It’s been quite a week for AT&T. One of the largest providers of wireless, internet, and cable TV in America, it closed an $85.4 billion deal last Thursday to acquire Time Warner, one of the biggest entertainment companies in the world, after a federal court blessed the merger over the Justice Department’s objections. Judge Richard Leon, of the U.S. District Court for D.C., had rejected the government’s argument that AT&T would lessen competition by leveraging Time Warner’s “must-have” television content to drive rival customers to its products.
Within one week, AT&T announced a plan to use Time Warner’s television content to drive rival customers to its products. It’s just one of several announcements from the new conglomerate that show the government was right: AT&T is determined to use its economic and political power to expand its reach and dominate markets.
On Thursday, AT&T unveiled a service called WatchTV, a “skinny bundle” of 31 television channels, many of them under AT&T’s control after the Time Warner merger, as well as on-demand content from those channels. Subscribers to AT&T’s two new unlimited data plans get WatchTV for free, and the pricier plan includes HBO, the crown jewel of the Time Warner merger. Non-AT&T customers who want WatchTV can get it for $15 per month—but without access to John Oliver and Silicon Valley, which would cost another $15 through HBO Now.
AT&T considers this an expansion of consumer choice, a new option for cord-cutters seeking cheap streaming TV. But in reality, AT&T is using its exclusive access to HBO and other Time Warner programming to push people to sign up for its phone plans. It’s no coincidence that AT&T also quietly announced price increases for the unlimited data plans it’s trying to attract people to.
In antitrust parlance, this is known as “tying.” As the U.S. Federal Trade Commission notes, “The law on tying is changing. Although the Supreme Court has treated some tie-ins as per se illegal in the past, lower courts have started to apply the more flexible ‘rule of reason’ to assess the competitive effects of tied sales.” But using HBO to drive cell phone subscriptions, when rivals can’t do the same, should face legal scrutiny. There’s a more subtle form of tying here as well: Any subscriber to AT&T’s unlimited data plans gets a $15/month credit to DIRECTV, AT&T’s satellite TV subsidiary.
Somehow, in the six-week trial over the proposed merger, the idea that AT&T could leverage Time Warner content for cell phone subscriptions never came up. The government’s case focused entirely on television distribution.
AT&T says it can offer 31 streaming channels for $15/month because it will be “ad-supported.” The company will use information about consumers’ personal watching habits to target ads, which it can do because Congress repealed a regulation last year that would have required user consent for such targeting. But AT&T still needs a way to deliver ads for wireless customers, something to rival Google and Facebook’s. Last Friday, CEO Randall Stephenson said he’ll get there by buying companies. “We’re standing up a significant advertising platform; you should expect some smaller, not like Time Warner, but smaller [mergers and acquisitions] in the coming weeks to demonstrate our commitment to that,” Stephenson told CNBC.
Growth through acquisition is how Google and Facebook became so dominant in their respective markets. Facebook has a tool called Onavo that identifies the user bases of rival social networks so it can buy them up if they start to take off. Google bought its ad network by acquiring Doubleclick, AdMob, and other firms. Only a company as deep-pocketed as AT&T could hope to make such a play. The gradual disappearance of startup companies in America goes hand-in-hand with increased buyouts from these big incumbents.
With economic power comes political power, and AT&T flexed those muscles this week, too.
After the Federal Communications Commission’s repeal of Obama-era net neutrality order last year, it was left to the states to ensure that telecoms don’t throttle certain websites. But companies that control the pipes don’t want to lose that opportunity, so they’ve been lobbying against such regulatory efforts on the state level.
A California State Assembly committee on Wednesday gutted legislation that would have set the nation’s gold-standard for net neutrality. The bill was amended to allow “zero rating,” which lets telecoms exempt certain services from counting toward a customer’s data plan. This is perfect for AT&T, which just got a bunch of bandwidth-heavy Time Warner programs to offer to customers. It can exempt those videos from data caps, while charging rivals for the same access. AT&T already does zero rating for streaming DirecTV online. Prioritizing one’s own content above rivals is the very definition of anti-competitive behavior.
The bill’s author, Senator Scott Wiener, withdrew the bill from consideration, saying it was “mutilated” by the Assembly committee. AT&T may have played a role in that. The company recently gave the committee chair, Miguel Santiago, $4,400 toward his re-election, and the eight members of the committee received $230,600 from AT&T over their careers, according to CalMatters’ Dan Morain. Last year, AT&T gave $511,000 to the California Democratic Party, which fundraises with an annual golf tournament at the Pebble Beach course that’s “presented by AT&T.”
In other words, AT&T has used Time Warner programming to bolster its wireless business, openly stated it would concentrate the ad-tech market so it can profit from data collection, and forced into submission the main legislative threat to its business model—all within its first week since the merger.
Why were none of these possibilities considered in the antitrust case brought against AT&T? Why did the government focus so much on whether consumers might pay a little more or a little less for cable TV? Because the judiciary promotes a backwards interpretation of mergers that says the only thing to judge whether they are beneficial or not is “consumer welfare,” which has come to mean whether they offer lower prices. Seven days of the new AT&T’s existence proves the inadequacy of that.
Consumers are harmed when they have narrow options for the type of wireless and TV service they want. They’re harmed when they can’t access certain websites or videos from their Internet service provider. They’re harmed when all advertising gets funneled through a few businesses and independent publishers. Unless the United States rethinks its antitrust regime and expands the definition of “consumer welfare,” the monopolization of the economy will continue apace. After all, it’s been quite a week for Disney and Fox, too.