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This analysis of the competitive facts underlying AT&T’s acquisition of Time Warner is an outgrowth of my discussion of the acquisition on NPR’s Diane Rehm Show this morning with Cecilia Kang of the New York Times and John Bergmeyer of Public Knowledge. The show can be heard here.
My main point was that the competitive facts are the best friend of this transaction.
I elaborate on that conclusion below.
The key facts lead me to believe the transaction should and will be approved, most likely by the DOJ, because of: the antitrust-benign competitive share facts in all the relevant markets; the antitrust precedents that constrain the DOJ’s ability to successfully challenge in court a vertical merger with these benign shares; and the companies have signaled they understand that if any legitimate competitive concerns arise they can be mitigated successfully with conditions and DOJ oversight of the transaction.
If officials examine the competitive facts of this acquisition with an open mind and with due process, they’ll discover first impressions can be very misleading.
First, this AT&T acquisition bears zero resemblance to the original AT&T monopoly before AT&T was broken up in 1984 by the DOJ/court.
Today, industry and FCC numbers show AT&T serves less than 10% of the telephone customers it served as a monopoly, because of two decades of competition from wireless substitution, cable and VoIP providers. The Internet also effectively swallowed AT&T’s monopoly long distance business whole.
And AT&T’s onetime monopoly Western Electric equipment business and Bell Labs R&D was totally divested in 1996 and AT&T has remained out of the telecom equipment business since.
Simply, competition forced and enabled AT&T to completely remake itself.
Second, AT&T and Time Warner’s benign antitrust market shares in relevant markets do not change as a result of this vertical acquisition.
These market shares are “benign” because this transaction does not increase either company’s “scale” in any horizontal market because the companies do not compete in any market.
This is a benign acquisition because it increases the “scope” or variety/choice of each company, meaning AT&T customers get the increased benefit and choice from owning Time Warner content, while Time Warner customers get the increased benefit and choice of multiple AT&T distribution options and conveniences.
Concerning the competitive facts, AT&T’s market shares are: <10% in telephone service; ~18% in fixed broadband; ~20% in Pay TV; and ~32% in wireless. And in each of these markets consumers have at least three competitive options from which to choose.
Time Warner’s content market share is ~19%. In news, Time Warner’s CNN competes with at least: ABC, BBC, Bloomberg, CBS, Fox, and NBC; and in films Time Warner competes with: Disney, 21st Century Fox, Paramount, Sony, and Comcast-NBC-Universal.
In addition, this acquisition does nothing to change the FCC’s existing “strongest possible” consumer protections that already over-regulate competitive companies as monopolies given the FCC’s new Title II utility regulation of AT&T’s telephone, wireless and broadband businesses as common carriers with new net neutrality obligations.
Nor does the acquisition do anything to change FCC regulation of AT&T’s pay TV business as a regulated multichannel video programming distributor.
Third, the facts also show that perspective is critical here to understand the important broader competitive context of this acquisition.
The first wave of Internet convergence competition is largely complete as most all copper, cable, fiber, satellite and wireless facilities can offer any combination of text, voice, data, image and video with varying degrees of efficiency and cost.
The communications sector is very competitive which has spawned different big bet strategies.
AT&T buying Time Warner is not the only big bet, disruptive competitive development.
Verizon has bought AOL, online advertising assets, and is currently buying Yahoo so that it can become the leading online advertising alternative to the dominant Google and Facebook advertising platforms.
Comcast-NBC-Universal reportedly is launching a new wireless broadband offering in 2017 in competition with AT&T and Verizon by leveraging WiFi and its wholesale resale MVNO with Verizon.
And T-Mobile’s Binge-On, and “uncarrier” model has proved highly disruptive in taking wireless share from Verizon, AT&T and Sprint.
This is what real competition does. It forces companies to take risks, make big bets, and change strategies to grow and remain competitive.
The second wave of Internet convergence competition is the current collision/convergence of the originally separate, but now rapidly converging, communications and tech sectors.
Consider what communications services and content the five most valuable Internet-related companies in America — Apple, Alphabet-Google, Microsoft, Amazon, and Facebook – now offer. (BTW, these five companies currently are collectively worth a staggering $2.4 trillion.)
Google offers every current communication service that communications companies currently offer. It has over a billion users of Google News and News Search as the world’s dominant aggregated online source of news.
It commands the world’s dominant, 1.5b user, video distribution platform in YouTube, which is buying and investing in video content and YouTube channels. Google YouTube plans to offer a cable-like “skinny bundle” pay TV offering called “Unplugged;” and it already has a deal with CBS and is negotiating with other content producers.
Google also bought Maps, YouTube, and Android. Google even bought cell phone manufacturer Motorola and then sold it.
Amazon’s Amazon Prime membership offers free and unlimited video streaming of TV shows and movies in a service that is the closest video streaming competitor to Netflix.
In 2014, Amazon bought Twitch, the world’s leading social video platform and community for gamers, with 10 million daily viewers. Amazon also offers “Echo” the leading speaker AI assistant device in the home.
Apple reportedly was in talks with Time Warner before AT&T acquired Time Warner.
Apple bought the software that powers the iPhone voice-activated assistant. And the fastest-growing parts of Apple’s business are the communications-content-services like iCloud, iTunes and Apple Music.
Microsoft in 2010 bought Skype, a leading video chat and voice calling communications service with over 300m users. In 2013, Microsoft bought cell phone maker Nokia only to sell it in pieces in a few years later.
This year Microsoft bought Linkedin the world’s leading professional social network.
Facebook commands the four top ways to communicate online besides email, by commanding 1.7b Facebook users, 1b WhatsApp messaging users, 1b Messenger users, and 500m Instagram users.
Facebook bought WhatsApp for $19b in 2014 when WhatsApp had no material revenues.
Facebook is actively exploring how to become an Internet service provider around the world.
Fourth, the facts show that vertical/scope -increasing mergers in the tech sector are commonplace.
The five dominant Internet/tech companies have acquired 566 vertical/scope companies per Wikipedia.
Google has bought 199 companies since 1998, about 1 a month; Microsoft 197 since 1975, about 1 every two months; Apple 82 since 1976, about 1 every six months; Facebook 60 since 2004, about 1 a month; and Amazon 28 since 1994, about 1 per year.
The facts also show that these vertical/scope-enhancing acquisitions rarely attracted any antitrust problems despite their buyers having vastly higher and more dominant market shares than any communications company.
For example, Google has ~85% search and search advertising share; Facebook has >80% Social and Social advertising share; and Amazon commands roughly 75% market share of the retail ecommerce merchant platform market.
It would be difficult for the DOJ to argue successfully in court that a vertical/scope-enhancing acquisition like AT&T- Time Warner, that involves competitively benign relevant market shares of ~18-32%, is somehow anticompetitive and must be blocked, when the DOJ’s obvious vertical merger standard for the Internet/tech sector routinely allowed companies with ~75-85% dominant shares to make hundreds of vertical acquisitions without investigation or challenge.
Ask a judge, equal protection of the law frowns on legal double standards.
In short, the competitive facts of: this transaction, the marketplace around it, and the DOJ’s vertical precedents and non-precedents, are this transaction’s best friend.
[Originally Published at Precursor]