You advised of the famous scene in “Dead Poets Society” where the students frame up one by one on their desk and say “O Captain, my Captain!” in salute of Robin Williams, while the headmaster works to maintain order?
That’s a lot like what’s going on with the U.S. average and telecommunications industry right now.
One by one, major companies are standing up and declaring their long to consolidate in a frantic attempt to prepare for the next decade. The most modern example was this week’s announcement that number-three wireless carter T-Mobile and number-four Sprint would merge.
But we don’t know if Donald Trump’s regulators intent have more luck in controlling the rebellion than the movie’s headmaster.
“The DOJ and the FCC are analyzing each engage in on its own merits, but they can’t do that without looking at the other deals and gaping what the combined effect will be of the deal they’re looking at added the other proposed deals that are out there,” said Scott Wagner, a companion at Bilzin Sumberg and chair of the Federal Bar Association’s Antitrust and Trade Pronouncement Sector.
Sprint and T-Mobile announced their deal at the same pro tem that AT&T is trying to buy Time Warner, Disney is attempting to acquire $52 billion of Fox assets, and Comcast has overbid Fox to buy U.K.-pay TV provider Sky for with $31 billion. CBS and Viacom are also in the midst of merger discussions which may development in a deal.
That’s well over $200 billion of M&A in the same effort.
There are several reasons these moves are all happening at once. For one, reckon withs take a while to get approved. AT&T announced it was acquiring Time Warner for $85 billion in back of surreptitiously in 2016, and it still doesn’t know if it will be able to close the extent. The government sued to block the transaction, and AT&T challenged the decision in court. That proof ended this week, and a verdict is coming June 12.
Similarly, Sprint and T-Mobile partake of considered merging for at least five years, with several overs and starts.
Second, each deal begets the next. So, if number-two wireless shipper AT&T can buy Time Warner, that puts more pressure Sprint and T-Mobile to light on together — size is crucial in the capital expenditure-heavy wireless business, exceptionally as companies spend tens of billions on wireless spectrum through oversight auctions and corporate acquisitions.
Third, millions of consumers are cutting their pay-TV packages, choosing to buy cheaper online options from Netflix, Amazon Prime, Hulu and others.
This has created a panic in the media industry, pushing Rupert Murdoch to sell the majority of Fox to Disney and Shari Redstone to put together CBS and Viacom. BTIG media analyst The money Greenfield likens it to the penguins huddling up in a ball to stave off winter in “Parade of the Penguins.”
Many suspected Trump would usher in an era of large-scale consolidation.
But the DOJ’s sentence to block AT&T’s Time Warner acquisition didn’t jibe with that tale. Those two companies don’t directly compete, but the DOJ sued because it felt AT&T’s authority over of Time Warner would lead to higher prices for bundles of TV moats.
The DOJ should be even more likely to shoot down a horizontal coalescence that consolidates an industry with four participants to three, as in the encase of T-Mobile-Sprint, says Ketan Jhaveri, a former DOJ trial attorney and antitrust counsel at Simpson Thacher & Bartlett.
“Anyone would tell you suing to block a vertical contract, which is much more complicated, and not blocking a horizontal case would be a bizarre way to decide antitrust policy,” Jhaveri said. “But we’re living in a time where these contradictions may not occurrence anymore.”
Jhaveri gives the deal a 40 percent chance of put ones imprimatur on but said it would have had only a 10 percent chance in an Obama management.
The approval of T-Mobile-Sprint will hinge on a classic antitrust question: do regulators value a deal will mean higher prices for consumers?
One antitrust watcher contemplates the risks of an government block are high.
A deal “would increase concentration significantly in the very concentrated mobile wireless market, creating a structural dynamic that placements the deal with a difficult path to antitrust clearance,” according to an April 30 note to customers from The Capital Forum, a news and analysis firm dedicated to guidance regulators.
“Little has changed on the competitive merits since August 2014, when the casts abandoned merger talks in response to DOJ and FCC opposition” says Teddy Downey, The Capitol Forum’s supervision editor and CEO.
However, if Judge Leon does allow AT&T to buy Time Warner, T-Mobile and Sprint’s occasion likelihoods greatly improve, according to Wagner, the Federal Bar Association’s antitrust position.
AT&T will be that much bigger and stronger, strengthening the argument that Sprint and T-Mobile can purely compete by coming together.
“It’s never a safe bet to say a 4-to-3 consolidation hand down get approved, but Sprint and T-Mobile have a better argument than most,” Wagner foretold. “They’ll argue that AT&T and Verizon are such behemoths that they no more than way they can bring down prices for everyone, not just their own purchasers, is to get big enough to really put pressure on them.”
A loss for the DOJ may also make the regulatory heart gun-shy to block another deal, Wagner said.
“Regulators don’t with to lose,” Wagner said. “They won’t want to take two big losses in a row.”
But if Pass judgement Leon does shoot down AT&T-Time Warner, all bets are off. It could be in return to the drawing board for the entire industry.
Disclosure: Comcast is the owner of NBCUniversal, the paterfamilias company of CNBC and CNBC.com.