AT&T is emphasizing a consumer-first message for its proposed $85 billion acquisition of Time Warner as the deal is challenged by hostile rhetoric from politicians and consumer-advocacy groups.
The hurdle faced by the telecommunications giant, which purchased DirecTV in 2015, is making a substantive argument that demonstrates how the deal will benefit consumers, explains Mike Hotra, deputy MD of APCO Worldwide’s Washington, D.C., office.
"The risk of coming out with a consumer-first argument is they have to have something behind it," he says.
However, several deals of years past are casting a shadow over the acquisition. One is AT&T’s abandoned 2011 merger with T-Mobile, which emphasized the consumer benefit but wasn’t "necessarily plausible," Hotra says.
Facing tough regulatory scrutiny, AT&T pulled the plug on the $39 billion deal, and left T-Mobile with a $4 billion parting gift that the smaller carrier used to revamp its network.
"[AT&T] needs to be cautious with a consumer-first message," Hotra adds. "But if they can [do so successfully], it’s obviously first prize."
An AT&T spokesman confirmed communications work for the deal is being handled in-house. The company declined to comment further.
The deal is flying into the headwinds of populist messaging from the 2016 presidential election. Republican nominee Donald Trump said this week that the merger would not happen under his administration, saying it would put "too much concentration of power in the hands of too few." The Clinton campaign also expressed "questions and concerns" about the deal, and the Democratic nominee’s former rival, Sen. Bernie Sanders of Vermont, called for the Justice Department to block the combination.
One Time Warner veteran contends AT&T should stress the potential benefits of combining the two corporate giants.
"[They] have to keep emphasizing the future potential of this deal," says Ed Adler, a partner at Finsbury, who worked at Time Warner for 36 years, most recently as EVP and head of communications before exiting in 2010.
"Innovation [can] flourish because of a deal like this," he adds. "The digital strength of AT&T married with the content of Time Warner — there can be so many new kinds of offerings we can only imagine now."
Escaping the ghost of AOLTimeWarner
Chief executives Randall Stephenson of AT&T and Jeff Bewkes of Time Warner have made consumer experience and innovation the thrust of their argument in media interviews after the merger announcement.
"Our goal is to give customers unmatched choice, quality, value, and experiences that will define the future of media and communications," Stephenson said in a video announcing the deal.
Meanwhile, Bewkes has said that "joining forces with AT&T [will bring] our leading brands and premium content to consumers across all platforms and devices."
Experts say there are several lessons to be learned from the AOL-Time Warner experiment; the company split in two in 2009 after combining in a $111 billion mega-deal eight years earlier. For instance, Adler notes that favoring some content over others will not benefit the business in an era "where more choice is what consumers expect."
"When I was at Time Warner and the AOL merger happened, that was an issue, and the company learned you had to offer everyone’s content," Adler says.
Analysts have drawn comparisons between AT&T’s latest play and Time Warner-AOL, which Bewkes has called "the biggest mistake in corporate history." Yet Adler believes the two deals have little in common.
"Back then, Time Warner owned sports teams, books, a music company, and Time Warner Cable," he says. "The current [Time Warner] is a content-focused company. The bottom line is: the messaging has to continue to be pro-consumer from this point on and show it’s a vertical integration."
"Vertical integration" has been a common refrain from AT&T. And while the successful Comcast-NBCUniversal deal was described in the same terms, it took two years and hefty concessions before the Federal Communications Commission and the Department of Justice signed off.
Based on that standard, AT&T-Time Warner should clear the bar, analysts say. But if a consumer-based message fails to gain traction, the two companies could rely on an angle stressing the dynamics of the market, taking a page from the consolidation of the beer industry. That market is flush with new craft beers that are siphoning market share from legacy brands. In response, established brewers have gone on buying sprees, snapping up smaller brands and consolidating, most notably with the recently finalized Anheuser-Busch InBev-SABMiller merger.
"Content providers and people who own the channels are coming together in new and different ways. This is a very large merger around those synergies. Part of what AT&T has to do is articulate consumer benefits and at least fight to a draw there," Hotra says. "But they also need to make an argument that the marketplace is changing and this potential transaction is permissible – and that may be the more successful approach, rather than just try to articulate consumer benefit."
