AT&T May Put DOJ Antitrust Boss on Witness Stand

AT&T reportedly plans to put Makan Delrahim, U.S. Assistant Attorney General for the Antitrust Division at the Department of Justice, on the witness stand in next month’s federal trial regarding the telecom’s $85 billion acquisition of Time Warner, according to The Wall Street Journal.

The DOJ filed suit against the merger, claiming the deal would negatively affect consumers and the market.

In a twist, AT&T seeks to question – under oath – the government official responsible for the lawsuit.

Iranian-born Delrahim, who was nominated to the antitrust division by President Trump, and infamously gifted a baseball cap with the slogan, “Makan Antitrust Great Again,” upon his arrival, previously served in the position under President George W. Bush.

Why AT&T seeks to grill Delrahim – a corporate lawyer – revolves around his time as a lobbyist for Comcast, Google, Blue Cross Blue Shield and other major corporations.

Indeed, when the AT&T – Time Warner merger was first announced, Delrahim told a TV interview he didn’t think the merger posed a significant antitrust issue.

Of course, that was before he was appointed by Trump, who many observers believe stepped into the merger at the last minute for largely personal – not regulatory – reasons.

Trump has repeatedly called out CNN, which is owned by Time Warner unit Turner, as a facilitator of false news about him and his administration.

Scuttlebutt suggests the government could okay the deal if CNN and other properties were spun off — a scenario AT&T CEO Randall Stephenson said he wouldn’t agree to.

With AT&T on the hook to Time Warner for $500 million should the merger fail, expect to see Delrahim’s TV interview presented to him in court.



Turner CEO Says Government ‘Clueless’ Trying to Block AT&T/Time Warner Merger

The Department of Justice says the $85 billion merger of AT&T and Time Warner would be bad for consumers and competition. And it filed a lawsuit to prove its case.

That doesn’t sit well with John Martin, CEO of Turner, a unit of Time Warner, to which Martin was CFO for nearly 10 years.

Speaking Feb. 13 Recode’s Code Media confab in Huntington Beach, Calif., Martin decried the government meddling and insinuation that the vertical merger between AT&T and Time Warner is negative.

“I think the government is clueless,” Martin said.

Vertical mergers typically involve two companies that operate at separate stages of the ladder within an industry’s supply chain. In the case of Time Warner, it largely represents content creation while AT&T represents content distribution.

“As a person who’s actually going through the process and has been in depositions, the theory of the [legal] case just makes absolutely no sense,” Martin said. “In the history of the country, what vertical merger has tilted the landscape of the competitive environment? Let me give you the answer: Zero.”

Specifically, Martin said that while merging with AT&T would “supercharge” Turner brands such as CNN, Cartoon Network, FilmStruck, Turner Sports, TNT and Turner Classic Movies, among others, since the announcement, he said AT&T has lost 1.3 million pay-TV subscribers and makes little money on previous acquisition, DirecTV. At the same time, Martin said Netflix has added 6 million domestic subscribers.

The CEO contends the government’s case fails further when looking at the market capitalization of AT&T and Time Warner since the announcement.

“They’re flat,” Martin said. “I think Amazon and Google have essentially, in terms of market cap, the equivalent of AT&T. And Facebook has added the equivalent of two times Time Warner.”

Martin said the government has nothing to worry about regarding the merger, adding the DOJ case amounts to a “massive miscalculation” of resources.

“They’re going to lose,” he said.

When asked if the government could lose while still extracting conditions, Martin said jokingly that the good thing about his comments was the fact he had no idea what he was talking.

To many observers, the merger revolves around President Trump’s immense dislike of CNN, which he has repeated characterized as a source for fake news.

Asked if he thought CNN might be sold [to assuage the DOJ and Trump] Martin said he didn’t think so – a position publicly backed by AT&T CEO Randall Stephenson.

Regardless, Martin said Time Warner units Turner, HBO and Warner Bros. would be “fine” without the merger.

“Time Warner is a pretty stable, successful company right now,” he said. “Whatever happens, happens.”

The federal trial is set to begin March 19.


Report: Comcast Revisiting Disney Bid

Comcast reportedly is considering revising a previous bid for select assets of 21st Century Fox. The original $60+ billion bid was turned down in favor of Disney’s $52.4 billion offer largely due to antitrust concerns, according to The Wall Street Journal.

Rupert Murdoch, chairman of 21st Century Fox, owns WSJ parent News Corp.

While both companies’ bids for 20th Century Fox film and TV assets — which include Fox 2000, Fox Searchlight, majority control of Hulu, Star India, Sky, FX, Fox’s regional sports networks, including YES and $13.7 billion in Fox debt — were similar, Fox chose Disney’s lower offer due to regulatory concerns.

Indeed, when Comcast — one of the nation’s largest cable operators — acquired NBC Universal, it went to great lengths to assuage regulators’ concerns about unfair competition and monopolies. The company thus agreed to be a silent partner in Hulu, among other arbitration conditions that expired in January.

In acquiring Fox, Comcast seeks additional cable TV networks, in addition to content creation. It’s a strategy AT&T is following acquiring Time Warner. That deal’s future remains unknown and is now under litigation from the Department of Justice, citing antitrust issues.

Separately, Sen. Richard Blumenthal (D-Conn.) in December urged to the DOJ to re-investigate Comcast’s acquisition of NBC Universal following the end of government-imposed conditions.

“If your investigations determine that the Comcast-NBC acquisition will produce anticompetitive effects, even if the merger conditions are retained, you may need to reconsider separating Comcast and NBC universal in order to fully restore competition,” Blumenthal wrote Makan Delrahim, head of antitrust at DOJ.

Meanwhile, Fox has issues of its own. The company’s $16.3 billion attempt to acquire the remaining 61% stake in Sky — Europe’s largest satellite TV operator — was thrown a roadblock when the U.K. watchdog Competition and Markets Authority ruled the deal was not in the public interest.

“Media plurality goes to the heart of our democratic process,” Anne Lambert, chair of the CMA, said in a statement. “It is very important that no group or individual should have too much control of our news media or too much power to affect the political agenda.”

Fox, in a statement, said it would “continue to engage with the CMA ahead of the publication of the final report in May.” Negotiations reportedly could include divesting Sky News from Murdoch’s influence.


Time Warner’s AT&T Merger Cost Skyrockets to $279 Million

AT&T’s pending $85.4 billion acquisition of Time Warner continues to generate escalating costs for the media company.

While the deal – currently held up due to a Justice Department antitrust lawsuit – is predicated in part on fiscal synergies, Time Warner Feb. 1 reported the transaction generated $279 million in costs in fiscal 2017, including $3 million in the fourth quarter, ended Dec. 31.

Subsidiaries Turner, Warner Bros. and HBO accounted annual merger costs of $73 million, $78 million and $47 million, respectively. Time Warner corporate added another $91 million to the SG&A ledger.

The bulk of the costs are related to employee retention programs, including the issuance of 5.7 million in stock to select staff, including all senior executives at Time Warner – including CEO Jeff Bewkes and Warner Bros. CEO Kevin Tsujihara, according to a regulatory filing.

The merger – announced Oct. 16, 2016 – generated $42 million in related costs in 2016.

The fees could be moot should the merger not happen. AT&T is on the hook to Time Warner for $500 million should the government kill the deal.

While speculation suggests President Trump ordered the lawsuit due to his dislike of CNN, which he calls “fake news,” the DOJ argues the merger combining AT&T’s DirecTV with Time Warner’s TNT, HBO and CNN would form a monopoly that is detrimental to consumers and competitors.

Trial date is slated for March 19.

Vice Chairman: Lionsgate ‘Very Interested’ in Third-Party Merger

Lionsgate is shopping – itself.

With AT&T’s $85.4 billion acquisition of Time Warner in regulatory limbo, and Walt Disney’s $52.4 billion acquisition of select 21st Century Fox assets, including 20th Century Fox, pending, big media mergers are on the mind of Michael Burns, vice chairman of Lionsgate.

With a $7 billion market cap, Burns says Lionsgate is a “pint-sized bite” for potential suitors compared to “800-pound” gorillas like AT&T. Speaking on CNBC, Burns reiterated the usual “enhancing shareholder value” mantra driving publicly-traded companies like Lionsgate to acquire or be acquired.

Burns was quizzed about the likelihood of Lionsgate merging with Verizon, Comcast, Amazon or possible reunified Viacom/CBS.

He said merging with a telecom such as Verizon could be a big deal, provided the telecom decided what businesses it wants to be in. Burns was alluding to Verizon CEO Lowell McAdam, who, on the fiscal call, said the telecom wasn’t looking at any M&A activity in the short-term.

Burns said he is very interested in the outcome of the DOJ’s antitrust lawsuit against the AT&T/Time Warner merger. The executive called Comcast’s $30 billion acquisition of NBC Universal in 2011 the deal of the century.

“Again, you have to show organic growth or you have to make acquisitions, like us, which would be a bolt-on acquisition for [Comcast],” Burns said.

He said Lionsgate is talking to other media companies “all the time to see if a deal makes sense.”

Merging with Amazon would seem realistic given the ecommerce behemoth’s 70 million Prime members and ongoing content deals between the two companies, including movies The Big Sick and Oscar winner Manchester by the Sea.

“We’re a customer of Amazon and we are doing a lot of business with them,” Burns said. “We think there is more and more to do with them.”

He said media companies, particularly in the tech space, have to decide whether they want to “build it” or “buy it” when determining how far ahead the competition is in the streaming and subscription business.

“We’re very interested in the consolidation space,” Burns said. “Obviously that’s very important to us.”

AT&T CEO Seeks Internet Bill of Rights

AT&T CEO Randall Stephenson Jan. 24 penned an open letter on the telecom’s website asking Congress to enact an “Internet Bill of Rights.”

Stephenson contends legislation – unlike net neutrality – is required to not only ensure consumers’ rights, but also provide consistent rules for all Internet companies across all websites, content, devices and applications.

“It is time for Congress to end the debate once and for all, by writing new laws that govern the Internet and protect consumers,” Stephenson wrote.

The executive’s concern might appear sincere to Rip Van Winkle. But to anyone else paying attention to the net neutrality debate, AT&T is no fan of regulation.

As one of the nation’s largest Internet service providers (ISPs) along with Comcast, Verizon and Charter Communications, AT&T in 2015 spearheaded legal challenges against FCC-enacted net neutrality guidelines under the Obama Administration mandating an open Internet, among other provisions.

The FCC, in turn, alleged AT&T and Verizon violated open Internet provisions by exempting data caps for proprietary video services on their wireless networks.

In a Dec. 1, 2016 letter from Jon Wilkins, chief, wireless telecommunications bureau at the FCC, the agency said the telecom’s sponsored data program denied “unaffiliated third-party streaming services the same ability to compete on AT&T’s network at similar [financial] terms.”

While Stephenson, in the letter, made no mention of the current FCC under Trump-appointed chairman Ajit Pai – which rolled back net neutrality provisions earlier this year – he pledged AT&T would not block websites, censor online content, throttle, discriminate, or degrade network performance based on content.

“We have publicly committed to these principles for over 10 years,” he wrote.

Gigi Sohn, a former senior staffer at the FCC under chairman Tom Wheeler, bristled at Stephenson’s feigned altruism.

“They’ve done everything in their power to undermine consumer protections, competition, municipal broadband,” Sohn told

She and other net neutrality advocates say the importance of the Internet in the 21st century mandates it be regulated as a utility.

Sohn, and others, believe Stephenson’s ulterior motive is to get Congress to regulate so-called “edge providers” such as Google, Facebook, Amazon, Netflix, Twitter and Microsoft, among others, which have helped redefine how consumers access information and entertainment with little or no regulation or taxation.

FCC chairman Pai, in a speech last November, decried edge providers as the real threat to the Internet and consumer rights through ideology and other subjective criteria.

“They might cloak their advocacy in the public interest, but the real interest of these Internet giants is in using the regulatory process to cement their dominance in the Internet economy,” Pai told R Street Institute, a New York-based free market think tank.


Verizon Eyes 5G Future as Fios TV Ups Sub Losses

Verizon Jan. 23 announced it plans to roll out 5G wireless functionality in upwards of five major cities in the second half of this year – the first wireless carrier to do so.

The technology should dramatically increase streaming video speeds, with 5G download speeds up to 10 gigabits-per-second compared to one gigabit-per-second for 4G LTE. The higher speed could result in downloading a HD movie in seconds.

Verizon aims to harness 5G technology with its new Oath platform, whose content brands include Yahoo, HuffPost, AOL, Tech Crunch and Engadget, among others.

The telecom, which recently inked license deals with the NBA and NFL, added 47,000 Fios high-speed Internet customers to end the fourth quarter (ended Dec. 31, 2017) with 5.9 million subs.

“The next industrial revolution will be on Verizon’s [5G] network and will positively impact society like no technology we have seen before,” CEO Lowell McAdam boasted on the fiscal call.

Meanwhile, Verizon’s pay-TV platform, Fios video, lost 29,000 subs in the quarter, to end the year down 75,000 subs at 4.6 million.

When asked whether Verizon would follow in the footsteps of AT&T and Walt Disney seeking to acquire a media company, McAdam punted. The executive admitted Disney’s acquisition of 20th Century Fox underscores the value of scale in the market place.

McAdam said the jury is out regarding the merits of Verizon acting as an independent distributor of content compared to owning and creating content.

“I think until all of this media consolidation [AT&T/Time Warner, Disney/Fox] shakes out, you really can’t determine whether that’s a path we would be interested in,” he said. “But I can say unequivocally there is nothing going on right now without considering a large media play [involved].”

“In fact, if you look at our actions like the NBA and the NFL announcement … we think being able to monetize through advertising and being independent is a very good place to play for us right now.”

Wall Street remains on the fence regarding Verizon’s first-mover 5G strategy.

“5G is going to be a hundred times faster than your typical Internet service, so not only is it going to be faster, it’s going to have better margins and give Verizon a ton of opportunity for new customer growth,” Michelle McKinnon, analyst with Payne Capital Management, told CNBC.

Jonathan Chaplin, analyst with New Street Research, said that while 5G enables Verizon to bridge technology divides in the market, doing so comes at a major fiscal cost.

“We’ve pegged it at least at $35 billion dollars,” Chaplin said. “That’s going to [more than] absorb the gains [Verizon is] going to get in tax reform savings over the next four or five years — which I don’t think the market is anticipating.”





GameStop Shares Fall Despite Strong Winter Holiday Sales

GameStop Jan. 12 saw shares fall more than 11% in midday trading after the nation’s largest video game retailer warned of a $300 million to $400 million impairment charge in the fourth quarter, ending March 31.

The company related the charge to its technology brands business, which includes selling third-party cell phones.

GameStop said consumers are waiting longer to upgrade existing phones, in addition to AT&T changing its compensation structure, among other issues. The charges will not affect company cash flows or liquidity.

Technology brands sales, which are not included in comparable store sales, decreased 18.6%, driven by limited availability of the iPhone X.

“Tech brands continues to lag, with holiday underperformance largely tied to iPhone inventory constraints and the ongoing impact of AT&T’s compensation structure changes,” Baird research analysts wrote in a note.

Meanwhile, total global sales for the nine-week winter holiday period (ended Dec. 31, 2017) were $2.77 billion, up 10.6% compared to the 2016 holiday period. Total comparable store sales increased 11.8%, growing, 13.7% in the U.S. and 7.9% internationally. Worldwide omni-channel sales increased 21.5%.

New hardware sales increased 38.3%, driven by Nintendo Switch and the launch of Microsoft’s Xbox One X. New video game software sales increased 7.3%, largely due to the success of Activision’s Call of Duty: WWII and continued strength in Nintendo Switch titles.

Pre-owned sales declined 8.1%, as customers shifted spending to new titles and collectibles products. Indeed, collectibles sales increased 19.4% to $211.3 million, driven by strong performance across apparel and toys.

Video game accessories sales grew 33.7%, primarily related to demand for Nintendo Switch accessories.

Digital sales and non-GAAP digital receipts increased 36.7% and 6.7%, respectively, excluding the 2016 holiday period revenues from “Kongregate,” which was divested in July 2017. On a reported basis, digital sales increased 4.6%, while non-GAAP digital receipts increased 2.2%.