AT&T and Time Warner: lower prices not part of the bargain

Introduction

AT&T Inc. executives say their purchase of Time Warner Inc. should yield a lot of “positives” for customers, including more content, better wireless access to programming and an attractive alternative to cable.

But what the deal most likely won’t bring about is a cheaper price for television — and it just may increase the price for in-home internet, according to experts who track the media industry.

AT&T wants to marry its internet and wireless operations with Time Warner’s media businesses, which include HBO, CNN, Turner Broadcasting System and movie studio Warner Bros. AT&T said in its announcement that the deal would provide “significant financial benefits,” including revenue and earnings growth, lower capital costs and savings of $1 billion within the first three years.

Nowhere in the announcement did AT&T specifically mention how the proposed transaction could lower costs for consumers.

Jeff Bewkes, Time Warner’s chief executive officer, said Monday on CNBC’s “Squawk Box” program that the deal will lead to “more competition” and “therefore lower prices.” He’s counting on the new company being able to shift the costs of operating an internet and video company from paying customers to advertisers. The ability of AT&T to use information it collects on internet users and video subscribers will allow the company to compete for advertising dollars now going to Google and Facebook — theoretically.

“This is good for competition,” Bewkes said. “Therefore, it’s going to be good for consumers, because that’s what competition does.”

Companies rarely justify mergers like these as a way to lower prices for customers. In 2014, when Comcast Corp. announced it wanted to pay $45 billion for Time Warner Cable, which Time Warner spun off in 2008, Comcast Executive Vice President David Cohen said, “We’re certainly not promising that customer bills are going to go down or even increase less rapidly.” The government nixed the deal.

(Ironically, Bewkes told analysts in 2008 when Time Warner rid itself of Time Warner Cable, that its cable businesses, with its high-speed internet, “don’t fit as well” with Time Warner’s media businesses.)

The reason executives don’t argue that mergers will result in lower prices is because it doesn’t happen, said Matt Wood, policy director at Free Press, an advocacy group in Washington, D.C., that lobbies on communications and media policy. In fact, prices may very well go up. Within five months of completing its $49 billion purchase of DirecTV, AT&T announced that it would increase prices for its broadband service. DirecTV also announced that month that it would hike its prices.

If this purchase is approved, AT&T in all likelihood will not lower prices, and it may hide increases, Wood said. Pricing for internet and video is notoriously difficult to track because it involves bundled packages, which not only include internet and video services, but also phone. AT&T could hold the price of its video service flat, say, but raise what it charges for internet. Because there is less competition among internet providers, it’s easier to raise prices for broadband, Wood said.

And that will hurt those that can’t afford it the most. An investigation by the Center for Public Integrity showed how internet providers avoid competition and how low-income families are more likely not to have access to broadband, or to have access only to slower speeds and fewer choices.

It’s unclear if the deal will gain approval from the Justice Department’s antitrust division. Many telecommunications and media analysts and antitrust lawyers hem and haw when pressed on the deal’s chances. Craig Moffett, a much-quoted media analyst, gave the deal a 50-50 chance. James Stewart, a Lawyer and New York Times columnist, however, said the purchase had a 70 percent chance of being approved because the deal wouldn’t harm competition, which is what the Justice Department ultimately must build its ruling around.

Politics will likely play a role. Democrats along with Republicans have lined up against the deal. Sen. Mike Lee, the Utah Republican who chairs the Senate Judiciary antitrust subcommittee, and the ranking panel Democrat, Sen. Amy Klobuchar, have scheduled a hearing on the proposal next month.

It’s a different political environment than it was six years ago when Comcast bought NBCUniversal, with more bipartisan concern over mergers this big; Donald Trump is among those who opposing the deal. Besides, the $85 billion proposal, which increases to $109 billion when Time Warner’s debt is included, dwarfs the $37 billion Comcast paid.

“It’s a better political climate to try to stop these things,” Wood said, “and it’s an even bigger deal.”