AT&T’s Time Warner review should be smooth because’s its about ‘vertical integration,’ not horizontal, CEO says

AT&T CEO Randall Stephenson

AT&T expects its $85.4 billion purchase of Time Warner Inc. to close at the end of 2017 and not face the kind of regulatory resistance that Comcast/Time Warner Cable did.

Calling the pact a “straight forward deal,” AT&T CEO Randall Stephenson said, “It’s very clear that this qualifies as a vertical merger, it’s vertical integration. All the deals that have gotten deflected have been horizontal, where a competitor has taken out another competitor.”

AT&T sees the deal as one of a telecom distributor purchasing a company in another business, media. Regulatory concerns for such vertical integration, Stephenson said, are addressed with conditions. And we’re convinced these concerns will be handled. We are not aware of when a vertical integration has ever been blocked.”

Perhaps the closest recent simile would be Comcast’s 2011 takeover of NBCUniversal. That deal included a lengthy review by the FCC and Justice Department and imposed strident conditions on Comcast focused on issues like program diversity. Comcast also had to perform some divestures, giving up a management interest, for example, in Hulu, the OTT joint venture it has with Disney and 21st Century Fox.

RELATED: Comcast kills $45.2B Time Warner Cable takeover

The early take by analysts, however, is that AT&T’s regulatory road will be bumpier, given the company’s extensive control of the national wireless business. Also working in AT&T’s disfavor is the fact that it just closed another mega-deal, it’s $48.5 billion takeover of DirecTV, just last year. 

“By standard antitrust metrics, this deal should be OK in Washington,” said Paul Gallant, a technology, media and telecommunications policy analyst with Cowen & Company, to the New York Times. “But the Democratic Party is moving left, and if Clinton wins, this could become an early test for her ‘tougher on business’ rhetoric.”

Early speculation among analysts suggest Time Warner might spin out its Turner Networks unit to satisfy regulator bloodlust.

Meanwhile, consumer groups have already targeted the deal. 

Commenting for the group Common Cause, former FCC Chairman Michael Copps said, “Allowing a communications behemoth like AT&T to swallow the Time Warner media empire should be unthinkable. The sorry history of mega mergers shows they run roughshod over the public interest. Further entrenching monopoly harms innovation and drives up prices for consumers. The answer is clear: Regulators must say no.”

Added John Bergmayer, senior counsel at Public Knowledge: “There are good reasons to be skeptical that further consolidation in the communications industry could be good for consumers. Vertical integration between programming and distribution in particular raises a number of issues: DirecTV, for instance, might favor Time Warner content, crowding out or refusing to carry alternative and independent programming that viewers might prefer.

"AT&T might also make it more expensive or difficult for competitors to DirecTV or to its streaming service to access Time Warner programmer, hoping to drive customers to its own platforms," Bergmayer added. "AT&T could also give preferential treatment to its own programming and services on its broadband networks – indeed, it has already announced that it plans to zero-rate its upcoming online video service. Increased vertical integration could also increase AT&T's opportunities for data collection, which has relevance to FCC privacy initiatives. Similar sorts of self-dealing and discrimination issues have been at the center of the review of similar deals in the past, such as Comcast's acquisition of NBC Universal.”

In the end, Stephenson described the regulatory exercise as furnishing officials in both the U.S. and Europe with as much data as possible and then stepping back and letting the fates decide the process.

"The sausage will come out the way the sausage comes out," he said.