What the AT&T-Time Warner Merger Decision Means for U.S. Regulation
President Donald Trump’s moves to streamline federal regulation and unleash infrastructure have in some ways been unprecedented.
But some developments could undermine or swamp the progress made on economic liberalization.
There is the Republicans’ stratospheric spending bill; there are trade restrictions such as those on steel and aluminum and tariffs on Chinese imports when there are targeted approaches and reasonable steps to address to “disproportionate challenges” (such as these noted by the Consumer Technology Association); there is a renewed Department of Justice push to undermine encryption that will likely backfire.
There is also the prospect of massive interference with large scale business transactions. Large-scale mergers always get a lot of attention from antitrust regulators. That’s plural: it’s the Justice Department, it’s the Federal Trade Commission and also the Federal Communications Commission that potentially weigh in.
In particular, the Trump administration’s antitrust challenge of AT&T’s merger with Time Warner—the act of challenging it alone, regardless of outcome—strikes a discordant note amid executive actions to foster expansion physical and communications infrastructure in the United States.
Just as we hope to expand pipeline, road, bridge, “smart city” and 5G infrastructure like rural broadband, media infrastructure and content-related ventures should proliferate, not be blocked. The problem with the mother-may-I approach? Among plenty else, the AT&T-Time Warner merger was actually announced over a year and a half ago, back in October 2016. The transaction could have long since been underway, as should have been the competitors’ reactions and the attendant consumer benefits those would have brought.
Instead we wait, as the Internet and communications transactions move on government time, while the underlying technologies and capabilities themselves accelerate.
Analysis of market divisions is largely hocus-pocus. The merger is underway in an environment in which Infrastructure and pay television companies and tech companies are moving into content like studios and film libraries, and vice versa. Content and the platforms across which it gets delivered are being brought together. No one knows or can predict how things will wind up.
Every company wants to be on every platform. It was a long time ago that people watched TV on TV. Users and their kids are streaming on tablets, phones and computers, watching Netflix, Hulu, Youtube and everything in between, and using Sling TV and Alexa and all sorts of means to project content across different rooms and on the road. Cross-mergers between the content sector, the tech sector and the infrastructure/communications/platform sectors are exceedingly complex, risky and unpredictatble–yet are what customers need and expect.
AT&T is the biggest wireless company but and also has DirecTV, a major platform for offering content across a satellite infrastructure. With Time Warner, AT&T seeks to secure Time Warner’s big divisions like HBO, presumably to ease HBO content across your wireless device. That flexibility could render other innovations and partnerships more viable. Turner Broadcasting is also a big part of the appeal for AT&T, for assets the TNN station and the CNN news channel properties. Warner Bros. Studios is another plum, which competes with Disney studios and the like at production.
Each new transaction seems aimed at bringing together the big stuff, the infrastructure needed to deliver content, but also the content itself. Everything is very, very much in flux, which is confusing but inevitable. The mergers are big, but guess what? Unfortunately, the regulators are much bigger in terms of their ability to lord over all deals; and they justify themselves by looking for reasons to slam the brakes.
One could not have been entirely surprised at the Trump administration’s challenge (especially given the president’s tendency to proclaim big businesses cheat the public when they move overseas and don’t bring their taxes back, or when they offshore their jobs). As a candidate, Trump promised to torpedo the deal:
AT&T is buying Time Warner, a deal that we will not approve in my administration…because it is too much concentration of power in the hands of too few…We will look at breaking that deal up and other deals like it.”
Trump ignores antitrust’s status as yet another form of the inefficient regulation he otherwise refuses to tolerate; one of the most long-standing, as it happens. Exploited like any regulatory regime, antitrust amounts to corporate welfare, while many enthusiastically pretend it is dedicated to consumer welfare (and profit from that claim). In fact the market could have been responding since October 2016 and increasing consumer welfare and options, but it hasn’t because of antitrust.
One of Trump’s most prominent gripes has been the claim of media bias (granted, the vast majority of D.C. journalists support Democrats) so he would naturally would frown at AT&T buying CNN, which he referred to as the “Clinton News Network.” Trump had similarly also chastised the Comcast-NBC Universal merger, and Jeff Bezos’ purchase of the Washington Post, claiming “Deals like this destroyed democracy.”
Nah. Media in a free society where government does not practice censorship cannot undermine democracy nor impede free speech. Regulation of microphones and the size of them—such as the constant interference with media mergers—is what undermines democracy. The Internet’s turning us all into broadcasters is the opposite of closing off speech.
What would real monopoly power look like? It would look like something of such heft that it could forcibly prevent a voluntary AT&T-Time Warner merger; or “break up” a Facebook or a Google. Monopoly power is government power.
The challenge of government interference with the free marketplace comes from both political parties. Former President Barack Obama issued a “competition” executive order in 2016, that seemed rather government-heavy. The Democratic platform promised to “make competition policy and antitrust stronger and more responsive.” Sen. Chuck Schumer (D-NY) proposed a “Better Deal” incorporating antitrust.
Bad mergers get regulated already. The stock market reacts. The federal government stepping in and unilaterally denying a voluntary action in a free market creates turmoil—now over 100 years of it—because government, by that act, imposes a whole new non-free-market trajectory for the business at hand. That is, via denial, or artificial conditions such as the ones imposed on Charter-TWC, the outcome is not what the free market chose, but what the government chose.
In other words, in creating safe spaces for competitors, antitrust creates distortions. That protects neither competition or consumers. Intervention and blockages and forcible modification damage consumers by denying them the competitive response to the artificially stymied transaction.
If AT&T and Time Warner do not merge thanks to Trump’s Justice Department, that means competitors who would have found it necessary to offer some innovative new service or benefit can relax, instead. Antitrust makes competition non-urgent and unnecessary; it doesn’t protect it.
If the DoJ blocks this merger, things do not sit still. They move, but in a sub-optimal, wealth-depleting way. Time Warner, the content company that in this instance is the acquisition target, will still be sitting there. But Time Warner presumably does not want to sit idle any more than AT&T does.
If AT&T doesn’t buy Time Warner because the government says it can’t, in a year or two or three, some other infrastructure company will move in to do the very same. But then you’ve got a deal that was never the choice of the marketplace. One ends up with a future artificial, sub-optimal merger because the government blocked the marketplace-preferred transaction that should have long-since taken place—likely years before. It’s far better to make the preferred deal now (well, not “now” remember it’s already delayed going on two years thanks to antitrust). If it’s a dud, all the resources and assets remain; they just get reshuffled again in the free market economy.
The question of AT&T’s potentially selfish prioritization of content sometimes arises. AT&T has to make the traditional concessionary noises, but if you’re a normal business, obviously you want to prioritize your content. But so do your competitors. That’s a healthy thing, not a bad thing, for customers. And there’s a big restraint on prioritizing in a way that ends up being bad for customers. If you’re AT&T and you want to prioritize HBO, beware. Remember millions of customers and their kids are sitting at home or out and about with devices, and they don’t want just HBO content. They want Cartoon Network and everything else imaginable, so the incentives in the free market economy are not to withhold, but to make cross-platform deals. So at the same time the AT&T merger and the great content they hope to acquire would indeed put them in an effective bargaining position, a separate dynamic arises too. That dynamic dictates that, “Boy, they better be nice to Comcast/NBC or they better be nice to Walt Disney if they want to get those companies’ content onto the AT&T mobile platform or onto DirecTV” and so forth. This is why mergers are so healthy rather than unhealthy; they are a major catalyst for allocating resources, services and content to customers. Regulators know this with respect to every merger under the sun, but pretend they do not.
Remember, after AT&T, within months or a year or two from now, there are going to be new kinds of mergers and new kinds of cross-platform announcements made. Hulu itself, for example, is owned by several of these big players. AT&T has a stake in it, but so does Disney and others. There are lots of cross-platform deals going on, and could be even more if we didn’t have make-work merger review processes that benefit solely the antitrust bar, bureaucracy and undeserving rivals.
Some (pretend to) fret over horizontal vs vertical merger integrations. Typically (but still wrongly) antitrust in theory gets involved when you’ve got McDonald’s merging with Burger King merging with Wendy’s; that is, when you’ve got companies all doing the same thing merging together. That’s horizontal. The AT&T merger largely is regarded as vertical, with functions up and down the distribution lines. Occasionally vertical integrations get antitrust scrutiny as we’re seeing now. But with media combinations, I often say we’re talking about “ones and zeros,” intangible content and data delivered over the airwaves in a world where everyone is now a broadcaster (for better or worse!). Compare today to the 50s or 60s when we had three television stations and you had one AT&T that was, then, protected by government monopoly (which, again, is how it always is. It was against the law to compete with the phone company). Those days of AT&T’s phone monopoly where your only choice was a black phone or a tan one, are long gone. Competition is well beyond what we had back then back when government thought it was protecting us with an enforced monopoly provider. We’re beyond all that, so I don’t give credence to antitrust arguments regarding merger inefficiencies. Job one now is creating platform wealth and content wealth, and going big. The biggest benefits to consumers? Those happen when the next guys say, “Oh, I’m angry about AT&T doing this deal,'” and then they come up with a competing deal of their own to attract customers.
It is tragic to think back on companies like Blockbuster and Hollywood Video (as well as Staples and Office Depot). When they attempted a merger, government interference and ultimate denial generated vast wasted effort and time when the retail landscapes were changing by leaps and bounds and the companies needed to move fast. It’s incredible to think about it now, but what was once a fully staffed Blockbuster where people would line up on a Friday night and rent videos, is now reduced to a Redbox robot kiosk sitting in the CVS that nobody uses. It is astounding what’s come to be, and wrenching that the government pretended that there could be a monopoly when behind the scenes so many things were changing in the DVD marketplace with the emergence the Internet and unexpected new forms of content. Antitrust forces companies are forced to was vast resources addressing irrelevancies that only become apparent as the market unfolds later.
Trump gets it with much of the regulatory landscape, in terms of making government back off. In a free market economy, there are plenty disciplines against companies that misbehave. Should AT&T and Time Warner behave badly after merging, that presents an opportunity, not a problem. We’ve got Wall Street, customers, rivals and other forces ready to take advantage. AT&T Time-Warner will be subject to blistering market forces just like Comcast-NBCUniversal and just like Walt Disney and just like every entity not granted protectionist favors is subject to. Nobody knows how things will progress. The Amazon Fire Stick altered streaming media, and now Amazon’s own Alexa integration is altering it still further by enabling content distribution throughout the home. There are infinite pressures on companies to come up with ways to please consumers and that’s what it all really comes down to. Consumers are the boss.
Antitrust is like a subsidy from government for companies opposing someone else’s transaction. It works like protectionism. Antitrust is how incumbent providers who don’t want the new competition or don’t want the competitive landscape to shift get the government do save them from the need to compete. We will continue to see the abuse of antitrust as long as we continue to accept the idea that antitrust promotes competition rather than hinders it. That’s why Google and Facebook are next. Remember, the AT&T Time-Warner merger is a deal valued at over $80 billion, but it’s not going to be the last. Before we know it, we’ll be remarking on mergers of $100 billion or so. That’s the way the market goes. For my part, I would love to see many more giant mergers because when you get the A&P and the Wal-Mart stores of the world, you also get a lot of specialty shops and farmers’ markets too, figuratively and literally speaking. Rising wealth creates lots and lots of new niche markets. Big deals for big companies can also mean more medium deals, more small deals and more opportunities for wealth creation. That is what it means for an economy to be vibrant.
On the other hand, if you’ve got antitrust enforcers available, rest assured, people will use them. This merger decision will send a signal for regulators to back off, or step on the gas. The latter will undermine the rest of Trump’s regulatory liberalization agenda.