Financial Times

If US regulators impose conditions on an eventual approval of the proposed AT&T-Time Warner tie-up, they are likely to start with the more than 150 provisions they required for a similar transaction five years ago.

In its most significant orders, the US Department of Justice in January 2011 forced a merger between Comcast and NBCUniversal to license programming to other distributors, refrain from retaliating against content providers who supply rival cable companies and give equal treatment to competing online products on its internet network. The head of DoJ’s antitrust division at the time applauded the compromise. “The conditions imposed will maintain an open and fair marketplace while at the same time allow the innovative aspects of the transaction to go forward,” says Christine Varney, now head of the antitrust practice at Cravath, Swaine & Moore, which is representing Time Warner in the AT&T deal. But technology, markets and politics have all changed since 2011, potentially complicating the AT&T-Time Warner union, according to antitrust specialists in Washington.

[Commentary] Splashy mergers and acquisitions in the media sector have a poor record. Maybe things will be different this time. But even if not, the risks to AT&T from this “bolt-on” acquisition are muted. AT&T believed that just contracting with television networks restrains technical innovation.

This has become important now that video consumption is migrating away from traditional television to smartphones. Research firm eMarketer thinks time spent on smartphone digital video consumption will have grown at a 21 percent annual rate between 2013 and 2018. It remains to be seen how AT&T can extract value from Time Warner without antagonising its competitors and regulators. The arithmetic of a 50/50 cash plus stock deal buys the company time as its thesis works itself out. Its own price-to-earnings ratio of 12 times is dwarfed by the 20 times it will pay for Time Warner. But with $40 billion of debt costing under 4 percent, and $1 billion in annual savings, AT&T should be able to maintain both its dividend (5 percent yield) and an investment-grade rating. Meanwhile AT&T’s rivals can do little.

Steve Case took to Twitter when he heard about AT&T’s proposed $85.4 billion takeover of Time Warner, coining a new hashtag: #DejaVu. The former chief executive of AOL knows a few things about buying Time Warner, having led the $164 billion purchase of the media company in 2000 in a deal widely regarded as the worst ever, given that it was swiftly followed by a $100 billion writedown. There is little chance of history repeating itself, despite Case’s wry tweet.

Randall Stephenson, AT&T’s chairman and chief executive, did not go into details about how he planned to turbo-charge Time Warner’s film and television programming but he made clear that it would help the company sell new products and services. “When we combine Time Warner content with our scale and distribution … we’re going to have something really special,” he said. It is unclear what that combination will look like. Stephenson said AT&T would be able to innovate more rapidly by owning its own content yet the company will still need to strike other licensing deals if the direct to consumer mobile and digital offerings it is planning are to be comprehensive. For example, an AT&T that owns Time Warner can offer classic cartoons from the Cartoon Network but none from Walt Disney. It can offer cable news from CNN but would need a separate licensing deal to also offer Fox News, which is owned by Rupert Murdoch’s 21st Century Fox. It can boast superheroes from DC Entertainment but will need an additional deal if it is to offer Iron Man, Captain America and The Avengers, which are owned by Disney’s Marvel Studios. The point is that vertical integration can only do so much.

AT&T has promised to use its proposed $85.4 billion purchase of Time Warner to revolutionise mobile entertainment as it unveiled a deal that will unite companies instrumental in the creation of the communications industry, provided it is approved by regulators. The cash and stock deal, worth $107.50 a share, brings together the telephony pioneer started by Alexander Graham Bell with an entertainment group that has its roots in the early days of Hollywood. The acquisition faces at least a year of scrutiny from US competition regulators and possible objections from rival content groups fearful of the combined entity’s market power.

Randall Stephenson, AT&T’s chief executive expressed confidence that regulators would approve the acquisition, saying there was no overlap between the two businesses. “This is not a horizontal deal. This is vertical merger. You would be hardpressed to find examples where vertical mergers have been blocked.” Time Warner has agreed to pay a $1.7 billion break-fee to AT&T if it opts to sell to another buyer while AT&T will pay Time Warner $500 million if regulators block the deal, apparently.

Matthew Hancock, the UK’s new minister for broadband, has warned BT he was “on the side of the challenger” in the government’s attempt to improve Britain’s internet speeds and coverage.

Hancock told the Broadband World Forum that the UK wanted “ubiquitous connectivity by 2020, hotspots of hyper connectivity, and doing the work now to deliver fibre and 5G in the future”. He also used the speech, his first on broadband since he replaced Ed Vaizey as minister, to “pay tribute” to BT’s rivals for pushing speeds higher with projects such as Gigaclear’s investment in the Cotswolds and Sky, TalkTalk and CityFibre’s project to connect York to a faster fibre network. He underlined Kcom’s investment in “full fibre” networks in Hull — the only part of the country not touched by BT’s network — that expects to double its ultrafast broadband base by the end of 2017 — without any government subsidy.

The development of a third ultrafast broadband network for the UK, to compete with Openreach and Virgin Media, is “highly unlikely”, according to a report commissioned by BT and submitted to the regulator Ofcom.

Ofcom is trying to improve competition with the opening up of BT’s network of underground ducts and telegraph poles for other companies to use to run their own fibre cables to homes and businesses. “A good long-term outcome would be to achieve fully competition between three or more networks for around 40 percent of premises, with competition from two providers in many areas beyond that,” the regulator said. But BT’s report, from telecoms consultancy Analysys Mason, said it would only be financially viable for a new entrant to deploy to 2 million homes, or 7 percent of the country, if it was achieving a market share of 25 percent. If a “more realistic” outcome of a 20 percent market share was achieved by the new operator, coverage would fall to a mere 4 percent, using ducts and poles.

Forty seven years after the first message was sent over the forerunner to today’s pervasive global network, the US has given up its remaining control over the internet. The formal handover, which took effect on Oct 1, followed a last-ditch attempt by a group of Republicans to block the move. They had argued that the US concession would open the door for authoritarian governments to get control of the network of networks, leading to greater censorship. However, supporters of the handover plan maintained that it was the only way to prevent a greater threat to the internet, since foreign governments who resented the US control would end up walling off their own national networks, eventually Balkanising the global system.

On Sept 30, a judge in Texas refused to grant an injunction requested by four Republican state attorneys-general to bar the move. That followed the end of an attempted Congressional rebellion, led by Sen Ted Cruz (R-TX). The last vestige of US control lay in its power over the internet’s naming and addressing system. Though largely technical in nature, this theoretically gave Washington the power to make entire countries “go dark” on the internet by removing them from the central naming system — though such a drastic action was considered self-defeating since it would have led to the immediate fragmentation of the internet. The US concession has officially launched an experiment in global governance designed to handle borderless digital communications. Control over addressing and naming on Oct 1 passed to Icann, an international body that had already been handling the system under a contract from Washington, but now operates independently.

European Union citizens will be able to use their phones abroad for as long as they like without incurring roaming fees, after all. Brussels executed a public U-turn in a desperate attempt to rescue a policy that was once held up as a tangible example of the EU’s benefit to ordinary citizens only to become a source of consumer ire. The cause of anger was a European Commission proposal from September that would have limited to 90 days a year the period for which mobile phone users would be spared roaming charges in Europe. Amid outrage from MEPs and consumer groups, the commission on Wednesday introduced a new proposal that scrapped the unpopular 90-day limit. It also includes measures to root out potential abuse of the ban on roaming charges in an effort to placate telecoms companies, which have complained bitterly about the loss of roaming fees.

Ask someone if they want broadband 35 times faster than the average and they will answer in the affirmative — probably with the addition of a few choice words regarding the service they receive at present. Like disgruntled football fans, British broadband users are not short of opinions about their internet speeds.

The industry has been embroiled in a very public fight about the state of broadband and what needs to be done. BT, and its engineering arm Openreach, say Britain has some of the best internet speeds in Europe. Its detractors, including Vodafone, TalkTalk and Sky, who compete with BT but rely on access to Openreach’s network, argue the country risks falling behind in the race to build networks that offer the speeds needed to support autonomous vehicles and artificial intelligence. With the EU looking to set the bar for minimum broadband speeds much higher than being contemplated in Britain, fears have started to build after the Brexit vote that Britain is trailing the pack and may never catch up. The argument about the state of the market has become concentrated on the length of copper wire that runs from the point that fibre optic cables stop to the customer’s door — roughly 7 per cent of the entire length of a broadband connection. BT’s critics want old copper lines to be abandoned and fibre optic cables run straight to the home — something BT is unwilling to pay for.

European news publishers will be given the right to levy fees on internet platforms such as Google if search engines show snippets of their stories, under radical copyright reforms being finalised by the European Commission.

The proposals, to be published in September, are aimed at diluting the power of big online operators, whose market share in areas such as search leads to unbalanced commercial negotiations between the search engine and content creators, according to officials. At the heart of the draft copyright plan, news publishers would receive “exclusive rights” to make their content available online to the public in a move that would force services such as Google News to agree terms with news organisations for showing extracts of articles. Citing dwindling revenues at news organisations, the commission warns that failure to push on with such a policy would be “prejudicial for . . . media pluralism.”