Policy institute. Mr. Wallsten, lets begin with you. What would this merger mean to at t . What would happen . Guest well, at t is, wants to buy lots of content, apparently it sees that this is sort of the future of this industry following the comcast nbc merger. At t is hoping to vertically integrate with time warner. Host and you say vertical. What does that mean . Guest so rather than in a horizontal merger, you have two companies who compete directly with each other merging. So the attempts at t tmobile merger would have been a horizontal merger, and it was blocked because of concerns related to that. A vertical merger is when you have an upstream and downstream company combining, so theyre in separate markets. Youre not changing the concentration, the industry concentration in either one by putting those together. And the Justice Department tends to look at those differently. Generally speaking, vertical mergers are easier to get through than horizontal mergers where you have to show that therell be improved efficiencies from the merger, and you still have to show there wont be anticompetitive effects, but theyre typically less likely in a vertical merger. Host harold feld, what would this mean at this early stage to a consumer of at t or time warner . Guest well, i do think that there is a lot of reason to be very skeptical about this merger. Particularly based on what weve seen and how the industry has evolved and the increasing concentration within the industry and the wedding of all of the particularly the marquee programming. Not just whatever little clips you happen to watch on youtube, but, you know, the big name programming like hbo and big name movies coming out of these studios that are critical for the success of online streaming services. So the big concern here, i think, or the thing that consumers ought to be most concerned about is at t is a National Wireless carrier. Theyre also in a lot of other lines of business. But they recognize that the shift in watching video is moving from the big screen on the wall to being in the hand held device as well. For a, the and and, the, a at t, a lot of that money comes from data overages, limiting on your data cap. Theres also a lot of money in advertising that they are increasingly becoming involved in with the we just, in fact, had a proceed fromming about this at the fcc that the fcc voted on yesterday, and one of the things the fcc found was Companies Like at t have a tremendous window into your lives. Because as your every device becomes connected to the internet, as you carry a cell phone thats connected to the internet with you everywhere, at t as your provider can see what you get for breakfast out of your smart refrigerator, what you, you know, when you go to work in the morning, when youre walking by a mcdonalds on the way to work and combine that with its content that it would get from this so essentially dissect every element of your life as a consumer and market it back to you with these advertisements. So thats one very important concern for consumers, is do you really want at t following you around figuring out how to best sell you stuff . Some people may like that, but a lot of people have concerns about that. The other is just the pricing and the lockin on the information. A, the ask, the at t will have incentive to push people towards its content and away from the content of others. We have soft rules about that we have some rules about that right now with whats called network neutrality, so they cant directly interfere with my going to a rival news company, but if you want to watch cnn, that wont count against your data cap. But if you want to watch msnbc or bloomberg or fox news on your mobile handset, it will. So they will have this capacity to push people in a particular direction and particularly when it comes to things like news, which is all part of this, thats very troubling for democracy. Host before we go any further, lets get lydia beyoud of bloomberg bna involved, senior tech and telecom reporter. Thanks. Scott, you mentioned with vertical integration theres usually less antitrust concern, but im curious if both of you can speak to what precise legal and regulatory issues might be raised by opponents to oppose this deal. Well, i probably should let harold talk about the legal issues, because as an economist, i know no laws. [laughter] but i think guest and i know no economics. Guest so together we know nothing. [laughter] but specifically though on issues thatll be important, one of the things that harold mentioned is how time warner will treat content, its content relative to how at t will treat time warners content relative to other content, and hes right. That is the way this kind of potential vertical merger could be anticompetitive, right . If they treat their own content differently from others. To, of course, thats going to be probably the Biggest Issue that the Justice Department will want to look at and will want to impose sort of conditions to try to make that not so, not so simple for them, right . And so, i mean, that, i think, is going to be the biggest one. And harold is bringing in the private issue here, and im not quite sure that fits into the merger itself. That seems like kind of a different issue. But i think its definitely going to be this question of whether at t has both the incentive and ability to foreclose on rivals or raise rivals cost. And in trying to think that through, theyre going to look at the incentives on different sides. So on the one hand, you could imagine that at t would profit by raising rivals costs or keeping time warner con at no time from others, so on content from others, so on. On the other hand, at t on the video space have at t and directv combined have about 25 of subscribers, and a small also not a majority of internet subscribers. If they try to withhold content, then they lose licensing fees and advertising and all the revenues associated with that and other marketing opportunities. So its not at all clear that they would even have the incentive to do that. That being said, im sure thats what the doj will primarily focus on. Guest well, there are a couple of things here from a legal perspective. One is that theres a big question whether the federal communications commission, the fcc, which which one would think would be absolutely in the thick of Something Like this when its, you know, dealing with one of our largest communications providers, our largest news and entertainment producers, but because of the way the world works, its not clear what role the fcc will have. There is a lot of speculation that because at t which is the company thats regulated by the fcc is the one buying time warner, that the deal can be structured in a way that completely avoids fcc review. And scott is right that traditionally, not always, but traditionally certainly a lot of the concerns that ive been talking about, the concerns to democracy and news production, the concerns about privacy are more the subject of fcc Public Interest review than the department of justice. So, but i do want to emphasize that we are actually at a important shifting point in antitrust and antitrust law and antitrust review. Again, these are evolutionary changes. They dont take place overnight. But we have certainly seen within the last decade, first a change in the literature around antitrust. Scott has exactly described what traditional antitrust review has been for the last 40 or so years. And if you go to an antitrust lawyer, thats exactly what they will tell you the department of justice has traditionally looked at. At the same time, its important to recognize that weve been seeing a gradual evolution particularly around these kinds of vertical mergers and particularly in these very large, complicated markets. The comcast nbc merger and what happened after that is something that people point to. So on the one hand, certainly you look at that and say, well, the department of justice reviewed it, and they put in conditions, and they ultimately approved it. But on the other hand, we have six years of administering those conditions, and as we found out in the comcast Time Warner Cable merger offer which was, again, that was horizontal, but a lot of the concern about it came from not from expanding that vertical integration power with the enhanced reach that they would have after the act by acquisition. So i think that, in fact, there is a lot more scope and a lot more challenges more at t with regard to some of these vertical issues than weve previously seen. Guest i agree that there are going to be more challenges for them because of the political environment and so on and because even if they were able to get rid of make sure that no licenses changed hands, theres no way the fcc is going to stay out of this. But i think the comcast nbc merger is actually a good precedent. And, you know, you say whats happened since then, but, you know, there havent been you know, what bad things have happened that are related to the merger itself, from comcast nbcu . Both company are doing pretty well. Nbc was a terrible network at the time of the merger, and, you know, most of the critiques ive seen are things that dont have to do with the merger itself. If you have some examples guest yeah. I mean, the one that what has really came up in the discussion of the comcast Time Warner Cable was the ability of the department of justice to actually enforce and monitor the behavioral conditions. So the biggest, most marquee example was when disney and news corp. Were looking at spinning off hulu, and it would potentially have become a big competitor in streaming. And the allegation was that despite a merger condition that said comcast would not try to interfere with that, there was evidence that Brian Roberts had gone to the heads of news corp. And and disney who were making these decisions and said, well, you know, maybe you guys ought to consider, you know, comcast might want to invest more in you if you dont do this deal. So a potential new competitor was squashed. This was precisely the danger that the department of justice was concerned about. Thats precisely why they imposed a condition. And be they didnt know about it until after the fact, and they were investigating another merger guest an allegation . Guest this was, well, the department of justice apparently felt strongly enough about it because we never went to because they withdrew, we never had a complaint, we never knew for certain. But i can point to that, i can point to the effort by, there was a startup called concord which tried to gain access to video programming under the video access condition that was there that was supposed to stimulate over the top. That didnt work out very well. Guest well, thats, you know, with that example, thats a tough one because these are all negotiations. Sometimes the Cable Companies pay a broadcaster or a content provider, like they have to pay espn, other times its reverse, somebody doesnt get on is it because of the reasons youre talking about or just because it was a negotiation that didnt work . Well never be able to separate that out. Guest well, i agree, but thats part of the reason why theres such caution. The old attitude, i would say, was because we dont know, we should let the merger go through. I think theres an emerging sensibility of we have a lot of concentration in the market already. Were seeing a lot of difficulty in competitors emerging when we cant prove that its safe, we should be more skeptical rather than let it go through and hope that we have a condition to stop it. So i have a question for you both. This merger announcement comes at a Pivotal Point for our nation and that, of course, is the president ial election. Now, Hillary Clinton has taken a shes not really taken a position. She said folks should look into it, regulators should look into it, but shes not opined. Donald trump has said he would disapprove it if he becomes president. What do you think the potential outcome of the election might play not just on this merger and the federal regulators that may be in charge of it, but also on other, subsequent mergers depending on who wins the white house . Guest first of all, the timing is really interesting. When donald trump said he wouldnt approve the merger, everyone pointed out the president isnt supposed to have a say on this. But on the other hand, at this point in time the president actually could have a say in it, because the president has to appoint whos going to be the head of the next antitrust division and the next chair of the fcc, and potentially they could make this a litmus test of what they want of the outcome that theyd like to see. So in this case you could see the president having a big effect through at least the appointment process either direction. Now, of course, what donald trump thinks today might be Something Different tomorrow. Who knows what he thinks. Guest i do think whats interesting and important is that clinton did the president ial thing and said, well, you know, if i were president , id make sure we studied it carefully, which is the thing youre supposed to say. [inaudible] guest and do. And this is, though, a time when the Democratic Party generally and, certainly, the progressive wing of the Democratic Party, but even the more centrist wing of the Democratic Party has made it clear that they think that antitrust needs to be revived, strengthened, what i like to call the new, new antitrust. With the old antitrust, the old Teddy Roosevelt trustbusters were, you know, were very suspicious of big. Big is generically bad, its too much power concentrated into one set of hands. The new antitrust, which weve had, you know, since the 1960s and 70s that has now become the sort of standard antitrust is economic efficiencies versus the potential for harm and competition, very sort of technocratic. The new, new antitrust goes kind of a step further and says, well, we need to be concerned about both. We need to recognize the limits of our Economic Analysis that a lot of times were just guessing, but because of the potential dangers of concentration, when we are unsure, we should be skeptical rather than let it go through. So i think that if the, that particularly in the democrats are elected, we are very likely to see the even if it doesnt impact this merger specifically, an attorney general and folks at department of justice and other agencies who are much more interested in the, in these new theories of antitrust. Host scott wallsten, on its surface does it make economic sense . Guest i think its hard the economics suggest that its hard to see the harms in it. Theyre in completely separate markets, both industries are evolving and where theyll end up, nobody really knows right now. Theyre all trying different things. It could turn out to be a terrible idea for both of those companies. Weve seen that before. It might turn out to be a great idea. And i think its partly for that reason that if you dont, if there arent are if you can show that there arent necessarily harms and have conditions that protect against those harms, that you allow them to experiment. Because if its a merger that doesnt work out, thats their problem, right . As long as there arent Harms Associated with it. Host lydia beyoud. So at ts ceo, randy stephenson, has pointed to the data they could potentially leverage from this combination as helping reduce the cost of the content through advertisement. Now, you mentioned the evolution of antitrust law and also market economics. How might the data that a combinedded at t and time warner be able to mine and combine from multiple platforms play in here not just in the economics of the merger, but also in the antitrust review of it . Guest one thing or, though, that im, i still dont understand is exactly how the new privacy rules that the fcc passed will interact with this. And and we dont have the text of the draft, of the order yet. But in principle, at t will be operating under one set of privacy rules, and the content side will be operating under another set, so i dont know how those two things will fit together. Setting aside what you think of those privacy rules and whether at t should be under different rules than the content side, i dont know how one puts those two together when theyre operating under separate regimes. I honestly dont know how to answer that question. Guest well, i think from the Economic Perspective there are a number of things to look at. One is weve Seen Movement in the European Union to view information harvested and collected as an element in antitrust review. That theres a recognition that this has value, there is a reck in addition that it can recognition that it can be combined with other information in the market in ways that can have aunt competitive effect anticompetitive effect. Also it can be used to impact consumer behavior. If i know how to make it harder for you to switch, i can reduce the ability of people to compete with you. And similarly, i can, likewise, use this some would say to give you stuff thats good for you, thats the positive benefit, but also to know when competitors are trying to offer you competing services and do my best to interfere with that. Theres always a concern about this that goes back to when we broke up the at t monopoly and where we said, okay, weve really got to segment these businesses because we cant have the people who know all of the information also being the ones doing the Long Distance and being able to have those pieces interact. We did it with the cable act of 1992 where we actually did a lot to try to break up content and the cable industry. And i think when it comes to privacy and seeing this now, this raises a very serious concern. It is a concern that is, again, kind of not in the traditional antitrust set, but is one that as Digital Information has become more important and its impact on competition has become more important, were seeing starting to come in as part of the new antitrust. Guest i think there are a couple of things here. One is on the e. U. Point, harolds absolutely right. They are starting to look at troves of data as potentially anticompetitive. But thats still, theyre still sort of arguing about that, and its not clear that having or i would say its not the case that having data creates an anticompetitive barrier to entry. And also just having data isnt valuable in itself, you have to have the Processing Power and the know how to handle it. So thats, i mean, thats sort of an actively debated question. And the second point about the historical, looking back and seeing how weve separated content, how theyve come back together and so on, that also goes to the point that the boundaries of firms arent fixed, right . Sometimes firms do thing inhouse, sometimes out of house, and as time changes theyre spin things off and bring things in, and that will depend what they choose to do inside, outside will depend partly on the transactions costs involved. And what is the right answer today will be the wrong answer tomorrow and vice very is saw. So its a fluid thing vice versa. So congress has already scheduled one hearing on this merger for december 7th in the Senate Judiciary committee. What role do you expect or would you anticipate congress playing in looking at this merger . Guest well, congress when you have a large merger like this usually plays a sort of combination of bully pulpit and public temperature. What you look at is, you know, if people are getting a lot of phone calls about, oh, this is just awful and i hate this, dont met this happen dont let this happen, youll see members of congress ask much more aggressive questions, youll see them voice skepticism about the deal. Those are signals that are often picked up by the agencies who, after all, are accountable to congress and get their budgets from congress. And even though the do to j and the antitrust division have very professional staff and do their best to try to insulate themselves from these concerns, theyre human beings like anyone else. The other thing though is its part of our sort of broader, popular oversight and debate about this. When you have these kind of public hearings, they are important to advance in the public the nature of the arguments for and against, and i think they play a very valuable role not necessarily in the decisions by the staff, but in sort of the broader sense in the country of whether we need to do Something Like reexamine our basic ideas about antitrust or whether were happy with the way things are going. Guest also theres another issue with congress right now, and its not just the hearings. We know that certain senators will be very opposed to it. We know that Elizabeth Warren and al franken will not, do not like this deal, and theyll have hearings, and senators will make speeches, and representatives will make speeches. But they also will have to go through the confirmation process, what i mentioned earlier. And this is going to come up during the confirmation process as well. And so congress will, you know, have an impact on the merger in that sense. And also just to emphasize what harold said, the staff at the doj and the fcc, it is a amazing how much they work to stay inlated from politics and just do their insulated from politics and just do their analyses. Its pretty impressive. Host you mentioned that the fcc will find a way to get its hand into this. How can that happen . Guest thats a good question. Im sure there are ways guest maybe i should take that one. [laughter] guest right now every attorney at the fcc is poring through every document to make sure they can get their hook into it. Its just hard to imagine how an agency of such an important an agency thats such an important part of the regulatory process of at t and somewhat of time warner would manage to stay out. Host harold fed. Guest i would say, first of all, if youre tom wheeler, youre really happy this is happening now rather than when youre likely to have to stick around to deal with it. Im sure chairman wheeler is saying [speaking in native tongue] i dont have to figure this out. But there are a number of ways in which the fcc could be brought into this. The first is by the department of justice. The department of justice is free to consult a sister agency. Theres a good working relationship between the staff. Its also a little known fact that the fcc has concurrent antitrust jurisdiction with the department of justice over common carriers, Telecommunications Providers like at t. So even though theyre not part of the merger review process, theyre certainly its certainly appropriate to bring them in as just part of the antitrust review. That would be one way. There are also certain licenses that time warner has, some of them are the one tv station that theyve got. Thats easy to get rid of in terms of the deal structure. But there are a lot of other licenses. As i like to remind people, every one of the little tour buggies that theyve got at the time warner studios has a fcc license to use their twoway radios. And all of those are transferred as part of this deal. Now [inaudible] there are over 50 guest so there are many, many licenses. Normally in a deal that doesnt involve the fcc, these are what are called pro forma, you know . The fcc just says we need to record where licenses go because we need to know and make sure there wasnt interference, but thats not our business. There was a big case around this actually in the 90s when exxon was merging with mobil, and that would have that also produced the largest transfer of fcc licenses, and the fcc issued a statement saying we dont review oil. But in this case where really you feel like the fcc ought to be involved, but theyre not involved because its at t buying time warner, this might be a case where theyd say, you know, normally we dont get into it with these kinds of license transfers, but this time weve really got to guest and itll make a big difference whether the fccs involved or not. The Justice Department has to challenge the merger, and if they decide to, they dont believe it will hold up in court. The fcc would have to approve the merger, and so the conditions they ask for are very different. So if this merger is approved, what do you think the impact will be on the market and on consumers . Guest i dont, i dont think that there would be much impact on consumers, at least in the short or medium term. I think it depends how they try to use time warners content. Presumably, they believe that itll be valuable and allow them to introduce new services. And well have to see. I think well have to see how all of these Business Models play out, but it definitely wont be its hard to see how it would be bad for consumers. Guest well, i think, first of all, whenever you have these sorts of things, you will then have another one of these arms races where everybody starts to try to grab for a partner. So, you know, its not just what this particular merger will do, its then verizon may want to buy cbs because they will need more content. Theyre already getting into content through a orol and aol and some of these other things. The argument will always be, well, you let that guy do it, now i need to bulk up. So theres a sort of longerterm issue of fewer choices, more concentration of immediate power. I do think though that for consumers the biggest problem here is likely to be with content and data overages where the most shortterm effect is going to be right now at t is already planning to release their directv video where they will zero rate that and not charge it. So the effect is to make it more expensive to watch netflix on your hand held than it is to watch at ts competing video product. And i think for consumers, that leads to greater expense and less choice. Guest although supposedly, so far netflix is not opposed to this merger however. Host were going to have to leave it there. Gentlemen, thank you very much. Scott wallsten, harold feld and lydia beyoud of bloomberg bna. Cspan, where history unfolds daily. In 1979 cspan was created as a Public Service by americas cable its companies Cable Television companies and is brought to you today by your cable or satellite provider. 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