Thus far, we have looked at the Kraft-Heinz and Exxon Mobil mega-mergers, which took place in the food and oil industries.  This week, we will take a look at the AT&T and Time Warner mega-merger in the telecommunications and media industries, which is one that certainly brought controversy to not only the American economy, but to the political scene as well.

AT&T is a modern media company that provides wireless connectivity throughout the United States.  Over the past 140 years, the company has been continuously pursuing innovation to advance its services and establish itself a leader in the industry.  Through its modernization over the years, AT&T sought out the opportunity to acquire Time Warner in order to expand its services and appeal to the entertainment demand in the American culture (“AT&T Corporate Profile”). 

Time Warner, known as WarnerMedia after the merge, has been a leader in the media and entertainment industry for over 100 years by providing an array of entertainment, including movies, TV shows, and news worldwide.  Time Warner perceived merging with AT&T as a way to improve its digital capabilities, such as mobile viewing and social media abilities (“About Us”).

As discussed in the first week of this blog, a horizontal merger is one between companies in the same industry.  However, in the case of AT&T and Time Warner, this is a vertical merger since the companies operate in different industries (Fung, Brian, and Tony Romm).  This mega-merger cashed in at $85 billion for AT&T to acquire Time-Warner in 2018, a plan that had been in the works since 2016 (Reiff). However, this was not the first time that the companies engaged in business activity.  Back in the 1920s, AT&T developed the technology needed “to add sound to motion pictures” (“AT&T Corporate Profile”). Warner Bros., under the umbrella of Time Warner, used AT&T’s technology in its production of The Jazz Singer, which is regarded as the first talking movie (“AT&T Corporate Profile”).  Despite the advancement that the companies were able to make in the 1920s, the idea of merging their foundations was not unanimously supported in 2018.  The government took this merger to court with the fear that it would diminish competition and result in higher prices for consumers and other cable providers, which does not follow the American economic model that is grounded in the idea of competition (Fung).

Furthermore, economic analysis through the Justice Department found that there could be a $436 million increase in cable prices and filed an appeal of this merger as a result.  AT&T countered by saying that this merger would decrease prices with increased efficiency, and even if not, it would not increase monthly cable bills by more than 45 cents (Fung).  Through this economic debate, the U.S. District Court would decide whether or not the merger could be sustained while maintaining competition, which is the purpose of the antitrust laws.

Despite the economic debate, there was an underlying political influence that affected the pending appeal.  During President Trump’s campaign, he stated, “As an example of the power structure I’m fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few” (Fung).  Throughout his campaign, it became very evident that Trump and CNN were not allies, and subsequently, this could have caused him to be biased against the merge that would result in the owner of CNN being so dominant. Some people felt that his bias could have influenced the U.S. District Court away from solidifying the deal.  However, in June of 2018, Judge Richard J. Leon ruled that the merger could continue to form. In the trial, Judge Leon worked to neglect political influence and solely focus on the economic case at hand (Kang).

After going through a long approval process, has the merger truly been beneficial in its early stages?  Elliott Management, a major investor in AT&T, wrote a letter that expressed its disappointment with the merger’s lack of planning and pursuit and feels that the company should solely focus on AT&T’s fundamental services (Shah).  With the evolving media industry being dominated by services like Netflix and Amazon Prime Video, will there still be a huge demand for Time Warner going forward? If not, has AT&T acquired a company that will take away from their future business efforts?

Considering this case leaves me wondering about the efficiency and conflict of interest with mega-mergers.  Do mega-mergers tend to improve efficiency, or do these companies take on more than they can handle and diminish their ability to produce and advance their services/products?  Moreover, can underlying political inclinations manipulate the ability of mergers to be approved by the government?

__________________________________________________________________________________

 Works Cited

“About Us.” WarnerMedia, 2019, www.warnermediagroup.com/about-us.

“AT&T Corporate Profile.” AT&T News, Wireless and Network Information, 15 Aug. 2019, about.att.com/pages/corporate_profile.

Fung, Brian, and Tony Romm. “AT&T and The Government Face Off in Court Today. Here’s Everything You Need to Know.” The Washington Post, WP Company, 19 Mar. 2018, www.washingtonpost.com/news/the-switch/wp/2018/03/19/att-and-the-government-face-off-in-court-today-heres-everything-you-need-to-know/.

Kang, Cecilia. “Why the AT&T-Time Warner Case Was So Closely Watched.” The New York Times, The New York Times, 12 June 2018, www.nytimes.com/2018/06/12/business/dealbook/att-time-warner-trial-antitrust-ruling.html.

Reiff, Nathan. “AT&T and Time Warner Merger Case: What You Need to Know.” Investopedia, Investopedia, 20 Feb. 2020, www.investopedia.com/investing/att-and-time-warner-merger-case-what-you-need-know/.

Shah, Ambrish. “AT&T’s Time Warner Deal: Is Its Promise Faltering?” Market Realist, 11 Sept. 2019, articles2.marketrealist.com/2019/09/atts-time-warner-deal-promise-faltering/#.