AT&T, Time Warner defend merger as politicians challenge

Telecom giant AT&T has struck a deal to buy entertainment company Time Warner valued at US$108.7 billion, to add in-house content to its distribution services. (AFP/Saul Loeb, Stan Honda)

The merger, valued at US$108.7 billion, will join one of the most dominant telecommunications company with a leading provider of entertainment video and broadcasting, allowing smoother and more innovative content delivery to consumers, the two said.

But they will face tough questioning over whether such a combination will make the company too powerful, stifling outside video content creators while forcing consumers to their brand.

POLITICAL QUESTIONS HIT SHARES

Shares of both companies fell on Monday as investors saw a difficult road ahead for the deal, with both Democratic and Republican campaigns for the White House raising questions.

Around midday AT&T shares were off 1.5 per cent at US$36.92, and were 6.3 per cent down from just before news of the looming deal leaked out on Thursday.

Time Warner shares lost 2.3 per cent to US$87.44, but were still well up from the US$79.55 level they traded at before news of the merger.

AT&T is, after Comcast, the second largest US supplier of mobile phone, landline, internet and pay television services.

Buying Time Warner will give it control of top brands like Warner Bros, CNN, HBO, Cartoon Network, TNT, and a host of top-rated shows that the combined company will be able to deliver over multiple platforms.

The chief executives of both companies said Monday that this would lead to more seamless and innovative entertainment delivery to consumers, and allow advertisers to better target the right audiences.

"We need to go where the consumers are going, and that's increasingly mobile," said Time Warner Chairman and CEO Jeff Bewkes in a conference call.

Time Warner has traditionally delivered its programs and films via cable televisions subscriptions, but increasingly consumers are turning to watching via internet or mobile connections.

Randall Stephenson, AT&T's chairman and CEO, said on the same call that negotiating rights with content suppliers to deliver their programming to new outlets on top of cable had been too onerous, and that owning the content would cut out that barrier.

The merger "would really remove a lot of the friction in the industry, "he said. "Now we can begin to innovate our content much quicker." "Ownership is always best," he added.

The two stressed that the combination should pass an antitrust reviews by the Department of Justice, the US Senate and possibly the Federal Communications Commission.

The merger is a "vertical" combination of two different businesses, they said, not the type of "horizontal" combinations joining two companies competing in the same businesses that the Justice Department frequently objects to.

"The legacy separation between video and distribution is really getting in the way of what consumers want," said Bewkes.

TRUMP OPPOSED TO DEAL

After the deal was announced on Saturday public interest groups, politicians and regulators signalled tough scrutiny of the deal.

"It is too much concentration of power in the hands of too few," said Republican presidential nominee Donald Trump.

Tim Kaine, who is running for vice president paired with Democrat Hillary Clinton, said he "share(s) the concerns and questions," of others over the deal.

Meanwhile Senators Mike Lee and Amy Klobuchar, who head the Senate Judiciary Subcommittee on Antitrust, said they would investigate the deal "to ensure that it does not harm consumers."

One issue could draw particular attention: how the merged company treats content from outside providers. AT&T said it is already forced to be fair by "net neutrality" rules that prevent it from discriminating.

But analysts are worried that if the merged companies plan to favour in-house content, for instance by not counting streamed Time Warner video under data limits for mobile customers, it could strengthen critics of the deal.

Mike McCormack, an analyst at Jeffries, expects "a "lengthy and arduous" review by regulators.

"While the deal inherently does not remove a competitor, approval is by no means a given," he said in a client note. "The changing political landscape could also influence the review."

Stephenson said it remains to be seen how regulators view the merger.