AT&T buys Time Warner; vertical integration and competition fears

AT&T buys Time Warner; vertical integration and competition fears

| AT&T, the US telecoms giant, already the country’s third largest cable provider, is paying $85.4bn (£70bn) for Time Warner, which owns CNN and HBO. But there is a big challenge in getting regulatory approval, especially as both Trump and Clinton have raised questions about the deal. |

Vertical Integration business model to deliver returns

AT&T owns the “supply chain” – cable and broadband which enables people to watch their favourite programmes. By buying Time Warner it can own these programmes (“the content”) such as Game of Thrones.

Buying Time Warner enables AT&T to become a full service media provider and one of the more important companies in the world. It allows a newly-merged entity to steal a march on the likes of Verizon or Comcast in a very competitive US market.

AT&T was started by Alexander Graham Bell in the 19th century and Time Warner can trace its’ origins back to the earliest days of Hollywood. For Americans these are historical icons.

Competition Fears and Regulatory Approval

Both presidential candidates have raised questions about the deal. A Senate subcommittee responsible for competition will hold a hearing in November.

This will be a real test of the new administration’s competition policy and would set the benchmark for any future activity in the market.

Senator Mike Lee, the Republican who chairs the antitrust subcommittee, said the deal would “potentially raise significant antitrust issues, which the subcommittee would carefully examine”.

The biggest merger to be announced this year would combine AT&T’s distribution network, which includes 130m mobile phone customers and 25m pay-TV subscribers, with content from the Warner Brothers film studios and the cable TV channels HBO, the Cartoon Network and CNN.

The competition concerns centre on higher prices for customers and less consumer choice.

But the deal may never happen. It could be deemed anti-competitive by regulators because AT&T already owns mobile phone, broadband and cable TV networks, and allowing it to control the shows as well might deprive consumers of choice.

Source: BBC

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