By Pritika Ramesh
On Saturday, October 22, 2016, AT&T Inc. (“AT&T”) announced a proposed plan to purchase Time Warner Inc. (“Time Warner”) for $85.4 billion. A merger this large would normally require the Department of Justice (“DOJ”) and the Federal Communications Commission (“FCC”) to determine whether the merger would harm competition or be contrary to the public interest. However, the FCC will only be involved if any FCC licenses are transferred to AT&T through the merger. Although advocacy groups are pushing U.S. regulators for a thorough review of the merger, AT&T may be able to legally avoid a review from the FCC because Time Warner currently holds the license to only one FCC-regulated broadcasting station, Atlanta’s WPCH-TV. Time Warner could potentially transfer the license to a third party to avoid formal FCC review of the deal.
As AT&T reportedly prepares its bid for Time Warner, it will have to decide if it wants to avoid an FCC review by having Time Warner sell off the station before the deal goes through. According to Bloomberg Intelligence analyst Geetha Ranganathan, companies use sales, transfers and spinoffs around larger deals in order to face friendlier regulatory review “all the time.”
Since this will be a significant vertical merger in the industry, the deal would likely face a strict review from the DOJ, regardless of the FCC’s involvement. The acquisition will likely exceed $100 billion, including Time Warner’s debt, transforming a giant in the telecommunications industry into the nation’s largest entertainment company. Time Warner, which encompasses Turner cable TV channels and HBO premium network, would supply channels to AT&T. AT&T, which is a distributor of pay-TV and offers wireless service, is the second-largest wireless carrier in the United States. Just last year, AT&T acquired DirecTV, and already has a massive reach to consumers in the communications industry. It is foreseeable that AT&T will have to offer some concessions upfront, such as assuring that other pay-TV distributors and wireless operators would still get access to Time Warner programming; otherwise, AT&T would be in a position to favor Time Warner content and deny access to other competitors.
The last major deal that facilitated the union of a distribution powerhouse and a major media and content provider was Comcast’s 2011 takeover of NBCUniversal, which was reviewed by both the DOJ and the FCC. While the Comcast/NBCUniversal deal offers a potential roadmap for winning approval by agreeing to strict regulatory conditions, it also could lead to tougher and more enforceable conditions. The approved Comcast/NBCUniversal agreement involved 150 conditions, including sharing NBCUniversal programs with competitive streaming services and giving up some control of the daily management of the streaming website Hulu. Further “behavioral” and “structural” conditions were implemented to ensure Comcast would deal fairly with rival cable and satellite providers. It is possible that AT&T could favor Time Warner’s content on its own distribution networks by letting it stream without applying data caps to video services like Netflix. Regulators intend to place stricter conditions on this merger that are easier to enforce, but it is unclear what those conditions will be at this time.
If this deal is successful, it will provide consumers with a new age of mobile video streaming and an alternative to basic cable programming. Although this deal will not have a direct effect on competition, there are risks of exclusivity that will start to play out with the added risk of higher prices for certain content distribution. These benefits and risks will have to be balanced through the regulatory review of this merger, but if there is no FCC-licensing content transferred through this deal, then the FCC may not be able to address and influence the effect on the public interest, which would likely leave the DOJ to conduct a review using the guidelines of the Comcast/NBCUniversal deal.
 See Jon Brodkin, AT&T/Time Warner Deal Could be Approved Without any FCC Merger Review, Ars Technica (Oct. 24, 2016, 12:00 PM), https://arstechnica.com/tech-policy/2016/10/fight-against-atttime-warner-begins-but-fcc-may-have-no-say-in-merger/.
 See David Shepardson, How AT&T Might Skirt an FCC Review of Time Warner Deal, Reuters, Oct. 24, 2016, 3:24 PM), https://www.reuters.com/article/us-time-warner-m-a-at-t-regulators-revie-idUSKCN12O29F.
 See Brodkin, supra note 1.
 See Kyle Daly & Lydia Beyoud, FCC Review of AT&T-Time Warner Combo Hinges on Atlanta TV Station, Bloomberg BNA, Oct. 22, 2016), https://www.bna.com/fcc-review-atttime-n57982079012/.
 See Shalini Ramachandran & Thomas Gryta, AT&T’s Bid for Time Warner Would Face Obstacles, Wall Street Journal (Oct. 21, 2016, 6:46 PM), https://www.wsj.com/articles/at-ts-bid-for-time-warner-would-face-obstacles-1477089982 (stating that a vertical merger is between two companies hat are part of the same supply chain, but are not direct competitors).
 Jim Puzzanghera, Wall Street Worries that Regulators will Sink AT&T-Time Warner Deal, Los Angeles Times (Oct. 24, 2016, 5:45 PM), https://www.latimes.com/business/la-fi-att-time-warner-20161024-snap-story.html.
 See Ramachandran, supra note 7.
 See Here’s How AT&T’s Deal to Buy Time Warner Could Dodge FCC Oversight, Fortune, (Oct. 24, 2016, 5:47 AM), https://fortune.com/2016/10/24/att-time-warner-fcc-oversight/.
 See generally United States v. Comcast Corp., No. 1:11-cv-00106, 2011 WL 5402137 (D.D.C. Sept. 1, 2011).
 See Here’s How AT&T’s Deal to Buy Time Warner Could Dodge FCC Oversight, supra note 11.
 See Jon Brodkin, AT&T and Time Warner reveal merger to create ISP, TV, and media giant, Ars Technica (Oct. 22, 2016, 10:07 PM), https://arstechnica.com/information-technology/2016/10/att-and-time-warner-reveal-merger-to-create-isp-tv-and-media-giant/.
 See Alina Selyukh, The AT&T-Time Warner Merger: What Are The Pros And Cons For Consumers?, NPR, (Oct. 25, 2016, 10:44 AM), https://www.npr.org/sections/alltechconsidered/2016/10/25/499185907/the-at-t-time-warner-merger-what-are-the-pros-and-cons-for-consumers?ft=nprml&f=499299869.