What the AT&T-Time Warner Mega-Merger Means for Consumers

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The proposed deal -- for a whopping $84.5 billion -- raises fears of monopolistic behavior, which usually means the customer will pay.

While analysts and regulators weigh the pros and cons of AT&T’s recently proposed $85.4 billion merger with Time Warner, customers have begun voicing their own concerns. Topping the list: What does this deal mean for their service?

Actually, it depends on how you define service. Some industry-watchers say the new company could leverage its consolidated power to offer customers superior choices. AT&T is the largest pay-TV operator in the nation, the second-largest wireless company and the third-largest broadband provider. And isn’t bigger better? Others fear a combined AT&T-Time Warner would dominate the marketplace, leading to higher prices and inferior service.

If it’s customer service strictly by the numbers, then that’s a somewhat easier question to answer. Take AT&T Mobility, which scores a 71 out of 100 in the authoritative American Customer Satisfaction Index, which is the average score for a wireless company. DirecTV, now owned by AT&T, scores a 68 in the subscription TV category, two points above average. Time Warner, the media company that owns CNN, HBO and Warner Bros. (not the cable company, which belongs to Charter Communications) isn’t rated in a comparable way.

But, as with most mergers, there’s no widespread agreement on what a mashup of AT&T and Time Warner would mean. Not from customers, not from industry analysts, and perhaps not even from regulators.

A mixed response from consumers

Some current AT&T customers say combining the two companies makes sense. Keith Fix, who runs a marketing technology company in Omaha, Nebraska, likes the possible synergies.

“I look forward to the merger,” he says. “Hopefully this will translate into open access to content and distribution on the carrier side. I wouldn’t mind discounts or content bundles with my carrier plan for things I already use such as HBO Now.”

That’s one of the biggest selling points of this merger, at least from a consumer point of view. A combination could create interesting new entertainment options.

“For an average consumer, this can really redefine the way he or she consumes media content,” says Jitesh Keswani, CEO of e-Intelligence, a marketing technology agency. “For example, if you are an AT&T customer, you should be excited about the possible zero-rating opportunity, meaning you can now stream all your popular Time Warner shows without having to use your data.”

But Karen Cummings, an editor for a software company who lives in Fryeburg, Maine, and a longtime AT&T and Time Warner customer, says she’s deeply concerned. She complains that her AT&T service keeps getting worse, and she worries that the overall trajectory of the new company would take it in the same direction — taking advantage of its enormous size to raise prices and reduce service further.

“I’m thinking of switching carriers,” she says.

She should be scared, says Chris Brantner, who runs CutCableToday, a cord-cutting website. “The merger is downright frightening for consumers, both traditional cable customers and cord-cutters alike,” he says.

It could leave AT&T in an almost monopolistic market position, dominating TV, internet and wireless. It could also lead to other negative side effects, such as the company offering “free” data for those using its services, while throttling or punishing others. Brantner notes that T-Mobile dabbled in this kind of behavior with its BingeOn app, allowing “free” data, but only for certain apps.

Prices are almost certain to rise, if history is any indication. John Kwoka, an economist and antitrust expert at Northeastern University, studied 1,000 mergers over two decades and reported that 80 percent of the transactions resulted in a price increase.

What’s the point?

Since the merger was announced in late October, it’s been heavily criticized. Asked to view the deal through the prism of customer service, that criticism comes into even sharper focus.

Babson College Lecturer Peter Cohan doesn’t understand how the deal would help consumers. “If AT&T wants to pump Time Warner’s content over its pipes, why not just pay a fee to license it, rather than spend $85.4 billion to acquire Time Warner?” he asks.

“Do the consumers lose something?” asks M.S. Krishnan, a professor of technology and operations at the University of Michigan’s Ross School of Business. “Yes, they may. It may give companies more power in the channel, and we’re already seeing this happening in different parts of the value chain. Netflix getting into content creation on their own, for example.”

And even though there’s a loose consensus that this merger will eventually be greenlighted, the real effects could be felt by consumers — and specifically, in the area of customer service — later.

“This will be one of the largest media mergers we have seen historically,” says Jim O’Neill, an analyst at Ooyala, a video analytics company. “This deal could set the stage for a new generation of media companies.”

Next up

But the merger is by no means a certainty. It must overcome regulatory hurdles from the Department of Justice and possibly the Federal Communications Commission. It may also face opposition from a public wary of previous mergers that ended up doing little for them.

Analysts say AT&T can do this right — as long as it focuses on consumers.

“Much of the success of this deal will depend on how keenly senior leaders keep their eyes on the customers,” says Linda Henman, an author and corporate succession planning expert. “Too often companies look inward after a deal like this, concentrating on integrating IT systems, compensation, processes and HR functions. They lose sight of the external forces that will ultimately decide the fate of their decisions.”

It may be too soon to know how a combined AT&T-Time Warner will treat you. But the decisions made now by regulators, customers and the companies will no doubt answer that question soon.

What are your thoughts about the proposed merger? Share with us in comments below or on our Facebook page.

Christopher Elliott’s latest book is “How to Be the World’s Smartest Traveler” (National Geographic). You can get real-time answers to any consumer question on his new forum, elliott.org/forum, or by emailing him at [email protected]

Stacy Johnson

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