Time Warner acquisition resistance could turn ugly for Trump

President Donald Trump’s administration certainly has been a different shade of politics for the Oval Office, though actions and alleged prejudice could come back to haunt the Commander in Chief.

Despite being proclaimed a resounding victory for the Republicans, the mid-term elections could have gone a hell of a lot better. With the House of Representatives swinging back into the hands of the Democrats, not only will Trump find passing his questionable legislation more difficult, but his actions over the first two years of the Presidency could be called into question.

In an interview with Axios, California Congressman Adam Schiff, who is also the Ranking Member of the House Intelligence Committee, suggested an investigation into the President would now be able to make a material impact because of the swing of power across the aisle. The President’s tax records will once again become a topic of conversation, though the appropriateness of his objections to AT&T’s acquisition of Time Warner will also come under scrutiny, as will his seemingly personal vendetta against Amazon CEO Jeff Bezos.

While the President’s actions have constantly been condemned by critics and political opponents, there has been little opportunity to do anything considering Trump’s political foundations. With majorities in both Houses of Congress, the Republican party have been able to block, or at least stifle, any investigations. However, with last week’s mid-term elections swinging the House of Representatives into a Democrat majority things might be about to change.

Trump’s opposition to the AT&T and Time Warner deal has been widely publicised, dating back to the Presidential campaign trail. Some have suggested his hatred for Time Warner owned CNN is the reasoning behind the probes and appeals against the acquisition, though this will come under question through the investigations.

“We don’t know, for example, whether the effort to hold up the merger of the parent of CNN was a concern over antitrust or whether this was an effort merely to punish CNN,” said Schiff.

While the deal has been greenlight by District Court for the District of Columbia Judge Richard Leon, the Department of Justice is appealing the decision, suggesting Judge Leon is ignorant to the facts and the economic implications of the deal. It has been reported the Trump administration has been pressuring the DoJ to pursue the appeal and attempt to derail the acquisition.

Looking at the spat with Jeff Bezos, this has been tackled on several fronts. Not only has President Trump constantly berated the excellent reporting by the Washington Post, privately owned by Bezos, Trump has been targeting the tax activities of Amazon. Back in March, Trump tweeted he would be tackling the tax set-up at Amazon, sending share price down 2%, while he has also been reportedly pressuring the Post Office to charge Amazon more, despite the eCommerce revolution seemingly saving the service with the vast increases in package delivery.

These are just two examples relevant to the telecoms and technology industry, but the Democrats are seemingly going for the throat. Tax records will be called into question, as well as reports the President blocked the FBI from moving its headquarters because it would negatively impact business as one of his hotels, located opposite the bureau’s offices.

For the moment, this seems to be nothing more than political posturing, as while the statements might appease those in opposition to Trump, they are nothing more than statements. The Democrats will not assume their majority in the House of Representatives for two months, a long-time in the lightly-principled world of politics. Much could change during this period.

What the change in political landscape could mean more than anything else is a bit more stability. President Trump has been praised by his supporters as a man of action, though actions are of questionable benefit to business executives who crave legislative, regulatory and policy consistency. Only with the promise of consistency can businesses made long-term strategies to conquer the world, but with Twitter a constant threat of change it is understandable some are nervous.

With the Democrats in control of the House of Representatives, Trump will find it much more difficult to force through any controversial or overly aggressive policies, though there is also the threat of legislative standstill. The US political landscape has certainly been an interesting one over the last two years, though it could become even more interesting over the next two for completely different reasons.

AT&T suggests Dish and DoJ are collaborating

With AT&T’s WarnerMedia and Dish arguing over a distribution deal, one AT&T executive has suggested Dish and the Department of Justice are collaborating to reverse the green light on the Time Warner acquisition.

The conspiracy theory is hitting new highs here. AT&T is effectively accusing Dish of actively working to create a no-deal situation in negotiations with WarnerMedia over rights to air HBO content. Although having HBO and Cinemax channels go dark on the Dish service would have a negative impact on business, it does coincidentally work well for the Justice Departments case appeal against the Time Warner merger.

WarnerMedia have been in negotiations over the right to air content, with it claiming it offered to extend the previous contract while negotiating but Dish declined. As a result, HBO content has disappeared from the Dish service.

“Dish’s proposals and actions made it clear they never intended to seriously negotiate an agreement,” said Simon Sutton, HBO President and Chief Revenue Officer, in a statement to Reuters.

With the appeal based on the grounds the AT&T acquisition of Time Warner would offer it undue control and influence in the industry, stagnant negotiations certainly add credibility to the objections from the Department of Justice. Manipulating the playing field however, as AT&T is accusing Dish of, is a serious no-no when it comes to the courts.

“This behaviour, unfortunately, is consistent with what the Department of Justice predicted would result from the merger,” said a representative of the Department of Justice. “We are hopeful the Court of Appeals will correct the errors of the District Court.”

“The Department of Justice collaborated closely with Dish in its unsuccessful lawsuit to block our merger,” WarnerMedia responded. “That collaboration continues to this day with Dish’s tactical decision to drop HBO – not the other way around. DOJ failed to prove its claims about HBO at trial and then abandoned them on appeal.”

The $85 billion acquisition of Time Warner proved to be a messy affair for AT&T. While some would have expected some resistance from the industry, the objections of President Trump seems to have encouraged the Department of Justice to chase down every lead, and make life as difficult as possible. The Department of Justice’s appeal against the approval of the deal, is effectively built on the assumption Judge Richard Leon didn’t know what he was talking about.

Publicity stunt? Monopolistic ambition? Nefarious schemes? Whatever the basis of this story, more fuel has been added onto one of the longest running sagas in the telco industry.

DoJ appeals AT&T/Time Warner deal on grounds of ignorance

The Department of Justice has attacked a trial judges approach and methods when reviewing AT&T’s much debated acquisition of Time Warner, in it’s against the greenlight for the deal.

AT&T closed it’s $108 billion acquisition of Time Warner two days after District Court for the District of Columbia Judge Richard Leon gave his seal of approval, though the Department of Justice is not done yet. An appeal has been launchedx      , arguing competition would be distorted in the pay TV market as a result as AT&T would have a bargaining advantage over rivals, with the main focus of the appeal seemingly being directed at the Judge Leon.

“The district court held otherwise, but only by erroneously ignoring fundamental principles of economics and common sense,” the appeal document states. “These errors distorted its view of the evidence and rendered its factual findings clearly erroneous, and they are the subject of this appeal.

As you can see from the statement above, the Department of Justice seems to be claiming Judge Leon was not able to consider the long-term economic impact of the acquisition of competition, but also has found issue with the court made the ‘vast majority’ of its evidentiary rulings during sealed bench conferences and declined to release the transcripts of these conferences to anyone during the trial.

“The district court substantially constrained the government’s presentation of evidence showing that the merged entity would have greater bargaining leverage,” the appeal reads.

Part of these discussions included evidence which the government would have wanted access to, AT&T’s own analysis of the potential competitive impact of the acquisition for example, but also that Judge Leon dismissed public FCC filings made by AT&T and DirecTV explaining the potential competitive harm from vertical integration, refusing to treat the documents as relevant submissions. The Department of Justice also argues it was not given enough air-time to question economic experts or evidence presented by AT&T.

The implication seems to lean on the idea of bias. Although it has not been directly said, the Department of Justice seems to be hinting Judge Leon favoured AT&T and was not able to offer an independent evaluation of the saga.

While this is a massive acquisition, vertical deals are not unusual in the technology industry, in fact, some might suggest it is the norm for growth. With big ticket acquisitions becoming more common in the industry, some might suggest the Department of Justice’s opposition to the deal might be more political than economical. President Trump’s distain for Time Warner owned brands are no secret, a public hatred which might be fuelling the theories.

US DoJ throws $85 billion spanner in the works of AT&T-Time Warner

The US Department of Justice has decided to appeal the June 12 court ruling allowing AT&T’s $85 billion acquisition of Time Warner, it announced late on Thursday.

In a brief Notice of Appeal filed on July 12, the DoJ notified the District Court that it intends to bring the case to the Court of Appeals against the ruling that will allow AT&T’s planned acquisition of Time Warner to go ahead with no restrictions.

The US government, which had until August 12 to ponder an appeal, took a month to decide it would lodge an objection to the mega-acquisition. US entertainment industry news site Deadline sourced a copy of the Notice, signed by Craig Conrath, who was leading the government’s legal team during the trial. It doesn’t elaborate on the grounds upon which the appeal would be lodged, but the decision to appeal seems to have caught AT&T by surprise.

“The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned,” David McAtee, the operator’s General Counsel, said in a statement. “While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances.  We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals,” he blustered.

The ramifications of the potential appeal could hardly be greater — not only regarding the future of a newly-created WarnerMedia business, and whether it might need to decouple from its parent company, but also for the whole telecom and media industries. The boardrooms of Comcast and Disney will be full of sweaty palms (yuk!), as the outcome of the appeal will set a precedent for future vertical integration deals, including their bidding war for 21st Century Fox.

If the DoJ was to win the appeal, the US Solicitor General could bring the case to the Supreme Court, where the judges generally siding with President Trump are in the majority. Since the days when he was a candidate, Mr. Trump has been a vocal opponent to the merger, citing the danger of “too much concentration of power in the hands of too few.” However, such a decision would not be without a twist: Eriq Gardner, the Senior Editor at The Hollywood Report, discovered in a disclosure paper that John Roberts Jr, one of the Supreme Court Chief Justices, still holds Time Warner shares.

AT&T has been moving very fast after the June 12 ruling to integrate the two companies, from appointing executives to stamping its authorities over HBO, although it has decided to leave Turner Broadcasting, the owner of CNN among other assets, independent until February 2019. However, it has already broken at least one promise related to the deal: instead of making the service more affordable, it just raised the monthly bill for its DirecTV Now service by $5.

AT&T reviews Time Warner acquisition and updates Q2 outlook

AT&T execs took the opportunity to provide a general corporate update at the recent Wells Fargo Securities 2018 Telecom 5G Forum.

The main bit focused on a recap of the rationale and outcome of the Time Warner acquisition. It is the culmination of a strategy to build a modern media company around four critical elements, announced CEO Randall Stephenson and CFO John Stephens. Those elements are:

  • Premium content with wide distribution. HBO, Turner and Warner Bros. combined with targeted digital properties like Bleacher Report and AT&T’s investment in Otter Media have the potential to drive viewer engagement to new levels.
  • Direct-to-consumer relationships. AT&T has more than 170 million D2C relationships across wireless, video and broadband, which provide valuable insights on how the company delivers content, what content it distributes and how it distributes that content.
  • Advertising technology. AT&T’s D2C relationships give the company insights regarding what customers are watching, where they’re watching it and at what times they’re watching. These insights can create incredible value for advertisers.
  • High-speed networks. These networks must be able to deliver premium content to whatever screen the customer demands at the lowest cost per megabyte possible.

There was inevitably lots of talk of synergies and Stephenson seems to be especially excited about the advertising opportunities now available to AT&T, where other lovely massive M&A concepts such as scale, efficiency, reach, etc come into play. They will build a real-time exchange for premium video advertising coordinated across mobile devices and TV screens which, as we’re seeing, is a nice earner.

In other news AT&T reiterated its desire to reduce its debt (not doing anymore M&A for a bit might help), and says a lot of its capital-intensive projects, such as US fibre and Mexican LTE, are already well underway. It also reckons there will be some nice savings from all its SDN investments, that the strengthening dollar will hit its international revenues and that wireless revenue growth will be flat.

AT&T wastes no time in completing Time Warner acquisition

A mere two days after a judge rejected the US government’s attempt to block it, AT&T has completed its $85.4 billion acquisition of Time Warner.

The giant US telco is now the owner of some of the biggest properties and brands in the media world. HBO is arguably the number one producer of premium video content, responsible for Game of Thrones and Westworld as well as all-time classics The Wire and The Sopranos. Turner owns a bunch of major broadcast TV channels including CNN and Cartoon Network, while Warner Brothers is one of the big movie studios.

“The content and creative talent at Warner Bros., HBO and Turner are first-rate,” said AT&T CEO Randall Stephenson. “Combine all that with AT&T’s strengths in direct-to-consumer distribution, and we offer customers a differentiated, high-quality, mobile-first entertainment experience. We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.”

The strapline for the press release announcing the completion of the deal announces: “Positioned to be a Global Leader as a Modern Media Company. Set to Create the Best Entertainment and Communications Experiences in the World.” This chimes with the contemporary trend towards mutliplay and sets AT&T up as the big beast of this space.

The Time Warner name, which can be traced back to the launch of Time magazine in 1923, will now cease to exist. AT&T is adding a new super-silo to its corporate structure to accommodate these new media assets, alongside its communications, international and advertising business, but has yet to pick a name for it. You would presumably get short odds on ‘AT&T Media’.

That silo will be led by AT&T lifer John Stankey, who took over the AT&T Entertainment Group that was created to house DirecTV when it was snapped up for $50 billion or so in 2015. He’s going to get a crash course in running a media empire from former Time Warner CEO Jeff Bewkes during a transition period of unspecified length.

“Jeff is an outstanding leader and one of the most accomplished CEOs around,” said Stephenson. He and his team have built a global leader in media and entertainment and I greatly appreciate his continued counsel.”

There are only two larger media companies out there: Comcast and Disney, who are currently in a bidding war for Twenty-First Century Fox, with the former outbidding the latter to the tune of 19% earlier this week by offering $65 billion, apparently hastened by the AT&T development. Fox, meanwhile has trying to buy Sky for ages, a process also complicated by Comcast’s gazumping tendencies.

The US seems to be feeling pretty laissez faire about massive comms/media consolidation but Europe might yet have something to say about all this. The Fox/Sky acquisition has been mainly held up by concerns about media plurality in terms of TV news and the more of this sort of M&A happens the more questions like these will be asked.

US government loses court case to block AT&T acquisition of Time Warner

A US Judge has ruled that a case brought by the US government to block AT&T’s acquisition is without merit, so the deal can go ahead.

“We are pleased that, after conducting a full and fair trial on the merits, the Court has categorically rejected the government’s lawsuit to block our merger with Time Warner,” said David McAtee, AT&T General Counsel. We thank the Court for its thorough and timely examination of the evidence, and we compliment our colleagues at the Department of Justice on their dedicated representation of the government. We look forward to closing the merger on or before June 20 so we can begin to give consumers video entertainment that is more affordable, mobile, and innovative.”

So that seems to be that. AT&T can go ahead and buy the company that owns Warner, HBO, etc, for $85 billion, and immediately make itself one of the world’s leading content producers. The main reason behind the US government action was concern about both the content and the means for its delivery being owned by the same company, thus creating the potential for consumers being held to ransom by making access to one conditional on paying for the other.

U.S. District Court Judge Richard Leon decided the US government had failed to prove the acquisition would harm competition and you can read his lengthy reasoning below. But that doesn’t mean there won’t be plenty of opportunities for AT&T to abuse the dominant position this acquisition will put it in. Regulators will need keep a close eye on the situation to make sure that people aren’t obliged to buy massive AT&T bundles just to get hold of Game of Thrones.

There are also broader implications for industry consolidation. Now that the legal precedent has been set, expect other communications and media giants to start casting sidelong glances at each other. “Judge Leon’s decision in AT&T/Time Warner, which forcefully rejects all of DOJ’s proposed theories of vertical harm, makes it much more difficult for the government to challenge future significant vertical mergers,” said Logan Breed, Partner in the Hogan Lovells antitrust team. “This will have an effect on potential future combinations of content providers and content creators, as well as pending mergers in other industries, such as CVS/Aetna.” Light Reading has some more analysis on that side of things here.

 

U.S. District Court Opinion on AT&T by CNBC.com on Scribd

Quarterlies round-up; Telefonica UK, Orange and AT&T

It’s that time again for us to line up the telcos and judge. Here we’ll be having a look at how Telefonica UK, Orange and AT&T measured up over the last three months.

O2 spending needs to continue to consolidate top spot

Telefonica’s UK business continued writing cheques through the last quarter to correct a pretty poor record to date, which does seem to be paying off. Aside from capturing the top-spot when it comes to market share, total revenues increased 2.9% year-on-year to $1.4 billion, while service revenues were up 1.2%.

“We have delivered another solid quarter driven by our relentless focus on customers,” said Patricia Cobian CFO for Telefónica UK. “We are growing top and bottom line in a very competitive market while maintaining the highest levels of customer loyalty and satisfaction in our sector. Our newly acquired mobile spectrum allows us to further strengthen our award winning network, enhancing our connectivity for our customers while boosting the economy and laying the foundations for 5G in Britain.”

Low customer churn is key for a successful telco, and to lower churn a positive customer experience is needed. O2 has regularly lagged at the bottom of the performance rankings in the UK, though investing £523.6 million to obtain 40MHz of immediately useable 4G spectrum (2.3GHz) and 40MHz of 3.4GHz spectrum for 5G certainly puts it in a promising position. Alongside the earnings, O2 has also announced it will deploy the new 4G spectrum at over 1,000 sites across the UK by the end of 2018, with Leeds and Nottingham on the list. These sites will add to the 60 sites in London already using the new airwaves, after the spectrum was activated within 24 hours of Ofcom making them available for use.

The bells and whistles O2 offers through its priority moments proposition will only get the telco so far; to be relevant in the future experience has to be at the highest levels. CAPEX over the last quarter was £161 million, which at 8.6% of total revenues is pretty low compared to some. The telcos who are in the best position moving forwards are the ones who are spending big on improving network performance, the Orange group spent 15.2% of revenues this quarter, while even Three, notorious for being cheap, spent 19.1% during Q1.

Customers are not very forgiving. O2 has been making some positive steps forward, but unless it continues to correct network inadequacies it will lose the number one spot soon enough.

Convergence leads the way for revenue boost at Orange

The Orange group has reported a 2% year-on-year boost for total revenues, taking the total for the quarter to €10.1 billion, with the management team pointing towards the convergence as the big winner.

“In this first quarter we successfully built on the positive momentum from 2017, with growth in revenues of 2.0%, adjusted EBITDA growth of 3.8% and a strong commercial performance across all our geographies,” said CEO Stephane Richard.

“In this pivotal time for the Group, these strong results continue to demonstrate the relevance of our strategy and in particular, our efforts to differentiate ourselves through excellent networks and customer relations. Over 90% of the population across our European countries now have access to 4G, this includes 97% coverage in France. Having maintained a steady rhythm of deployment, we remain the European leader in fibre, bringing connectivity to 27.7 million households.”

Convergence is king here, with 10,541 million customers as of 31 March, a 10.4% year-on-year with revenues tied to convergent customers up 14.1% in the first quarter. Convergence is a golden egg sought by almost every telco on the planet, but few are making it work as effectively as Orange.

Looking at total subscriber numbers, the group is looking in a very healthy position. 4G subscribers now stand at 48 million customers, up 45% year-on-year with an additional 15 million customers, while fibre brought in an additional 130,000 net sales in France, 169,000 in Spain and 34,000 in Poland. Unlike other telcos across the continent, BT for example, the focus on improving customer experience as opposed to shiny content offerings seems to be paying off considerably.

Media business is growing, but AT&T ambitions hang in balance

The AT&T wireless business is a monster, but the future has been pegged on entertainment. DirecTV Now is progressing well, with an additional 312,000 subscribers this quarter, but the battle with the Department of Justice could decide fortunes here.

“We’re off to a good start in 2018, both in growing our customer base and in building the world’s premier gigabit network,” said Randall Stephenson, AT&T CEO. “Our investment in customer growth and our integrated service offerings helped drive solid first-quarter subscriber gains across our wireless, video and broadband businesses.”

Total revenues for the quarter were $38 billion, down 3.4% year-on-year, missing analyst expectations of $39.3 billion, but most of this news has seemingly taken a backseat in the last couple of weeks. If you look at the rest of the business, the company is doing okay and does seem to be progressing towards the 5G world at a steady pace, however the court case has been hogging the headlines.

To compete against the tech giants, who are only leaving crumbs of profits to fall down to the communications providers at the bottom of the totem pole, AT&T needs to enhance its media offering. We’re not necessarily sure content is going to be the silver bullet to save telcos, look at the disaster BT got itself in with its sports ventures, but for those who have chosen the content path it can’t be done half-heartedly; winning the case against the Department of Justice to merge with Time Warner is critically important.

The slowdown in profitability in the postpaid space, as well as increased competition, make the idea of bundling content services an attractive prospect. AT&T lost 22,000 of the attractive postpaid customers, which was offset by the acquisition of prepaid subscribers, executives will have their eye on reversing this trend with bundling offerings. The signs seems to be positive for AT&T in the court case, however it is far too early to make predictions.

AT&T/Time Warner vs. Department of Justice; bout set for March 19

Judge Richard Leon of the District of Columbia has set a date for the antitrust trial to finally settle AT&T’s $85 billion acquisition of Time Warner and the Department of Justice’s wobbly.

What started as a relatively simple acquisition process for AT&T has quickly turned into a nightmare as the DoJ sued both the telco and Time Warner in an attempt to block an acquisition it views as anticompetitive. There is a glimmer of hope the saga might be resolved by the April deadline set by the two companies to complete the acquisition, but Judge Leon has warned any optimists should not hold their breath.

AT&T had been pushing for an earlier trial date due to the looming deadline on April 22. Should the acquisition not have completed by this time, the telco would have to fork out an extra $500 million to Time Warner investors. That said, it is not unusual for companies to agree deadline extensions, and this is certainly a situation which would warrant it.

Earlier this year, everything was rosy. AT&T was securing approvals all over the world for the deal, and it had found a couple of routes around US watchdogs to ease the regulatory process. Prior to the summer, few of the AT&T execs would have been worried about the April 22 deadline, but how things have changed.

President Trump has very vocal about his opposition to the deal, though a couple of commentators have pinned this down to his hatred of CNN (owned by Time Warner), and the Department of Justice has sued both parties. These lawsuits are seemingly built on the idea that AT&T would charge its rivals extortionate amounts of cash to access popular content, such as Game of Thrones. What is unclear is how much the DoJ has been influenced by the opinion of the Commander in Chief.

One comfort for AT&T is Judge Leon himself. The judge is known for handling high profile cases, and also a no-nonsense attitude towards basically anyone and everything. Politically he also appears to be pretty neutral.

What we find quite amusing is the government’s self-righteous stance on consumer protection when the Trump-led administration seems to be doing everything its power to destroy consumer protection when it comes to net neutrality and privacy. The current administration has continued to grant more powers and less accountability to intelligence agencies, while simultaneously scaling back all net neutrality regulation.

In terms of the net neutrality story, a lighter touch to regulation was probably a sensible decision to make, telcos have to be allowed to make money after all, but FCC Chairman Ajit Pai seems to have seen the line and sprinted as far past it as possible. Removing all net neutrality regulations is probably going too far, but that is the partisan nature of American politics. It’s all a game where the goal is to beat the politicians on the other side of the isle rather than help the American people.