AT&T, The DoJ and the coming battle over net-neutrality

December 12, 2017

 Over the years, technology has revolutionized the fields of telecommunication and media. From Hulu to Spotify, there’s been industry-wide digitalization of all forms of media in the last decade. While it seems to be a golden age for consumers, traditional brick and mortar media companies are facing the heat. In particular, the advent of independent programmers like Netflix and Amazon are forcing TV and film media houses to adopt new strategies to remain relevant. The most recent one? Mergers.

 

Recently, AT&T made an $85 billion bid for Time Warner. While this deal is not a major one in terms of monetary value, it has the potential to severely impact how the average consumer receives their content. To understand how, we don’t have to look far. In 2016, AT&T signed a deal with Taylor Swift entitling AT&T customers to exclusive content from Taylor Swift. With the release of her latest album, this deal proved helpful as AT&T consumers received access to behind-the-scene videos and clips. Now take this one step further. With ownership over major networks such as HBO, CNN, and TNT to name a few, Time Warner is one of the largest content producers on the market. If the merger were to go through, AT&T would have control over everything from Game of Thrones to the 6 o’clock news. As a content distribution company, AT&T would have power over which content consumers get, and whether competitors have access to Time Warner’s content.

 

Historically, this isn’t a unique merger by any measure. In 2011, Comcast, a broadband and content distribution company, acquired NBC Universal, a content producer. It took 13 months for the deal to go through as Comcast faced opposition from antitrust regulators. The regulators’ primary concern was that Comcast would use its newfound control to squeeze out competition. For example, Comcast could hamper video quality and limit streaming speeds for NBC Universal competitors, such as Netflix. This would force Comcast customers to view NBC Universal content. Even worse, Comcast could prevent NBC Universal from licensing its shows and content to other services and content distribution channels. This means that streaming services would potentially have to pay higher fees to obtain content for consumers. In turn, consumers would have to pay more to view content, and thus potentially change services. In the end, the deal was allowed to go through, but only under conditions that Comcast wouldn’t interfere in NBC Universal’s licensing, citing the net neutrality laws. But in the last week, the FCC revealed its plans to repeal net neutrality laws. So, what are these laws, what power do they hold, and how does repealing them affect the AT&T-Time Warner merger?

 

Net neutrality laws are a set of rules implemented by the FCC under the Obama administration in 2014. These laws, in essence, provide consumers equal access to web content and the internet. They do this by preventing Internet Service Providers, like Comcast and AT&T from charging customers more for certain content, or by placing preferred services at an advantage. This means that ISPs weren’t allowed to block or slow access to websites or services. The rules also prohibit these ISPs from offering paid-priority services that could lead to internet "fast lanes." However, Ajit Pai, Chairman of the FCC, recently announced that he wished to roll back the net neutrality rules. He states that the rules are “heavy handed”, contending that they have deterred innovation and depressed investment in building and expanding broadband networks. With these laws potentially being repealed, it puts the openness of the internet at risk. There will be virtually nothing stopping broadband companies indulging in the aforementioned anti-competitive behavior.

 

The U.S. Department of Justice (DoJ) voiced these very concerns when it decided to sue in order to stop the merger. Among its reasons for opposing the merger, it states that the merger would allow AT&T to charge the average American family more for the same content, and would also discourage competition. The case they make is compelling. But, as is usual with mergers, it is impossible to currently call the shots on this deal. If in December the net neutrality laws are repealed, it will no longer be illegal for ISPs to hamper speeds, control licensing, and offer preferential treatment. In this case, the DoJ could argue that there are no restrictions on AT&T to exploit the market, and thus, the merger has potential to be anti-competitive and affects the industry. Conversely, if the laws stay in place, AT&T could erode the DoJ’s case, stating that historically, similar mergers have been approved. Furthermore, they could go on to say that such ‘vertical mergers’ have no potential of negatively impacting consumers given the current laws.

 

This merger might seem like a one-off, but it the first of many such deals that we will see, and is an indicator of the overall market sentiment. There have been reports that Disney and Fox, and even Comcast and Fox have held potential merger talks. The current level of technological disruption has proved to be a boon for consumers, but it has forced older companies to adopt strategies that will severely impact consumers in the long run. How the net neutrality laws will affect the merger is anyone’s guess, But what we can say for certainty is that if the laws are repealed, it will usher in a new age for media, where content distributor companies could potentially control every aspect of the content you see – from your daily soap operas, all the way to the news and the information you receive.

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