FCC Likely to Play Role in AT&T-Time Warner Review

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By Kyle Daly

Oct. 28 — The Federal Communications Commission is likely to have a hand in the regulatory review of AT&T Inc.'s proposed acquisition of Time Warner Inc. even if the agency isn't formally responsible for reviewing the deal.

The proposed $85.4 billion transaction must undergo an antitrust regulatory review in any event, likely by the U.S. Department of Justice. The FCC also will review the deal if it involves the transfer of broadcast, satellite or other licenses. The companies may be able to escape a formal FCC review, however, if Time Warner disposes of dozens of satellite licenses, and at least one broadcast license, that it controls. But the FCC would still likely be closely involved in an advisory role, even if the Department of Justice ends up as the agency officially in charge of the review.

“The Department of Justice is free to consult a sister agency,” Harold Feld, senior vice president of Public Knowledge, said in an Oct. 28 interview for an episode of C-SPAN's “Communicators” program. “So even though they're not part of the merger review process, it's certainly appropriate to bring them in as just part of the antitrust review.”

The FCC reviews mergers under a public interest standard, analyzing if they would benefit or harm the general public. That broad principle gives the FCC wide leeway in blocking deals. The commission would evaluate whether a deal could, among other things, lead to higher prices, diminished services or increased market power that could be used to harm competitors.

Unlike the Justice Department, which must file a lawsuit to block a merger, the FCC can send a proposed merger for review by an administrative law judge. That would spark a drawn-out process that may effectively kill any proposed tie-up.

But escaping formal FCC review probably won't allow the deal to dodge the commission's attention. Larry Downes, project director for the Georgetown Center for Business and Public Policy, told Bloomberg BNA that he believes Time Warner will sell off the licenses before the companies consummate the deal but that the Justice Department likely would still consult the FCC.

FCC Role in Shaping Conditions

Even an advisory role would still give the FCC a hand in shaping any conditions tied to the deal in the event that it's approved. DOJ approval could hinge on whether AT&T accepts conditions that would be enforced by the FCC, New Street Research analyst Jonathan Chaplin said in an Oct. 23 note.

Those conditions may echo those the FCC imposed in Charter Communications Inc.'s recent acquisition of Time Warner Cable Inc., which Time Warner spun off in 2009, Bloomberg Intelligence analyst Matthew Schettenhelm said in an interview.

Schettenhelm said if the FCC formally reviews the deal, he expects its conditions to include a ban on zero-rating, the practice of exempting certain content from data caps and a provision making AT&T bring on an independent, external compliance officer to make sure it's sticking to merger conditions.

The FCC made that a condition of approving the Charter deal and AT&T's acquisition of DirecTV, following widespread criticisms of how faithfully Comcast Corp. adhered to merger conditions after it acquired NBCUniversal.

The FCC likely would require AT&T to offer programming from Time Warner properties like HBO, CNN, TNT and TBS to other TV service providers on a non-discriminatory basis, Schettenhelm said.

Chaplin said in his note that he expects regulators to impose conditions pertaining to zero-rating and/or data caps and non-discriminatory programming, as well as special constraints on the use of customer data above and beyond the restrictions in the FCC's new broadband privacy rules.

Licenses at Issue

Time Warner has one broadcast license, for independent station WPCH-TV in Atlanta. The satellite licenses are used to transmit programming from certain Time Warner-owned networks and for satellite transmissions that CNN, a Time Warner property, uses in live newscasts. Time Warner may also hold other licenses for which the FCC would have to approve transfers.

As of late Oct. 28, the company was still reviewing the licenses and determining if it intends to buy them as part of the larger deal, AT&T General Counsel David McAtee said in a statement.

Sen. Markey Gunning for FCC Review

Sen. Edward J. Markey (D-Mass.) said Oct. 28 that the FCC should review the deal. As the “telecommunications cop on the beat,” the FCC should examine the proposed transaction's “potentially dramatic impact on the media marketplace,” Markey said in a statement citing Time Warner's satellite and broadcast licenses.

Because the deal as initially proposed would involve the licenses, it's “open and shut” that the FCC get involved, Todd O'Boyle, program director for Common Cause's Media and Democracy Reform Initiative, told Bloomberg BNA.

Disposing of both the broadcast and satellite licenses would be a trivial matter if AT&T wants to sidestep formal FCC review, former FCC Chairman Reed Hundt told Bloomberg BNA. WPCH is a minor station that airs old movies and syndicated TV shows. As for the satellite licenses, Hundt said he “can't think of any reason” AT&T would need to own them instead of contracting out Time Warner networks' satellite functions to a third party.

FCC Chairman Tom Wheeler told reporters Oct. 27 that AT&T hadn't filed anything with the agency yet to spur a review. FCC spokesman Neil Grace told Bloomberg BNA that hadn't changed as of late Oct. 28.

If AT&T intends to seek FCC review, it normally would have at least briefed Wheeler and other top agency officials on the merger by this stage, Hundt said.

[With assistance from Lydia Beyoud and Tim McElgunn.]

To contact the reporter on this story: Kyle Daly in Washington at kdaly@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

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