AT&T (NYSE:T) has struck an $85 billion deal to add Time Warner (NSE:TWX) to its holdings. This merger would make AT&T a communications producer as well as a carrier, and give the company control over HBO, CNN and TBS, as well as the entire Warner Bros. library. AT&T has spent the past decade acquiring cellular carriers; a year ago, the company acquired satellite provider DirectTV (NASDAQ:DTV), entrenching AT&T as the nation's largest pay TV and second-largest mobile company, respectively. However, news of the merger has sparked debate over the legality (and ethics) of combining content and distribution. Some have argued that AT&T would have an incentive, post-merger, to withhold Time Warner's marquee content from its rival online distributers, such as Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), YouTube, and Google (NASDAQ:GOOGL). Viewers have also expressed concern over whether, for example, CNN could be counted on to report accurately about AT&T and its competitors.
There is also the issue of zero-rating (also called toll-free data or sponsored data), which is the practice of not charging end customers for data used by specific applications or Internet services through their network, in limited or metered data plans. This allows customers to use provider-selected content sources or data services (for example an app store), without having to worry about bill shocks (which could otherwise occur if the same data was charged according to their data plans and volume caps). AT&T officials have asserted that zero-rating benefits consumers (a view that is shared by a number of groups representing minority and low-income communities). Zero-rating, AT&T has argued, helps streaming services and traditional TV providers compete with cable TV's broadband/TV bundles nationwide. "We welcome any video provider that wishes to sponsor its content in the same way and on equal terms," Bob Quinn, AT&T executive vice president, has stated. "Sponsored data is an incredibly popular service that we hope regulators won't take away from the tens of millions of people who enjoy it today from several different companies.".
However, "zero-rating would no doubt have the effect of stamping out small upstarts," argued Jon Klen, a former CNN executive whose company TAPP operates niche streaming services, "or forcing [such companies] to accept unfavorable terms in exchange for preferential distribution." Mr. Klen has called for an inquiry of AT&T's style of zero-rating in the upcoming merger review; shares of media giant Time Warner are trading about 17% below AT&T's offer price, which has caused widespread skepticism over whether the deal will pass muster in Washington. The upcoming review in December will give critics of the merger a whole a new platform on which to present their objections. The FCC has already given past statements to indicate that it is already informally reviewing zero rating practices. Both the FCC and the Department of Justice will be reviewing the $109 billion deal. If the merger is allowed to pass, it will set a new precedent in the communications industry in the United States.