AT&T Open to TW Conditions, Though Not Divestiture, CEO Stephenson Says

AT&T is ready to make concessions to get DOJ approval of buying Time Warner, but not selling assets, CEO Randall Stephenson said at the Economic Club of New York Wednesday. Experts told us AT&T's proposed conditions in its reply Tuesday to Justice's lawsuit (see 1711280063) aren't aimed at DOJ but at U.S. District Judge Richard Leon of the District of Columbia, who has the case.

Experts said AT&T almost assuredly previously discussed proposed conditions -- "baseball-style" arbitration if a rival MVPD can't reach a satisfactory distribution agreement for Turner networks and a ban on a Turner blackout during that arbitration process, both guaranteed for seven years -- in settlement negotiations. That's especially since arbitration was a condition on Comcast/NBCUniversal. They said AT&T likely went into the TW deal expecting similar conditions.

AT&T now will argue DOJ shouldn't have brought the case when vertical cases keep getting settled, and it offered terms that won't require either department or court oversight, said a media lawyer with mergers and acquisitions experience. That oversight issue is a concern Leon brought up in Comcast/NBCU approval, so it behooves AT&T to show such behavioral terms for New AT&T would be self-effectuating, a cable lawyer said. The lawyer said it's surprising AT&T's reply didn't make a bigger deal about the FCC Communications Act Section 628 program access as legal protection for programmers denied carriage. The cable lawyer said the DOJ litigation is aimed at pushing AT&T to accept the longest, toughest terms, not divestitures, the agency can get, before the two almost surely settle.

Wells Fargo analyst Jennifer Fritzsche wrote investors the AT&T reply bolsters the idea the company "is gearing up for a courtroom fight." MoffettNathanson said the offer "is clever [going] to the very heart of DOJ's case." It takes pressure off Leon, ensuring at least some behavioral remedies, and makes it harder to reject the deal when AT&T is committing to similar terms as Comcast/NBCU, the firm said. MoffettNathanson said the commitment makes it likely Leon will approve the transaction.

Leon scheduled an initial hearing for Dec. 7, according to the court schedule.

DOJ needs to be able to demonstrate DirecTV and Turner have sizable market power for its complaint to hold, but DirecTV is overshadowed by online video distributors like Netflix and by edge providers like Facebook and Google, and Turner has single-digit market share of media viewed in most markets, Stephenson said. He said it's "patently false" AT&T would use Turner blackouts and contract terms to drive rivals' customers to AT&T-owned DirecTV, but blackouts and arbitration terms fix those worries, he said. He said an asset sale would lend credence to the idea that TW-owned CNN is a hangup in getting Justice approval: "We're not going to be party to those kinds of things."

Stephenson said the TW deal is about pairing DirecTV with the content as a joint means of distributing video to AT&T's wireless customers. He said DirecTV Now, launched a year after the company's buy of DirecTV, is expected to hit a million subscribers this quarter. He said by owning its own premium content, AT&T can use it for such opportunities as integration of social media: The deal "has absolutely nothing to do with a backward-looking view of the world" about TW pricing content to rival MVPDs.

With the DOJ taking its final submission in March and having conducted 19 depositions from AT&T and TW, "They should be ready for trial," Stephenson said.

Stephenson said he was one of President Donald Trump's "big defenders" on policy, with regulatory burdens and regulatory decision-making having "been rationalized." He said the opportunity for tax reform "is big," because it would free up substantial capital for investment, including fiber deployment for 5G. He said if the FCC follows through on Dec. 14 with rollback of Title II regulation of ISPs (see 1711290032), "it's going to be a lot like Y2K," with consumers not noticing any difference. He said ISP terms could change, but “I don't think that would be a very savvy move." He said the debate is largely "a lot of emotion, a lot of rhetoric over nothing," with ISPs' concern the rules were a basis for rate regulation. He defended paid prioritization in such applications as autonomous vehicles and telehealth: "You don't want an outlawing of paid prioritization. But you want us to be totally transparent.”