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Time Warner and AT&T: Lengthy Regulatory Review Process Ahead?

AT&T Inc. has proposed an $85.4 billion acquisition of Time Warner Inc. to create a media and communications powerhouse. ((Brad Burns & Fletcher Cook, AT&T to Acquire Time Warner, Wall St. J. (Oct. 22, 2016), AT&T hopes to capitalize on combining Time Warner’s library of premium entertainment content with its expansive distribution network. ((Id.)) However, the acquisition has drawn significant scrutiny and faces a stringent regulatory approval process.


The Wall Street Journal reports that the FCC is likely to review the acquisition. ((John D. McKinnon & Thomas Gryta, AT&T Purchase of Time Warner Likely to Face Tough FCC Review, Wall St. J. (Oct. 27, 2016), Since Time Warner has many licenses from the FCC, it is subject to the agency’s review. ((Id.)) The FCC would review the deal to determine if it is in the public interest. ((Id.)) This standard is subject to political influence, and in an election year, this provides less certainty. Both of this year’s presidential candidates, Donald Trump and Hillary Clinton, were skeptical of the proposed deal. ((Mike Murphy, Both Clinton, Trump wary of AT&T-Time Warner merger, MarketWatch (Oct. 23, 2016),


Regulators are likely to review AT&T’s “zero-rating” practice, which exempts streaming of its video services, including DirecTV Now, from caps on data usage. ((Shalini Ramachandran, Ryan Knutson & John D. McKinnon, AT&T-Time Warner Deal Stokes Debate Over ‘Zero Rating’, Wall St. J. (Nov. 2, 2016), The company argues that “zero-rating” promotes competition in the industry because it offers companies similar terms to DirecTV Now to be included. ((Id.)) Some officials believe that “zero-rating” could become a focal point of regulatory review, as “net neutrality” did in Comcast’s failed acquisition of Time Warner Cable. ((Id.))


In 2014, Comcast attempted to acquire Time Warner Cable for $45.2 billion. ((Harold Furchtgott-Roth, Comcast and Time Warner Cable: Autopsy of a Failed Merger, Forbes (Apr. 24, 2015), The transaction was called off after intense government scrutiny. ((Id.)) The Department of Justice praised that the termination of the transaction was “the best outcome for American consumers.” ((Comcast Corporation Abandons Proposed Acquisition of Time Warner Cable After Justice Department and the Federal Communications Commission Informed Parties of Concerns, Dep’t of Justice (Apr. 24, 2015), The government viewed the deal as positioning Comcast as an “unavoidable gatekeeper for Internet-based services that rely on a broadband connection to reach consumers.” ((Id.))


Similarly, in 2011, AT&T terminated its $39 billion bid for T-Mobile USA after significant regulatory opposition, causing AT&T to pay a $4 billion breakup fee to Deutsche Telekom, T-Mobile USA’s parent. ((Michael J. de la Merced, AT&T Ends $39 Billion Bid for T-Mobile, DealB%k (Dec. 19, 2011), AT&T targeted T-Mobile for its airwaves and spectrum; however, the FCC and Justice Department’s negative stances on the deal resulted in its eventual termination. ((Id.))


However, Comcast’s successful acquisition of NBCUniversal in 2013 has significantly benefited Comcast, a transaction closely similar to AT&T’s proposal to acquire Time Warner. ((Jennifer Saba, AT&T Could Find a Lesson in Comcast’s Media Merger, DealB%k (Oct. 26, 2016), The transaction received regulatory approval subject to conditions which ensure that the combined company would restrict online video competition. ((Tim Arango & Brian Stelter, Comcast Receives Approval for NBC Universal Merger, DealB%k ((Jan. 19, 2011), The government also insisted that Comcast not maintain an active role in the management of Hulu, its online streaming service. ((Jennifer Saba, AT&T Could Find a Lesson in Comcast’s Media Merger, DealB%k (Oct. 26, 2016), Comcast now derives greater than one-third of its revenue from NBCUniversal. ((Id.))


AT&T views the transaction as not affecting the wireless or media markets and purely as a vertical integration transaction. ((The Case for the AT&T-Time Warner Deal, Wall St. J. (Oct. 30, 2016), AT&T hopes to acquire Time Warner’s premium content including HBO, CNN, and Warner Bros. after acquiring DirecTV for $49 billion in 2014. ((Keach Hagey, Dana Cimilluca & Shalini Ramachandran, The Making of the AT&T-Time Warner Deal, Wall St. J. (Oct. 23, 2016), AT&T has agreed to a $500 million breakup fee if the deal is blocked by U.S. regulators while Time Warner would pay AT&T $1.7 billion if AT&T is outbid by another offer. ((Id.)) It has been reported that Goldman Sachs has pushed Apple to acquire Time Warner. ((Trey Williams, Goldman pushes Apple to make big bid for Time Warner | What’s HBO’s future under AT&T? | Viacom switching CEOs — again, MarketWatch (Nov. 1, 2016),