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Column: AT&T’s promise of better pay-TV prices and service is ‘bordering on the absurd’

AT&T granted approval to acquire Time Warner for 85 billion US dollar, New York, USA - 23 Dec 2008
The Justice Department said AT&T’s merger with Time Warner would give the company so much market power that price increases and channel blackouts were inevitable. AT&T has since raised prices and blacked out channels.
(EPA-EFE)

When AT&T acquired Time Warner last year for $85 billion, the companies said the deal would be great for consumers, who would benefit from lower prices and improved service.

The Justice Department said the opposite, predicting the merger would give AT&T so much market power that price hikes and channel blackouts were all but inevitable.

And now we know. The government was right.

AT&T wasted no time in raising the price of its DirecTV satellite-TV service by $5 a month. It then raised the price of its DirecTV Now streaming service by $10 a month. (The company said last week DirecTV Now is being renamed AT&T TV Now.)

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More than 6.5 million of AT&T’s DirecTV and U-verse pay-TV customers are currently cut off from CBS channels because AT&T says CBS wants too much money for its programming.

Meanwhile, more than 12 million Dish Network and Sling TV subscribers have lost access to AT&T’s HBO and Cinemax channels because, according to Dish, AT&T wants too much money for its own programming.

Put more succinctly, AT&T, after raising subscriber costs, wants to pay as little as possible for channels included on its pay-TV services. But it wants as much as possible from other pay-TV services for its own channels.

And it’s willing to hold consumers hostage to get what it wants.

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“When you start seeing blackouts, it’s obvious you’re looking at a merger that’s not serving consumers very well,” said Herbert Hovenkamp, a law professor at the University of Pennsylvania and one of the nation’s top antitrust authorities.

He told me it’s becoming increasingly clear that a federal judge erred when he ruled in a 172-page decision that there was little to fear from the “vertical merger” AT&T and Time Warner were proposing.

“We’re now paying the price for that decision,” Hovenkamp said.

U.S. District Judge Richard J. Leon ruled last year — and was subsequently upheld by an appellate court — that the government was mistaken when it warned of consumers being harmed by the merger.

Leon said it would be counter-productive for a merged AT&T/Time Warner to withhold its own channels from competing pay-TV providers or black out competitors’ channels, and thus the likelihood of this happening was low.

“The evidence of his being wrong is bordering on the absurd,” said Christopher Sagers, a professor at the Cleveland-Marshall College of Law.

Mark Lemley, a law professor at Stanford University, said having the same company produce and deliver content “leads to lots of problems.”

“We’d be better off if you got your internet and cable access from one company, and could choose what content you wanted from independent content providers,” he said.

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AT&T withdrew its HBO and Cinemax channels from Dish, as well as Dish’s Sling TV streaming service, last November after the two companies failed to agree on financial terms for a new contract.

“Plain and simple, the merger created for AT&T immense power over consumers,” Andy LeCuyer, Dish’s senior vice president of programming, said in a statement.

“AT&T no longer has incentive to come to an agreement on behalf of consumer choice,” he said. “Instead, it’s been given the power to grab more money or steal away customers.”

CBS channels went dark on AT&T’s pay-TV services last month after AT&T, while demanding more money from Dish, complained that CBS was seeking “unprecedented increases” in programming fees.

“CBS appears intent on delaying negotiations until the risk of consumer harm is greater,” Thomas Tyrer, an AT&T spokesman, said in a statement without any sense of irony. “They want to raise prices and limit consumer choice at a time when customers have made it crystal clear they demand the opposite.”

He declined to comment on the dispute between AT&T and Dish. But HBO said when the blackout began in November that Dish “is making it extremely difficult, responding to our good-faith attempts with unreasonable terms.”

Einer Elhauge, a professor at Harvard Law School, said the current circumstances “seem to be precisely what the Department of Justice predicted would happen after the merger of AT&T and Time Warner, and precisely what AT&T successfully persuaded the trial court was implausible for it to ever do post-merger.”

His verdict? “It looks like the court just got it wrong.”

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If so, what if anything can be done?

There was once a time when regulators decided AT&T had too much power over the phone industry and decided to break up the company.

I wonder if the same case now can be made for AT&T’s power over the TV industry.

And not just AT&T. There’s also Comcast, which, along with being the country’s largest cable operator, owns NBCUniversal and all the programming resources of a major movie studio and TV networks.

The antitrust experts I spoke with said AT&T’s post-merger behavior makes a strong case for separating pay-TV and programming companies — but it may be too late to fix the problem.

“After a merger has gone through, it is extremely difficult to undo,” said Michael Carrier, a professor at Rutgers Law School.

He’s right. But that doesn’t mean a lawsuit or legislation should be off the table.

When a single corporation controls both content and distribution, it can negotiate from a position of unmatched strength and all but dictate terms to competitors.

Imagine if Disney — owner of its namesake content brand, as well as ABC, 20th Century Fox, Pixar, Marvel and “Star Wars” — acquired Charter Communications’ Spectrum cable service, the dominant pay-TV service in Southern California. Who could possibly compete?

(Full disclosure: The Los Angeles Times partners with Spectrum on a nightly cable show.)

As it happens, AT&T’s self-serving behavior may be sufficient to keep other companies’ merger ambitions in check.

The experts say AT&T has given federal officials and consumer advocates plenty of ammo for the next time a major telecom company and a major media company want to tie the knot.

So get used to AT&T playing rough. Its upcoming HBO Max streaming service is expected to be more expensive than all rival plans, perhaps costing as much as $18 a month.

But don’t expect your Spectrum cable technician to show up wearing Mickey Mouse ears any time soon.


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