U.S. telecom behemoth AT&T Inc. (T - Free Report) made progress with its proposed $85.4-billion acquisition of the media giant Time Warner Inc. (TWX - Free Report) , with the latest approval from the Mexican telecommunications and broadcasting services regulator, Federal Telecommunications Institute (IFT). However, the deal awaits further clearances from other regulatory bodies.
Brazilian competition regulator, Administrative Council for Economic Defense (Cade) have reportedly expressed concern over the pending deal on anti-competitive ground. The competition regulator stated that AT&T already owns pay-TV operator Sky Brasil. If this pending deal goes through, then both Sky and Time Warner will have significant market power and the merger could create incentives for the companies to disrupt the licensing/programming market.
According to Cade, the deal would allow Time Warner to gain access to sensitive information from competitors through Sky. Similarly, AT&T would have access to conditions negotiated by its rivals through Time Warner. The new company would also have the capacity and incentive to discriminate competitors in both markets, thus driving down competition.
Hence, the regulator is keenly looking into recommendations to curb potential anticompetitive consequences the deal could cause.
Since the announcement of the deal in October 2016, the industry has been rife with speculation over whether the deal will get regulatory approval. The pending merger has been approved by antitrust officials in 16 countries and is waiting for the same from Chile, Brazil and the United States. The deal is currently under review by the U.S. Department of Justice (DOJ) and competition authorities in other foreign countries. DOJ will scrutinize the planned merger thoroughly and assess its impact.
With such mixed speculations, AT&T still expects the deal to close by the end of the year.
If the proposed merger finally goes through, the combined entity will become a major player in the consolidated telecom-media space. The proposed merger with Time Warner will provide AT&T a portfolio of lucrative content. Time Warner's media empire includes HBO and Turner Broadcasting, which has the rights to sports telecast. It also owns the Warner Bros. film studio and cable networks TNT, TBS and CNN. Moreover, Time Warner owns a 10% stake in Internet video provider Hulu. Therefore, the company will enjoy control over both high-quality content and distribution medium.
Telecom - Media Convergence
The U.S. pay-TV industry has been currently witnessing massive consolidation between telecommunication and media companies, aiming to remain more competitive, while widening and retaining its position in the industry. Massive growth of smartphone and tablets together with continuous development of super-fast data transfer technologies have acted as a key driver of the convergence of the Telecom and Media sectors.
Cable TV giant Comcast Corp. (CMCSA - Free Report) became a media mogul after acquiring NBC Universal in 2011. Notably, if the pending deal goes through, then AT&T will be involved in a face off with Comcast in the wireless segment as the latter has unveiled its wireless service businesses.
Verizon Communications Inc. (VZ - Free Report) has already acquired AOL and the Internet-based assets of Yahoo! Inc. to create a major player in the mobile media and advertising space. The company is also mulling over buying out any powerful media giant to remain competitive.
All the above-mentioned companies currently sport a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past one month, share price of AT&T rallied 4.69%, but failed to beat its industry’s 5.07% growth.
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