Monday, October 24, 2016

AT&T’s Wireless Leap Over Obama

Technology is driving ubiquitous broadband despite the FCC.


By Review & Outlook
The Wall Street Journal
October 24, 2016

The Federal Communications Commission’s 2015 power grab over the internet is premised on the need for government to allocate broadband scarcity. So much for that. AT&T’s $85.4 billion weekend bid to buy Time Warner is the latest bet, and a very big one, that technology is making wireless broadband ubiquitous despite regulatory obstacles.

As usual, the media and political classes are preoccupied with the hole instead of the donut. They’re worried about whether AT&T CEO Randall Stephenson, the empire builder driving the merger, will preserve the “independence” of such supposedly sainted Time Warner properties as CNN and HBO.

That’s hilarious. Time Warner’s properties all march in the same political direction now—toward Democrats and the left—despite their cherished independence. What journalists and progressives really mean in warning Mr. Stephenson is that they want to be able to continue to all think alike.

Mr. Stephenson isn’t about to interfere in any case. He wouldn’t want to endure the political opprobrium if he sought to diversify the Time Warner media worldview beyond the millimeters of difference between Christiane Amanpour and John Oliver. Mr. Stephenson was beaten up once already by America’s ruling progressives when he tried to buy T-Mobile in 2011, and he won’t make that mistake again. He recently gave a speech praising Black Lives Matters.

Another progressive concern not to worry about is the combination of AT&T’s wireless distribution with Time Warner’s content. The merger would not remove a distribution competitor. Instead, AT&T wants to be the wireless version of Comcast, which has been adding content to distribute over its still-captive cable audience. Mr. Stephenson knows that FCC regulation has complicated the distribution business. AT&T can also see that Comcast is planning to go after AT&T’s customers as early as next year when it plans to launch its own wireless brand.

The AT&T-Time Warner tie-up is signaling that the era of the local cable broadband monopoly is ending. As Saturday’s merger press release put it, “With a mobile network that covers more than 315 million people in the United States, the combined company will strive to become the first U.S. mobile provider to compete nationwide with cable companies in the provision of bundled mobile broadband and video.”

Even discounting for the PR hype, this sounds like good news for consumers who have long suffered under the limitations of cable broadband. Technology is allowing for the rollout of wireless broadband at faster speeds and lower costs. Verizon already has cable in its sights with its 5G network rollout as early as 2017.

The real threat to this new era of competition is the Obama-era FCC. Chairman Tom Wheeler justified his application of horse-and-buggy Title II regulation on grounds that government needed to drive broadband distribution. Bureaucracies rarely admit mistakes, so the Wheeler FCC might block the AT&T-Time Warner merger merely to prevent a market demonstration that the agency’s regulatory intervention is unnecessary. Yes, bureaucratic actors really can be that self-interested.

One business issue worth mentioning is AT&T’s rising debt load to execute the purchase. The company says it has a $40 billion bridge loan commitment over 18 months to finance the cash portion of its half-stock, half-cash offer for Time Warner.

But AT&T already has more than $120 billion in debt from its previous acquisitions, and its Standard & Poor’s bond rating is BBB+, close to the edge of investment grade. A downgrade to junk status could raise the company’s borrowing costs considerably. Mr. Stephenson had better hope the combined company’s cash flow can work down that debt burden while the Federal Reserve keeps interest rates at historic lows.

Mr. Stephenson is making a big play on the wireless future, and his legacy as CEO will depend on how it works out. In a better world, the Obama Administration would see all of this as evidence that Mr. Wheeler’s internet gatekeeping is misguided and rewrite its Title II supervision. Alas, that will take an end to progressive rule in Washington.


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