Taking a Consumer’s Look at the Proposed AT&T/Time Warner Merger

My Comcast Xfinity menu.

According to published reports, AT&T recently reached a deal to buy Time Warner in an estimated $85.4 billion deal. I have a real issue with this and I also have some issues with reports I’ve read and interviews I’ve listened to. SiriusXM Progress’ Nomiki Konst tried to make some sense of it during a segment on her show, The Filter, Monday evening. However, the segment didn’t quite go far enough, and Konst said during her show, and in a Tweet back to me, that there will be much more discussion.

There will have to be. Konst brought up very good points. The United States Department of Justice will be in on this and that there will be hearings. My Tweet to her mentioned that the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC) would also have to weigh in.

How do I know this? Why do I care? I’m glad you asked.

120866345ivflsi_phThis proposed merger reminds me of Time Warner’s ill-fated acquisition of America Online (AOL). AOL had engaged in perhaps the greatest marketing campaign of the 20th Century. During the late 1990s, AOL put their install and dial-up discs in the hands of millions of people. They made addicts of those millions of people who quickly got hooked on the America Online experience.

AOL switched from their hourly model to a monthly flat fee in 1996.

By 2000, AOL was considered an Internet Service Provider (ISP) although they shoved their proprietary content and experience down everyone’s collective throat. AOL Instant Messenger had become an integral part of millions of people’s lives, even non-subscribers. Broadband had just started to take hold with competition developing between cable Internet providers and DSL. Cable Internet spawned from cable TV, and DSL sprang from the phone companies. DSL was a flawed concept and is dying a slow death.

Time Warner decided to purchase AOL in 2000. Recode.net agrees with me that the Time Warner acquisition of AOL will haunt this AT&T/Time Warner deal. What bothers me is that more people aren’t discussing this or AT&T’s history in this space.

Kara Swisher of Recode.net writes:

“It was a truly epic move, all predicated on the very big idea that distribution and content had to marry in the digital age and that whoever did that successfully would rule the next era of media and more.

It was also an epic failure, brought down by a toxic combination of timing and execution.”

Read the full story. What Steve Case, formerly of AOL, tells Swisher at the end of the piece is telling. He didn’t get it then, and he doesn’t get it now.

I have been touting convergence for at least 15 years. I have been an Internet professional for 16 years, going on 17, and a web developer of some variety for damn near 20. I believe the future of the content consumption is true internet-driven interactive TV. More on that some other time.

I knew in 2000 that the Time Warner acquisition of AOL was doomed to failure. And I have no reason to think this will be any different.

Here is what I remember and what I think I know. As much as Case wants to make the failed Time Warner/AOL marriage about the world not being ready for convergence of ISP and all types of content, it was a disaster for entirely different reasons.

Time Warner had developed a pretty robust broadband operation by this point. It was known as Roadrunner. I was living in Columbus, Ohio, in the late 1990s and my apartment building wasn’t wired for cable. Ameritech was the local phone company and DSL wasn’t available in Columbus yet. As I mentioned earlier, AOL was a de facto ISP, but featured a proprietary experience, including AOL’s exclusive e-mail client.

AOL was strictly a dial-up service. They had no broadband strategy. They didn’t own any cable lines, or phone lines for that matter. They didn’t own or lease any content delivery networks. I chose local Columbus provider Netwalk if that tells you anything.

As the merger went ahead, it was clear to me that the whole thing was a power play by AOL to get their hands on the Roadrunner broadband Internet service. Can’t develop your own broadband content delivery network? Buy one, or merge with one, or get bought by one.

AOL was sued in 2000 due to their software causing issues with third-party ISPs. This would turn out to be prophetic.

Enter the FCC and the FTC. As this merger was scrutinized and analyzed and vetted, the FTC and FCC ruled that a choice of ISP had to be provided to consumers. This meant that AOL could not use the Roadrunner platform to shove their proprietary experience down users’ throats.

I applauded the FTC and FCC for their wisdom. I am an Internet purist. Give me a browser and high-speed connection (Ethernet or WiFi) and I am a happy man.

You would think that when these two government agencies dropped this hammer, Time Warner would have killed the deal and AOL would have withered on the vine. But no, they went through with it and AOL would drag the company down for years as Comcast and Cox created robust broadband offerings, and Time Warner continued to sell Roadrunner (without foisting AOL on to their customers).

In 2009, Time Warner spun it off as an independent after years of AOL siphoning cash as the only Time Warner business unit that did not turn a profit (if memory serves). In 2015, Verizon acquired AOL. As of May 2015, AOL still had 2.1 million dial-up subscribers. DIAL-UP! Who the hell are these people?

Along a parallel track, I moved to California in 2000. I had a choice of ISP. AT&T Broadband (cable) or DSL through PacBell (later SBC Global), I don’t believe in DSL so I went with AT&T Broadband. In late 2001, Comcast merged with AT&T Broadband in the worst rebranding campaign I have ever seen. I have worked in public relations; I know what good rebranding looks like. (I moved and AT&T Broadband didn’t honor an install appointment because of their merger with Comcast and I ended up with DSL for awhile. Oh, the irony.)

In 2005, SBC bought AT&T and rebranded as AT&T. In 2006, AT&T launched U-Verse – an IPTV service delivered via fiber to compete with Comcast among others. Internet is delivered via the flawed DSL concept. In 2012 U-Verse had 7.1 million Internet customers. As of July 2015, Comcast reported 22.55 Internet customers. Full integration between AT&T and DirecTV is planned for later this year.

Earlier this year, Charter bought Time Warner and Bright House. Charter was supposed to strip away Time Warner and Bright House’s branding according to a CNN Money report. The merger was actually announced in 2015. The only thing that I can see that has changed is the ISP is now Spectrum (Charter’s service’s name) instead of Roadrunner. According to Time Warner’s web site, the whole thing is supposed to be Charter Communications, with the services marketed under the Spectrum brand name a la Comcast’s Xfinity brand.

Confused yet? I thought I had a handle on this when I had the idea to write this blog, but the further down the rabbit hole I go, the more convoluted this becomes.

Not that I have read them all, but I have yet to see any report mention Charter when the AT&T acquisition of Time Warner is discussed.

So, what does this mean? According to most published reports, the play here is mobile. AT&T owns DirecTV and has a DirecTV Now streaming service planned. By all accounts, it’s affordable and should offer consumers a robust package. As more and more people cut their cords, especially millenials, and move away from traditional content delivery systems and networks, something like DirecTV Now should be viable. An NPR.org article outlines and pros and cons of the merger.

I remain skeptical. The ink is still wet on Charter’s purchase of Time Warner and Bright House. AT&T failed as a broadband ISP and cable TV provider and sold the business off to Comcast. AT&T, after acquisition by SBC, re-entered the TV and high-speed Internet market with U-Verse, which has failed to gain traction. In light of Charter’s acquisition of Time Warner and Bright House, AT&T has the potential to purchase a customer base to rival or exceed Comcast. They are buying customers. This is what AOL tried to do 16 years ago.

NPR.org’s Alina Selyukh’s list of cons raises some serious concerns.

The executives can talk about “vertical mergers” all they like. This is about customer acquisition and nothing else. They can talk about convergence. They can talk about content. They can talk about cord-cutting and mobile. This is about acquiring a user base that they couldn’t grow themselves.

I’m going to further cut through it. AT&T is planning on consolidating its IPTV/video offering through DirecTV and blend its existing U-Verse DSL business with Charter/Time Warner/Bright House’s cable Internet subscriber base.

What this means for the consumer I have no idea. Higher prices? Who knows?

Hell, it may work out. Maybe it’ll be a good thing. I know nothing about big money, high-stakes mergers and acquisitions. What I do know is what I have seen with this kind of thing before as an Internet professional, a writer, a content creator, and a consumer. It was an ugly divorce.

This time, when the FTC and FCC throw a monkey wrench into the proceedings, maybe the principals involved ought to listen.