AT&T Thinks You Want More Targeted Advertising

By Evan Niu,

AT&T (NYSE: T) is looking to circumvent a review from the Federal Communications Commission regarding its pending merger with Time Warner (NYSE: TWX), hoping to eliminate one of the many regulatory hoops it will need to jump through. The Department of Justice will definitely be reviewing the merger, but Ma Bell hopes to sidestep the FCC since there aren't expected to be any FCC license transfers and Time Warner does not offer any FCC-regulated services to consumers.

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Last month, Senator Al Franken asked AT&T to justify the purported benefits to consumers to assess if an FCC review was necessary. AT&T and Time Warner responded (link opens PDF) last week, outlining a slew of ways that American consumers may benefit, including through more targeted advertising.

HBO is one of Time Warner's most valuable assets. Image source: HBO.

"Giving consumers what they want"

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I may be wrong, but I'm pretty sure more targeted advertising is at the top of nobody's wish list, unless you're an advertiser or an advertising company. AT&T and Time Warner state: "Put simply, this merger is about giving consumers what they want." That primarily refers to a wider range of bundles that include telecommunications services combined with content, noting that vertical integration facilitates greater innovation. The pair then proceeds to provide a few examples of what that innovation might look like (emphasis added):

The thing is that most of these examples can be pursued without an $85 billion merger, so they don't help justify the acquisition. Fortunately, Franken isn't buying what the pair are selling, saying the response "does little to address" his concerns.

While AT&T says it will be better able to compete with larger cable companies, which should theoretically result in reduced prices, it fails to acknowledge the anti-competitive implications of its "zero-rating" policies, which it has already in place for its new DIRECTV Now service, itself a result of AT&T's 2014 acquisition of DIRECTV. Specifically, owning the content gives AT&T a powerful differentiating factor, and even if it didn't increase prices -- a pretty big if-- competing service providers would likely be forced to increase their prices out of economic necessity if they wanted to compete with a zero-rated HBO Now, for instance.

Just because AT&T and Time Warner don't compete directly doesn't mean that a merger is good for consumers.

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Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.