US regulators will examine the merger closely for evidence of antitrust harm.
AT&T, the giant wireless and pay-TV provider, on Saturday announced a plan to buy entertainment titan Time Warner in a massive $85 billion deal that would dramatically reshape the US media landscape.
The merger would combine AT&T's vast communications network and recently acquired DirecTV satellite business with Time Warner's rich stable of entertainment properties, including HBO, CNN, and the famed Hollywood studio Warner Bros.
The proposed deal is certain to face intense regulatory scrutiny in Washington, because the merger would create an entertainment and communications colossus of immense scale and influence. Already, public interest groups are warning that the deal, which is just the latest example of a decades-long trend of media consolidation, could lead to higher prices for consumers.
"Just as AT&T's recent purchase of DirecTV was quickly followed by price hikes, there's every reason to expect this proposed tie-up would cost internet users and TV viewers dearly, too," said Matt Wood, policy director at DC-based public interest group Free Press.
For Randall Stephenson, AT&T's 56-year-old CEO, the merger would be the capstone of a thirty-year career in the telecom industry, and would transform him into one of the most powerful figures in media and entertainment.
"I'm skeptical of huge media mergers because they can lead to higher costs, fewer choices, and even worse service for consumers."
If the deal is approved, Stephenson would command one of the nation's premier content factories, along with a vast distribution network that reaches more than 100 million consumers across AT&T's TV, mobile, and broadband businesses.
"The future of mobile is video and the future of video is mobile," Stephenson told reporters on Saturday. "A big customer pain point is paying for content once but not being able to access it on any device, anywhere," he added in a statement announcing the proposed deal. "Our goal is to solve that."
For AT&T, diversifying beyond its core wireless business makes sense at a time when the company is losing mobile phone subscribers, as it disclosed Saturday. AT&T said that overall wireless revenues declined 0.7 percent last quarter, to $18.2 billion, in part because of lower handset sales.
Sen. Al Franken, the Minnesota Democrat who, needless to say, has significant experience in the media business, issued a statement Saturday saying that the proposed deal raises "immediate flags about consolidation in the media market."
"I'm skeptical of huge media mergers because they can lead to higher costs, fewer choices, and even worse service for consumers," Franken said. "And regulators often agree, like when Comcast unsuccessfully tried to buy Time Warner Cable, a deal that I fiercely opposed."
(Time Warner is not to be confused with Time Warner Cable, which was spun off from the media giant in 2009. Time Warner Cable was acquired by its smaller rival Charter Communications earlier this year.)
Republican presidential candidate Donald Trump, meanwhile, raised eyebrows on Saturday by preemptively declaring at a political rally that if elected he would block the merger, because it would result in "too much concentration of power in the hands of too few." Trump added that such media mega-mergers "destroy democracy."
Trump's remarks were greeted by applause from his supporters, but telecom policy experts were not amused. "It is wholly inappropriate for a president (or a candidate) to tell the attorney general how to decide a case before the Justice Dept. has a chance to make a recommendation," Andrew Jay Schwartzman, a prominent telecom attorney and public interest advocate who is affiliated with Georgetown University, told CNNMoney.
Democratic presidential candidate Hillary Clinton did not immediately comment on the proposed merger. But earlier this month, she pledged to "appoint tough, independent authorities to strengthen antitrust enforcement and really scrutinize mergers and acquisitions, so the big don't keep getting bigger and bigger."
If the deal is approved, it will likely be subject to significant conditions designed to limit the combined company's ability to prioritize Time Warner content over rival programming for AT&T subscribers, or extract higher prices for HBO, CNN, or Warner Bros. content from competitors like Comcast.
The proposed deal would be an example of "vertical integration," in which companies that offer different services along the supply chain merge, as opposed to "horizontal integration," which is a tie-up of companies that provide similar services, like two cable TV companies.
The closest analogy to the AT&T-Time Warner deal would be Comcast's acquisition of NBCUniversal, which was vehemently opposed by public interest advocates. Federal regulators ultimately approved that deal with strict conditions prohibiting the cable giant from favoring NBCUniversal content or discriminating against rival programming.
Opponents of the AT&T-Time Warner deal may face an uphill battle, because vertical mergers "are more difficult to challenge" than horizontal mergers, according to Glenn Manishin, a leading antitrust expert and managing director at Paradigm Shift Law. "The risk of foreclosing rivals by denying programming is difficult to prove to be likely," Manishin told Motherboard by email. "In Comcast-NBCUniversal, both the Justice Dept. and the FCC imposed conduct remedies (non-discrimination) but did not block."
In a statement, AT&T said that the proposed deal would include a combination of cash and stock, and would be partially debt-financed. The company said it has secured a $40 billion loan in order to help facilitate the transaction, with $25 billion reportedly coming from J.P. Morgan Chase and $15 billion from Bank of America.
AT&T said it expects the deal to close by the end of 2017. In the meantime, federal regulators have their work cut out for them.