How the AT&T-Time Warner Merger Could Hurt Consumers

4 minute read

With the AT&T-Time Warner merger officially approved by the companies, regulatory review—including confirmed Senate hearings (paywall)—will begin soon, and is expected to stretch on for much of next year. Officials and lawmakers will be looking at many ways the deal could affect customers, but a huge portion of their attention is likely to be on how it could skew or limit access to content over AT&T-owned networks.

The deal’s risk to consumers is clear. Following its acquisition of DirecTV, AT&T is the largest pay-TV operator in the US. It is also the second-largest wireless data provider and the third-largest broadband provider. That means AT&T controls a huge proportion of the bandwidth consumers use across multiple platforms. Buying a content producer like Time Warner would give it a big motive to make its own content faster or more accessible than competitors’.

Both longstanding common carrier laws and more recent net neutrality rules restrict that kind of self-dealing by network owners. But some recent market innovations have pushed against those limits, potentially making the deal look more problematic.

The prime example here is the advent of what are known as ‘zero-rating’ programs, in which mobile networks treat some data differently than others. Plans like T-Mobile’s Binge On and AT&T’s Sponsored Data allow customers to access video, music, or other content without it counting against their mobile data caps.

Critics have said the plans threaten innovation and freedom of information by making consumers more likely to access content from established, larger players. Providers have tied themselves in knots explaining why these programs don’t violate the spirit of net neutrality, but what really matters is that they’re within the letter of the law.

Though T-Mobile caught the brunt of such criticism (along with general consumer enthusiasm for the plan), it arguably applies even more to AT&T’s program. That’s because while Binge On doesn’t charge companiers like Netflix to participate, AT&T’s Sponsored Data program does. Participating content providers have included Beats Music, Netflix, and Amazon Prime Video.

Those last two compete directly with Time Warner properties like HBO, raising big questions about how the program would work in a combined AT&T-Time Warner. Would the new company zero-rate its own content by default? Or perhaps end the program, and make all non-Time Warner content more expensive for AT&T mobile customers to access? Those scenarios could ring major regulatory alarm bells.

There is no direct equivalent to zero-rating in cable television, but the complex and evolving market relationships between paid cable, online streaming, and content producers present other potential risks to consumers. Probably the closest recent parallel to the AT&T-Time Warner deal was the acquisition of NBC Universal by Comcast, completed in 2011. At the time, regulators were vocal in their concerns that such a large combined telecom and content company could stifle competition, including from then-new online streaming companies like Hulu.

Conditions imposed by the FCC included that Comcast license content to competitors, step back from a stake in Hulu, establish a low-cost broadband service, and air more local and Spanish-language programming. Comcast’s apparent failure to fully comply with many of those requirements may have contributed to the regulatory rejection of its subsequent bid to take over Time Warner Cable (a separate entity from Time Warner). FCC chairman Tom Wheeler concluded that that deal “would have posed an unacceptable risk to competition and innovation, including the ability of online video providers to reach and serve consumers.”

AT&T-Time Warner will raise similar concerns. AT&T might be tempted to give its broadband customers lower-quality streams of, say, television programs owned by Time Warner competitors. That would be illegal, but it can and has been done clandestinely. For instance, Comcast was found by the FCC in 2007 to have improperly restricted the bandwidth of users on peer-to-peer networks, which could have been considered competitive with its cable packages.

But AT&T isn’t Comcast, and their generally cleaner record with consumers should help them with regulators. They succeeded in their last go-round, winning approval last year of the acquisition of DirectTV, whose NFL Sunday Ticket programming was a major draw in the deal. But in their approval, regulators still warned the combined company not to impose “discriminatory usage-based allowances” on certain content or data.

In the coming months, AT&T will have to prove they’ve kept that promise, and can keep on keeping it, even with much more of their own content in play.

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