AT&T, Time Warner offer merger details to quell senators' concerns

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AT&T and Time Warner have offered a response to a group of Democratic senators concerned about the companies’ proposed $85 billion merger.

In a letter (PDF), AT&T CEO Randall Stephenson and Time Warner CEO Jeff Bewkes outlined how the transaction will benefit consumers and promote competition.

In particular, the companies said that the merger will help lift some of the bargaining friction between content providers and distributors and allow for faster innovation.

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“AT&T and Time Warner have both encountered such friction as they have sought to bring innovations to market. That friction has kept consumers from getting the full suite of innovative features that they want,” the companies wrote.

Specific video-related innovations that AT&T and Time Warner see possible post-merger include:

  • Short-form programming optimized for presentation on mobile devices
  • Interactive and personalized methods of viewing sports and other live events
  • More relevant advertising in ad-supported video services
  • Integrations of professionally produced content with virtual reality or augmented reality services
  • Services that encourage consumers to combine professionally produced content with their own creative content and share the results on social media
  • Greater choice, convenience, and value in programming bundles

The companies also said that the merger will better position them to compete on a nationwide basis with cable companies by offering more programming options at more attractive prices. AT&T noted DirecTV Now as an example of that but promised there is more to come in terms of innovation and experimentation for video services.

RELATED: Senators push AT&T, Time Warner on how merger will serve public interest

In addition to outlining potential benefits for consumers, AT&T and Time Warner also claimed that their merger won’t affect competition because the companies “do not compete with each other in any significant respect.”

“This is a classic ‘vertical’ merger between two companies with complementary production and distribution assets. This merger thus presents none of the standard concerns raised by merger between competitors. Such ‘horizontal’ mergers trigger scrutiny in concentrated markets because, under certain conditions, the elimination of a competitor can lead to higher prices,” the companies wrote.

The companies also argued that AT&T and Time Warner could never make up for the massive losses they would incur if they withheld Time Warner programming from other pay-TV providers. Specifically, they argued that Time Warner’s programming only accounts for 8% of viewership in aggregate and that the programming has never been deemed by the FCC to be critical for pay-TV providers. Also, because AT&T holds second- or third-place status in most pay-TV markets, withholding content would be unprofitable.

The points raised by AT&T and Time Warner in their joint letter come after lawmakers expressed concerns about the merger, which will likely avoid an FCC review, leaving only the Justice Department to perform its anti-trust evaluation.

“…By divesting the relevant licenses, AT&T and Time Warner will no longer have the legal burden of proving that the proposal would serve the public interest, and 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,” the lawmakers wrote, adding that the companies should submit by Feb. 17 a comprehensive and detailed statement on whether the transaction would benefit consumers.

RELATED: AT&T anticipates skipping FCC review of Time Warner acquisition

The letter—signed by Al Franken, D-Minn., Bernie Sanders, D-Vt., Elizabeth Warren, D-Mass., and other senators—asked the companies to demonstrate how the merger would further the goals of the Communications Act. Those goals include deploying services, particularly to rural and underserved areas, ensuring nondiscriminatory 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.

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