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Here's What AT&T's Acquisition of Time Warner Means for Consumers

Now that AT&T has reached a deal to acquire Time Warner, consumers could soon be getting both their cell phone service and the next installment of “Game of Thrones” from the same gigantic company.

AT&T called the deal “a perfect match of two companies with complementary strengths” when it announced the deal Saturday, but consumer groups are expressing concern, saying the new media colossus could limit consumer choice and spur more industry consolidation. The combined entity, with both distribution and content, would be one of the most powerful media companies in the world.

“The argument that ‘bigger is better’ rarely rings true for consumers," said Laura MacCleery, vice president of policy and mobilization for Consumer Reports. "If AT&T gains control over all of this premium content, it's difficult to see how that leads to more competition and choice for consumers."  

The deal, valued at just over $85 billion, brings together two companies that already cast big shadows. AT&T is the country’s second-largest cell-phone service provider, and with DirecTV it's the number one pay TV company in the United States. A streaming DirecTV service, called DirecTV Now, is slated to launch by the end of the year.

Time Warner—which split from the Time Warner Cable in 2009—is home to HBO, Warner Bros. film studios, CNN, TBS, and TNT. It also owns DC Entertainment, where both Batman and Superman hang their capes, and it has a 10 percent stake in the Hulu streaming subscription service. It offers HBO Now, a monthly paid streaming service that doesn’t require you to be a pay-TV subscriber.

What Consumers Should Watch For

The new AT&T deal comes during a period of consolidation. Viacom and CBS reportedly are considering a deal. Before agreeing to be acquired by AT&T, Time Warner reportedly was talking about a possible tie-up with Apple. Analysts have speculated about an potential Disney-Netflix merger. Verizon is in the process of acquiring Yahoo's core businesses after purchasing AOL earlier, and Comcast added to its content portfolio by buying DreamWorks Animation.

Minnesota Senator Al Franken issued a statement expressing concerns about the consolidation. “AT&T’s reported proposal to acquire Time Warner for more than $80 billion raises some immediate flags about consolidation in the media market," Franken said. "I’m skeptical of huge media mergers because they can lead to higher costs, fewer choices, and even worse service for consumers.” 

A question for consumers is whether AT&T will try and leverage its new assets to put non-AT&T customers at a disadvantage, making it either harder or more expensive for them to get access to Time Warner shows, or making some programs exclusive to AT&T wireless customers.

"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," Public Knowledge, a technology advocacy group, said in a statement.

AT&T also could try to push people to its own platforms by making it more expensive or difficult for competitors to DirecTV or to its streaming service to access Time Warner programming, the group said.

Another possibility is that AT&T could include Time Warner shows in zero-rating plans, where a company’s own content isn’t counted in data plans. There's precedent for this. While regular AT&T cellular customers have data caps—limits on how much data they can use without incurring overage charges—those who also get DirecTV pay TV service get unlimited data. This type of activity encourages consumers to get multiple services from a single provider rather than branching out to competitors.

There are broader implications for wireless entertainment. More video streaming is likely to to occur on mobile devices in coming years, and the advent of faster 5G networks seems poised to enable wireless networks to compete with fixed broadband both in and outside the home. Having its own supply of content would give AT&T an advantage over most competitors when these next-generation networks launch.

What Happens Next

The deal will have to be approved by Time Warner shareholders and pass regulatory muster from the Department of Justice and possibly the Federal Communications Commission. That isn’t expected until later in 2017.

AT&T was blocked from acquiring T-Mobile in 2011, but in that deal the two companies involved were in the same industry. The Time Warner acquisition would seem to be more similar to Comcast’s purchase of NBCUniversal in 2011, which was given the go-ahead by the FCC.

If the deal is approved, AT&T could have to agree to abide by a set of conditions on its behavior, especially as it relates to how the company deals with providing access to its content to competitors.

In a statement announcing the deal, AT&T said it would benefit consumers by offering “a stronger competitive alternative” to cable and other video providers, as well as providing “better value, more choices, and enhanced customer experience for over-the-top and mobile viewing.” It also said that new ad-supported models could shift costs from viewers to advertisers.

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