Two Big Telecom Deals Won’t Overtax Regulators, Industry Observers Say

Having to handle at once AT&T’s plan to buy DirecTV and Comcast/Time Warner Cable will tax regulators without overwhelming them, said former FCC officials, industry attorneys and analysts in interviews. While regulators will likely face the extra step of having to consider AT&T/DirecTV in light of Comcast/Time Warner Cable, the extra demand on staff in the deals each worth more than $65 billion is unlikely to substantively strain resources at the FCC or Department of Justice, said American Antitrust Institute Vice President Diana Moss. “You can’t stop the trains just because multiple deals come in,” said Moss. “You have to process them."

A lack of other business may keep the deals from bursting the seams at the FCC, said a former commission official with a connection to the current transactions. Recent FCC rules on sharing arrangements in the broadcast industry have had reduced the number of station deals, freeing up Media Bureau staff who handle transaction reviews, said the official who now works with broadcasters. The desires of FCC Chairman Tom Wheeler will have more of an effect on the timing of the deal reviews than will a lack of manpower at the bureau level, said the official.

The FCC is likely to have enough staff to handle such transactions simultaneously, said Gary Lutzker, a cable attorney at BakerHostetler who isn’t involved in either transaction. These are two different cases and different industries, he said. The regulators look at each transaction and the competitive aspects of each independently, he said. Even if the DOJ and FCC have limited staff with the expertise to handle transaction review, the high-profile nature of the two deals makes it likely that enough resources will allocated to handle them, Moss said. Because the deals represent “a volcanic rearrangement” of the telecom industry, federal regulators aren’t likely to shortchange the review process, she said.

Unless a bureau is particularly understaffed, there really shouldn’t be a tremendous logjam, said another attorney who is connected to one of the combining parties. It boils down to if there’s a legal, political impact of whether one has to approve a deal if the other is OK'ed, he said. If the transactions were similar enough it could prolong things, he said. One might consider the effect on the programming market and find some similarity there, Lutzker said: “But AT&T and DirecTV will most likely be looked at in the context of the DBS industry, while the Comcast/Time Warner Cable deal is a pure cable industry play."

Regulators must legally consider the markets served by the merging parties as they exist now, instead of how they might be in the future, said Howard Homonoff, a former attorney at NBC’s cable networks who now consults for media incumbents and new entrants. Policymakers can’t help but consider the potential changes from the deals, he said. Regulators are likely to address the problem by analyzing multiple scenarios for one or both deals being approved, said Moss. Not considering the ramifications of the two mergers on each other would be comparable to putting blinders on, she said.

'Political Swirl'

Despite the “political swirl” that looms over large transactions, every deal must be reviewed individually, Homonoff said. AT&T’s buying DirecTV is very different from AT&T’s failed deal to buy T-Mobile, he said. AT&T and DirecTV occupy some of the same multichannel video space, but DirecTV doesn’t have AT&T’s wireless and telephone business, he said.

There is likely to be closer scrutiny by regulators of the review processes on takeovers that are pending simultaneously, said ex-FCC officials. “The eighth floor will be looking at what is the analysis in one versus the other,” said an ex-official. Although the particular markets in each may be different, “the public interest analysis will be similar and so there will be closer scrutiny related to how one is treated versus the other,” the former official said.

Comcast/Time Warner Cable approval doesn’t have to mean a green light for AT&T/DirecTV, some experts said. “The likely battle ground may be around conditions rather than an up or down, yea-nay vote,” said Homonoff.

The political pressure of having the two deals go through approval at the same time may be felt in conditions, said observers. If both deals are approved, the political backlash against Wheeler on the anti-consolidation side is likely to be severe, a former FCC official. To mitigate that, he may push for tougher conditions, to fight any perception that the FCC is soft on consolidation, said several industry observers. The concessions that AT&T and Comcast offered up front may indicate that they expect a tough fight over conditions, the official said.

Sprint/T-Mobile?

The regulatory response to Comcast/Time Warner Cable and AT&T/DirecTV could be strongly affected if a third deal materializes in Sprint/T-Mobile, said MoffettNathanson analyst Craig Moffett. Sprint/T-Mobile hasn’t been set, but they appear headed in that direction, he said. Wheeler and a DOJ official have said they oppose the deal, Moffett noted. “A simple outright rejection of Sprint/T-Mobile would make it politically palatable to approve the other two.”

Even without the third deal, AT&T/DirecTV enhances Comcast’s arguments that it won’t exert an undue influence over programmers, Moffett said. AT&T/DirecTV would create a competitor almost as large as Comcast with similar negotiating leverage, and the two companies are also comparable in the broadband sphere. Approving both deals “avoids the potential for dramatic asymmetry,” Moffett said. “If you're gonna create Godzilla, you need Mothra to keep him in check."

There will be some difficult choices to be made from a political standpoint, given the history of past attempts by AT&T and Comcast to buy other companies, said a former FCC official of Comcast/NBCUniversal and AT&T’s failed buy of T-Mobile. “It might be difficult politically, especially on the Democrat side to allow two huge transactions to go through,” yet “it might be tough to approve Comcast and then deny AT&T yet again,” the former official said.

Having two large telecom deals going through regulatory approval at once as new controversial net neutrality rules might be finalized also affects the process, Moffett said. Opponents of Wheeler’s proposed net neutrality rules characterized them as a favor to corporate interests, and approving two large deals involving ISPs would likely increase those attacks, Moffett said. FCC rejection of one or both of the large deals could become a “plausible scenario” if “the political left gets sufficiently upset,” he said. Those kinds of concerns are less likely to affect DOJ approval of the deals, because it’s less vulnerable to the political climate, Moffett said.(mtayloe@warren-news.com),