Politicians Overreact to AT&T-Time Warner Deal
That didn't take long. No sooner did we learn of AT&T's $85 billion plan to acquire Time Warner Entertainment than the presidential candidates and members of Congress in both parties started to weigh in.
Donald Trump and Bernie Sanders, wearing their populist stripes, want regulators to block it outright. Utah Senator Mike Lee, the Republican chairman of the Judiciary subcommittee on antitrust, and the panel's lead Democrat, Senator Amy Klobuchar of Minnesota, are promising hearings. Hillary Clinton "certainly thinks regulators should look at it," a spokesman says.
Politicians have long warned about mergers that might allow a company to dominate technology or the media. But nothing seems to bring out the fear-mongering more than when tech and media powerhouses combine, as they would in the case of AT&T and Time Warner.
It's a good thing regulators will decide on this merger long after the election, because the politicians' concerns are overblown.
The worry is that the merged company could block telecom rivals like Verizon or cable companies like Comcast from carrying Time Warner's HBO, CNN, Cartoon Network and other channels in hopes of driving customers to its own platforms, like DirecTV.
Another worry is that DirecTV, the satellite distributor that AT&T just bought last year for $67 billion, could refuse to carry rival programming to promote its own content.
Those fears don't make sense. They rest on AT&T robbing itself of subscriber, licensing and advertising revenue.
The reason AT&T wants this merger is that Time Warner is good at creating content for which viewers are willing to pay a premium, or that cable distributors want as part of their basic bundle. The more viewers a channel has, the greater the channel owner's leverage over distribution and pricing.
So it's illogical for AT&T to buy the parent of HBO, and then limit HBO's reach. Besides, if AT&T tried to block, say, Verizon from carrying HBO, you can bet regulators would step in. At the very least, rivals like Comcast, which is both a cable company and a content creator now that it owns NBC, would retaliate. Regulators could just stand by and watch the war of attrition as nimbler rivals step in with smarter content and more innovative technology.
Similarly, it makes no sense for AT&T to reduce the channels that DirecTV can carry. The whole idea behind buying DirecTV was to expand AT&T's pipeline reach, win more paying customers and enhance earnings.
Antitrust, of course, is meant to protect consumers from the higher prices and reduced choices that result when a company has market power. But a merged AT&T and Time Warner are in different industries, and their merger wouldn't affect ownership concentration. Nor would it result in the loss of a competitor from the market.
If regulators nevertheless decide to block the AT&T-Time Warner combo, it would only delay the inevitable: integration of content and conduit, out of which will come better entertainment, faster information, snappier downloads, improved mobile-device delivery and other innovations.
To understand the folly of blocking this takeover, think back to 1974 to the original AT&T antitrust case, which also began from a fear of vertical integration. Back then, the concern was that a single company controlled all the local landlines and the company that made the equipment. For sure, AT&T had a monopoly, but it was created and sanctioned by the federal government. All that was needed was a government deregulation order and a green light that it wouldn't block competitors.
Instead, the U.S. sued to break up Ma Bell. After eight years of courtroom battles, AT&T in 1982 consented to be broken into seven Baby Bells and AT&T, which could only offer long-distance service. Many mergers later, one of AT&T's offspring, Southwestern Bell, had acquired four of its siblings plus the old AT&T, and took the AT&T name. The two remaining Baby Bells joined with GTE and became Verizon. The result is even more concentration than before.
In retrospect, the breakup wasn't groundless; it was just the wrong prescription. Three disruptive technologies were waiting in the wings: Long-distance upstart MCI was pushing into fiber-optics because it didn't own local lines over which to send its signals. The internet's forerunner, Arpanet, was getting off the ground. And the first cellular network was in the experimental stage.
If the U.S. had simply deregulated plain old telephone service, any one of these technologies could have forced AT&T to adjust or disappear.
The U.S.'s 1998 antitrust case against Microsoft had much the same fighting-the-last-war problem. The government charged that Microsoft illegally maintained market power over the personal-computer business by bundling its browser, Internet Explorer, with its Windows operating system. But while the Justice Department was fixating on browsers and operating systems, the personal computer was losing market share to laptops, which lost out to tablets and which are now being overtaken by smartphones.
While Microsoft was bogged down with the Windows case, which it eventually settled in 2001 on favorable terms to the company, a new generation of tech giants -- Google, Facebook, Amazon -- took flight.
The lesson is that a technology or media conglomerate's dominance these days is almost certainly transitory. What may look like the potential for consumer harm today will sound laughably antiquated tomorrow.
Granted, there are legitimate fears when a media company can decide who has access to information that arrives over the airwaves or the internet, but it's hard to see how that power could be abused for long. It would get disrupted in a New York minute.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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