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Public Interest Groups Sound the Alarm Over Possible AT&T-Time Warner Merger

Vertical integration is back.

It's no secret why telecom titan AT&T wants to buy Time Warner, the giant content factory that owns HBO, CNN, and the legendary Hollywood studio Warner Bros.

After all, content is king.

A combination of the two corporate giants would create an entertainment and communications behemoth rivalled only by Comcast, which gobbled up NBCUniversal in one of the most controversial mergers in US history.

The question is whether federal antitrust regulators would be willing to approve the latest example of vertical integration in the rapidly consolidating media and telecom market. Last year, the Federal Communications Commission approved AT&T's $50 billion buyout of DirecTV, creating the nation's largest pay-TV company, with more than 25 million subscribers.

Adding Time Warner to the mix would provide AT&T with a deep well of in-house programming, and better position the telecom giant to compete with Comcast at a time when consumers are increasingly eschewing traditional pay-TV packages in favor of internet-based, or so-called "over-the-top," entertainment options.

The potential deal, which was first reported Friday by The Wall Street Journal, may or may not happen. But public interest groups were quick to sound the alarm about the potential harms to consumers if the transaction, which could be valued at $100 billion or more, is allowed to proceed.

"Such a take-over should be unthinkable," said former FCC Commissioner Michael Copps.

"The only thing that similar mergers have brought customers is higher bills to pay off new debts and compensate top executives," Tim Karr, senior director of strategy of DC-based public interest group Free Press, told Motherboard. "AT&T's purchase of DirecTV was quickly followed by price hikes. There's no reason to expect this will be any different."

"These deals aren't driven by a desire to give customers a better, more affordable media experience but by Wall Street's insatiable desire for short term growth at any cost," Karr added.

Time Warner shares soared by more than 7 percent Friday, after the merger talks were reported. (Time Warner is not to be confused with Time Warner Cable, the widely loathed pay-TV company that was taken over by cable giant Charter earlier this year.)

Such a merger would pose an early challenge for the next administration, especially if Hillary Clinton wins the presidency. In July, the Democratic party made fighting runaway corporate consolidation a key plank in its election-year platform. An AT&T tie-up with Time Warner would be a key test of Clinton's willingness to put the brakes on the seemingly inexorable trend toward greater corporate power in the communications and entertainment sectors.

Indeed, the merger would raise troubling questions about the extent to which federal regulators are willing to allow an ever-decreasing number of corporate giants to dominate the media landscape.

"Such a take-over should be unthinkable," former FCC Commissioner Michael Copps, who now serves as Special Adviser to public interest group Common Cause, told Motherboard. "AT&T locking up Time Warner's content empire would give it monopoly power in many markets. That power is incompatible with democracy. Regulators must just say 'No!'"

The AT&T-Time Warner talks come at a time when entertainment giant Viacom is exploring a formal tie-up with CBS, in a deal that would reunify those two companies after they were broken up in 2006. For AT&T boss Randall Stephenson, who was named 2016 "CEO of the Year" by Chief Executive magazine, absorbing Time Warner would the highlight of a 30-year career in which he has developed a reputation as a ruthless operator.

The Justice Dept. would undoubtedly scrutinize the AT&T-Time Warner deal very closely, because the telecom giant could be tempted to prioritize Time Warner content over rival programming for its DirecTV subscribers. AT&T would also have ample interest in using its ownership of Time Warner to extract higher prices for HBO, CNN, or Warner Bros. content from its rivals, including Comcast. And that could lead to higher prices for consumers.

"DirecTV, for instance, might favor Time Warner content, crowding out or refusing to carry alternative and independent programming that viewers might prefer," John Bergmayer, senior counsel at DC-based consumer advocacy group Public Knowledge, said in a statement. "AT&T might also make it more expensive or difficult for competitors to DirecTV or to its streaming service to access Time Warner programming, hoping to drive customers to its own platforms."

The Federal Communications Commission's involvement in scrutinizing the merger would likely be limited, because Time Warner has few major broadcast license assets, with the exception of WPCH in Atlanta. The combined company would surely divest that station in order to obtain regulatory approval. As a result, the Justice Dept. is likely to take the lead on reviewing the deal.

A spokesperson for AT&T declined to comment on the reported merger talks. A spokesperson for Time Warner did not immediately respond to a request for comment.