sets a terrible precedent for the future.” He said AT&T/TW is unique in that most major media companies have lots of licenses, “while Time Warner sort of straddles that line a bit.” But he said AT&T is “evad[ing] a vital public interest test for this terrible deal.”

“Every merger should stand and be reviewed on its own merits, including the competition and public interest factors involved,” Adonis Hoffman, chairman of the for-profit Business in the Public Interest, emailed us. “Although DOJ has the lead on this transaction it should consult with the FCC's subject matter expertise, which is customary. Meanwhile, the two companies have not shied away from promoting the public interest benefits of the deal, and there should be more of that. Even though it is a vertical merger, we also need to hear more on how this deal will be good for competition, as the parties contend.”

AT&T still expects regulators to approve TW later this year, Chief Financial Officer John Stephens told investors on a conference call after Q4 results. CEO Randall Stephenson said a meeting with President Donald Trump this month (see 1701120040) left him optimistic that significant tax and regulatory reform could come soon. He also said a lower corporate tax rate is likely and that could help gin up AT&T investments. Adding one just one percent to AT&T's bottom line is significant, he said.

Pai is clearly not a fan of common-carrier regulation of broadband based on his past comments, Stephenson said. "We're hopeful ... Pai will come in and address some of these issues that suppress investment," the executive said. Stephenson said privacy regulations are overburdensome and single out ISPs for unique regulatory treatment.

AT&T has spent recent years heavily investing to "ready for a world where mobile technology and video content would intersect," building out fiber to 12.5 million locations and spending $27 billion on spectrum in the past five years, Stephenson said. The company also said its 2G network has been shut down and that spectrum is being repurposed. The CEO said premium entertainment content is the best choice to put on that network. Stephenson said.

Chief Financial Officer John Stephens said the company is ahead of plans on its fiber-to-the-home buildout. Stephens said special promotions and pricing helped drive DirecTV Now subscriber growth. He also said various promotional efforts across its products, plus DirecTV Now startup costs, drove down profit margins from the same quarter a year ago.

Stephenson said any increased Pai friendliness to zero rating as compared with FCC skepticism under Chairman Tom Wheeler (see 1701110070) won't affect company plans. "We were going hard" before the election, he said. He said the carrier viewed the FCC's zero-rating report as largely baseless. The recent report said zero rated programs offered by AT&T and Verizon may be anticompetitive and raise net neutrality concerns (see 1701110070). Stephenson also said the wireless industry continues to be highly competitive, and AT&T's focus will be on integrated solutions since bundling of its products drives down churn rate.

The carrier ended the quarter with consolidated revenue of $41.8 billion and the year with $163.8 billion. It ended the quarter with 2.8 million wireless net adds -- 1.5 million of them in the U.S. -- and with 1.1 million branded smartphones added to its subscriber base. In the U.S., the quarter had more than 200,000 paid net adds to its new DirecTV Now service, while DirecTV added 235,000 net subscribers, and 149,000 IP broadband net adds.