Column: The AT&T-Time Warner deal would be a disaster for the public interest

Apparently we’re supposed to sympathize with the giant conglomerates AT&T and Time Warner. They’re so beleaguered by changes in their core businesses that their only path to survival, so they say, is a merger valued at $85.4 billion that will keep their fleeing customers corralled.

Consumer advocates aren’t buying this. Politicians across the spectrum aren’t buying this — who would expect to find Donald Trump, the Hillary Clinton campaign and Democrats in Congress, who all are expressing doubts, on the same side of anything?

And you shouldn’t buy it.

AT&T ranks first in the nation as a provider of pay TV (following its 2015 acquisition of DirecTV). It’s the second-largest wireless company and third-largest broadband provider in the country. Time Warner is one of the nation’s largest content companies, the owner of CNN, HBO and Warner Bros., among numerous other entertainment and news offerings.

Knowing that they face great hurdles in keeping entertainment and news consumers from finding new ways to access content other than via their cable box, they’re aiming to keep them in the AT&T fold by using Time Warner content to enhance its appeal.

Putting these behemoths together raises the possibility that Time Warner’s competitors would be disadvantaged in getting their products to AT&T’s wireless and broadband customers: It’s obvious that this goal can be reached most effectively by making Time Warner content load faster and in better quality than rival offerings.

“I don’t see anything about this merger that would lower costs for consumers or increase choices for consumers,” says Todd O’Boyle, director of the Media and Democracy Project at Common Cause.

The very rationales for the merger point to the opposite outcomes. “Either it’s going to give its distribution networks [that is, AT&T’s broadband and wireless systems] an advantage, or it hopes to give its content an advantage,” says John Bergmayer, a telecommunications expert at the advocacy group Public Knowledge. “From the outside, favoring your content over others looks pretty anti-competitive.”

Bergmayer, says his organization is approaching the merger proposal with “extreme skepticism,” not only because of its anti-competitive potential but also out of concerns that the merged company would have greater ability to collect data about consumers and erode their privacy.

The proper template for considering this merger’s dangers is Comcast’s 2011 merger with NBCUniversal. As we observed at the time, the benefits of the deal for the consumer were wholly imaginary: It wouldn’t “improve cable TV or Internet technology. It won’t by itself lead to more innovative or even more popular television programming. It won’t result in more efficient entertainment production.”

Rather, by concentrating economic power in fewer hands, it was almost certain to lead to less of all that. The same claims for consumer benefits made by Comcast and NBCUniversal had been made for all the media mega-mergers of the previous 15 years, involving Walt Disney Co., ABC, Viacom, CBS, Time, Warner Bros., CNN and AOL, among other companies. None of them came true.

Nevertheless, a complaisant Federal Communications Commission waved the deal through, with one dissenter. He was Commissioner Michael Copps, who is now at Common Cause and doesn’t think any better of the new deal. “Allowing a communications behemoth like AT&T to swallow the Time Warner media empire should be unthinkable,” he said in a statement Monday. “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 FCC imposed a raft of conditions on the merged company. Its aim was to prevent Comcast/NBCUniversal from using its immense, nearly nationwide distribution footprint from squeezing out cable channels or video services that competed with NBC’s channels or Comcast’s own video streaming service.

The conditions didn’t work. There have been constant complaints about unfair treatment of rival services and channels, as Comcast’s well-paid legal staff worked overtime to find every possible loophole in the restrictions.

Within months of the merger, for example, Bloomberg was complaining that Comcast violated a condition requiring that it group news channels together in “neighborhoods” on its channel grid. The idea was that viewers of, say, CNBC wouldn’t have to hunt around to find Bloomberg’s rival business news channel.

Comcast argued about the definition of “news neighborhood.” It claimed that forcing it to rejigger its channel lineup was an infringement of its 1^st Amendment rights. Eventually, the FCC forced it to comply, but by then two years had passed.

The Santa Monica-based Tennis Channel also fought a long battle to avoid being isolated in the distant reaches of Comcast’s channel lineup, ostensibly to protect Comcast’s own sports channels, the Golf Channel and Versus (now the NBC Sports Network), from competition. The FCC’s enforcement staff agreed with the Tennis Channel, but it lost its battle in the courts.

One could argue that the FCC finally found a way to punish Comcast for its misbehavior when it effectively killed the company’s proposed merger with Time Warner Cable last year. (AT&T’s quarry, Time Warner, is no longer affiliated with Time Warner Cable.) But that’s cold comfort to the consumers and competitors who have been harmed in the meantime.

The fact is that regulators have no effective tools to force big companies into compliance with “behavioral” conditions on mergers. Such conditions require the merged firm to “operate in a manner inconsistent with its own profit-maximizing incentives,” as antitrust experts John Kwoka and Diana Moss observed in a 2011 paper. But that’s “both paradoxical and likely difficult to achieve” — and requires constant, intense vigilance by regulators who may be ill-equipped to provide it.

The FCC acknowledged as much to a federal judge in Washington, D.C., who was presiding over the merger terms. “We can’t enforce this decree,” the FCC told the judge, Richard Leon, who observed that his own ability to ride herd on Comcast was also “limited.”

Referring to merger conditions that required that complaints about unfair treatment by Comcast of online video distributors such as Netflix and Amazon Prime be submitted to arbitration, Leon wrote: “I am not completely certain that these safeguards, alone, will sufficiently protect the public interest in the years ahead…. Neither the Court nor the parties has a crystal ball to forecast how this Final Judgment, along with its arbitration mechanisms, will actually function.”

He approved the merger terms anyway, with a couple of modest additions.

Government regulators are now being asked to wave through an even bigger merger involving a company, AT&T, with even greater market power than Comcast — it’s a nationwide broadband and wireless provider, while Comcast was merely a large cable system with near-monopoly power in the regions where it operated. The deal would give a huge corporation the opportunity to influence news reporting on itself and on topics in which it’s interested.

Regulators will be inundated by lobbying and lawyering by AT&T and Time Warner for the next year, representing a stupendous waste of resources that could be better devoted to improving AT&T technology and Time Warner’s news and entertainment offerings.

The best outcome for the public would be that all that spending goes utterly to waste, and at the end of the day this merger is decisively rejected.

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UPDATES:

11:17 a.m.: This post has been updated with comments from John Bergmayer of Public Knowledge.