AT&T's New Corporate Structure Has One Big Caveat Attached
AT&T CEO Randall Stephenson

Reported details of what AT&T Inc. (T) would look like after the Time Warner Inc. (TWX) merger emerged Friday, July 14.

AT&T plans to create a separate unit for Time Warner's networks and other assets, according to a Bloomberg story. AT&T chief executive Randall Stephenson would remain atop the merged company, with his counterpart, Jeff Bewkes, headed into retirement after an interim transition.

According to the story, John Stankey, who heads the satellite operations of DirecTV and other entertainment businesses within the sprawling, global broadband operator, would take over as head of Time Warner. DirecTV would be folded into the unit that includes AT&T's traditional phone businesses and would be run by John Donovan. 

AT&T and Time Warner did not immediately respond to requests for comment.

Of course, this well-oiled organization flow chart only could be put into operation if the Department of Justice's antitrust division ultimately approved AT&T's $85.4 billion acquisition of Time Warner, owner of the TBS and TNT networks, CNN, HBO and the Warner Bros. studio.

For the moment, investors remain wary. Time Warner shares were down 0.55% Monday afternoon to $99.24, still trading at a discount to AT&T's offer price of $107.50 per share. AT&T shares were little changed at $36.28.

An approval, though, remains likely despite President Trump's running war with the media, which may be more about stoking the fires of his Republican supporters than actually feeling maligned.

AT&T, like Comcast Corp. (CMCSA) , is a legacy broadband provider, and much of the business of running a broadband network is much different than running a television network or a movie studio. But as we've seen with Comcast's landmark acquisition of NBCUniversal Inc., which was completed in 2011 during the Obama administration, there are lots of ways that a company owning both broadband and media networks could leverage one side of the business with the other side. 

AT&T, of course, has downplayed or dismissed notions that it would attempt to favor Time Warner content on its wireless service or DirecTV, which it purchased in 2015. But Stephenson already has shown that he's prepared to favor his own online pay-TV service, DirecTV Now, above rivals such as Dish Network Corp.'s (DISH) Sling TV.

Back in the fall, former President Obama's Federal Communications Commission called out AT&T for exempting DirecTV Now from the data-usage caps for its wireless customers.

Known in the industry as zero-rating, AT&T Wireless users were able to watch DirecTV Now, a pay-TV subscription service, for as long as they wanted without incurring higher monthly charges; the same couldn't be said for Sling TV. That also holds for new competitors YouTube TV from Alphabet Inc. (GOOGL) and the new multichannel service from Hulu LLC, a joint venture between Walt Disney Co. (DIS) , Twenty-First Century Fox Inc. (FOXA) and Comcast's NBCUniversal. (Time Warner owns a 10% stake in Hulu, but that seems likely to be divested at some point.)

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Former FCC Chairman Tom Wheeler
Former FCC Chairman Tom Wheeler

The FCC chairman at the time, Tom Wheeler, charged that the AT&T's use of zero-rating was anti-competitive. Stephenson countered that the deal saved people money, thereby putting pressure on rivals to also offer packages that cut customers' expenses.

Much to Stephenson's liking, Wheeler's successor at the FCC, Ajit Pai, a former attorney for broadband operator Verizon Communications Inc. (VZ) , announced very early in his tenure that he wouldn't continue to investigate whether AT&T's use of zero-rating unfairly advantaged DirecTV Now over rival services.

The big question for AT&T is whether the DOJ will pick up on this question of a broadband operator's use of zero-rating. Streaming services such as Netflix Inc. (NFLX) , Amazon.com Inc. (AMZN) , Hulu and any other operator of a video-heavy app -- CBS Corp. (CBS) or ESPN, for instance -- have a lot riding on whether or nor the DOJ uses the AT&T-Time Warner deal to decide whether broadband providers can favor their content over that of their competitors.

For guidance, they are certain to look at the series of conditions mandated by the Justice Department when it approved Comcast's purchase of NBCUniversal. In that deal, Comcast agreed to rules on broadband pricing and a commitment to net neutrality, in effect, not to favor users for which it has an ownership stake over others. The agreement with DOJ also restricted Comcast's ability to enter into online video, which forced it to have an arms-length relationship with Hulu.

Many, but not all of those conditions, were written to lapse after seven years, in other words, in 2018. Stephenson hopes that he'll simply face a similar set of conditions rather than the kind of rejection that Comcast endured in 2015 when it failed to acquire Time Warner Cable Inc.

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