FCC Chair to Put AT&T/T-Mobile Merger on the Grill

The proposed AT&T/T-Mobile merger hit another obstacle Tuesday when the chairman of the FCC called the deal harmful to consumers.

AT&T will have to prove otherwise if FCC Chairman Julius Genachowski gets his way. He’s asked that the other commissioners approve an administrative hearing on the issue, expressing concern that the US$39 billion deal would create too much concentration in the wireless market, kill jobs and be overall detrimental to consumers. His appeal to the other commissioners is the first such request since 2002, when a potential deal between EchoStar and DirecTV was put under the microscope.

Since AT&T’s intention to buy smaller rival T-Mobile was announced in March, consumer groups and other wireless providers have warned the deal between the second- and fourth-largest U.S. carriers would create a duopoly and stifle competition in the industry.

A Department of Justice lawsuit to block the deal in August further deterred the plan, and more lawsuits from several states’ attorneys general followed.

Weighing the Options

Cutting its losses and abandoning the deal would be costly for AT&T. The carrier has agreed to pay Deutsche Telekom, the parent company of T-Mobile, $3 billion in fees and rights to acquire the company, an amount it promised even if the deal didn’t go through. AT&T is also on the hook to shell out $3 billion to $4 billion to T-Mobile in assets if the merger doesn’t work out.

If the FCC presses the issue, the carriers will have to face federal opposition from both the FCC and the DoJ. Each argument will address slightly different topics.

“The DoJ suit focuses on whether the merger as proposed by the parties is likely to have an adverse effect on competition among cellular service providers. FCC approval is required to transfer operating licenses, and its review focuses on whether individual license transfers are in the public interest,” Craig Bachman, parter at Lane Powell PC, told the E-Commerce Times.

Though AT&T would be granted the right to argue against claims that the license transfers aren’t in the public interest, the two hurdles — especially from the FCC, an organization that hasn’t made that kind of move in nine years — indicate the company will face an uphill battle.

Possible Defense

If the chairman’s request goes through and the deal is reviewed, it probably won’t start until after the DoJ trial against AT&T, scheduled to begin in February. If the company strikes a compromise with Justice to end that litigation, it would have to reevaluate the merger and present its case again before the FCC.

Since the intended merger was announced, the companies have maintained that with its multibillion dollar play to expand broadband coverage to rural areas, it would create thousands of domestic jobs. It’s a claim AT&T has highlighted more as opposition to the merger increases and unemployment problems in the U.S. persist.

Following the FCC chairman’s request, AT&T officials commented on missed opportunities to create jobs and spur innovation if the merger doesn’t go through. Critics, however, aren’t buying it.

“The record clearly shows that, in no uncertain terms, this merger would result in a massive loss of U.S. jobs and investment,” a senior FCC official told the E-Commerce Times in a statement provided by Neil Grace, press secretary in the office of the chairman at the FCC.

AT&T countered that since so much of the merger is focused on expanding coverage, especially with speedier 4G LTE wireless technology, the deal would not only create jobs in the implementation of that network, but would also increase coverage nationwide.

“Competition in the industry focuses on technology evolution, customer acquisition and customer retention. Revenue per user and average margin per user have been declining for both companies as users move to integrated devices such as smartphones and therefore use less voice and more data transmission,” said Bachman.

AT&T did not respond to the E-Commerce Times’ requests for comment.

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Walmart Announces Merchandise Hub for Netflix

Walmart and Netflix are teaming up to sell merchandise pegged to the streaming media provider’s content.

“Through this new partnership, Walmart will not only offer products that bring the imagination of Netflix creators into reality, but Walmart customers and Netflix superfans will also find a new, exciting entertainment destination,” Walmart Executive Vice President Jeff Evans wrote in a news release Monday.

“The Netflix Hub brings together some of its most popular shows in its first digital storefront with a national retailer,” he added.

Merchandise will be tied to such shows as “Stranger Things,” “Nailed It!,” “CoComelon” and “Ada Twist, Scientist.”

Among the items offered when the Hub opens this fall are the Ada Twist Cuddle Plush ($10.97), “Squid Game” t-shirts, the “Stranger Things” Bluetooth cassette player ($64.88) and the Witcher Netflix Transformed Geralt Dark Horse Collectible Statue ($59.88).

Evans also noted the Hub will also offer a feature called Netflix Fan Select. It offers fans of Netflix shows an opportunity to vote for merchandise they’d like to see from the service’s stable of favorites.

Competing With Amazon

The new partnership will have benefits for both Walmart and Netflix.

Walmart wants to compete with Amazon, and part of that competition includes streaming services, maintained Ross Rubin, the principal analyst with Reticle Research, a consumer technology advisory firm in New York City.

“A partnership with Netflix could be used for further collaboration. Walmart might start offering select content from Netflix, for example,” he told the E-Commerce Times.

“There’s a lot of ways it could work without Walmart offering the full-blown Netflix service,” he added.

Zain Akbari, the equity analyst for Walmart at Morningstar, an investment research company in Chicago, noted that the partnership allows the retailer to capitalize on media-linked commerce without making the kind of investment Amazon made to do it.

Although Walmart sold its Vudu streaming service in 2020, its interest in interactive and shoppable media remains, he explained.

“From its standpoint a deal like this allows Walmart to focus on what it does best while leaving the content side of the equation to an established leading player,” Akbari told the E-Commerce Times. “Ultimately, it’s another avenue by which Walmart can expand its building e-commerce footprint.”

Good Business Move

“Allying itself with one of the two streaming market leaders — Netflix and YouTube both capture about six percent of total TV time — makes good business sense for Walmart,” added Charles King, the principal analyst at Pund-IT, a technology advisory firm in Hayward, Calif.

“The new storefront should please the company’s existing clients and attract new customers, and also provide a point of competitive differentiation from Amazon,” he told the E-Commerce Times.

Having exclusivity on products from Netflix’s hit shows is another benefit of its new partnership.

“Squid Game is a perfect example,” noted Michael Inouye, a principal analyst atABI Research.

“You can imagine what the opportunity would look like if this partnership was already in place and Walmart was the only place for official Squid Game Halloween costumes,” he told the E-Commerce Times.

He added that there is a lot of value but also a lot of cost in original programming, but to date, no one has done as well as Netflix with it.

“This allows Walmart to generate some of the same benefits to their core operations of an in-house streaming service without having to make those investments in original content,” he said.

Bricks and Mortar Prize

Netflix, too, benefits from the new arrangement.

“Walmart’s massive size and geographic reach make it a great partner for Netflix to reach shoppers,” King observed. “The new store should help drive sales during the upcoming holiday shopping season.”

“Netflix has tried for a while to monetize its content other ways. Selling merchandise is one of them,” added Morningstar Netflix equity analyst Neil Macker.

“Netflix is not an e-commerce company,” he continued. “It’s a streaming company. It has a different business model than a pure e-commerce company. By working with Walmart, they can get help with building a site, fulfillment, shipping and things like that.”

Netflix is also looking to diversify beyond subscriptions for its streaming service.

“It’s already announced its movement into games,” Rubin noted. “This is a way to take a page from Disney’s playbook.”

“Disney is very skilled at driving merchandise from characters in its franchises,” he continued. “Walmart offers a strong retail presence from which Netflix could potentially build that and realize more revenue from its original content and franchises.”

Netflix may also be looking beyond online involvement with Walmart.

“If Netflix could get into Walmart’s brick and mortar stores, that would be the bigger prize for Netflix,” he said. “To have a section of the stores promoting its properties would be a big win for Netflix.”

Crucial Channel

Inouye believes that in time, Walmart will become a crucial distribution channel for Netflix.

“Since many of Netflix’s shows are launched all at once — although there are a growing number that launch on a timed schedule — it can be extra challenging for Netflix to keep excitement up around a TV series when the next launch may be more than a year away,” he explained.

“Having merchandise and content to keep fans invested and engaged in this popular IP is massive for Netflix,” he said.

Creating original content can be a hit or miss proposition, he noted. Selling merchandise can help offset the cost of the misses.

Like Disney, Netflix would like to leverage its IP well beyond the video content itself, he maintained.

“Netflix is still in its early days here,” he said, “but it is starting to expand into new territories and opportunities and the Walmart deal could become a key piece to that strategy.”

“This is particularly critical in those markets, like North America, where future subscription growth is limited,” Inouye added.

“In these more mature markets revenue growth has to come from price increases or these alternate channels,” he continued. “The latter allows them to keep engagement higher, bring additional revenue, while ideally slowing the rate of subscription price hikes, which helps maintain — and slowly grow — the installed base.”

“Other content companies have looked to marketing and selling merchandise to bring additional revenue by capitalizing on hot IP — Rovio for example has done this with its “Angry Birds” IP — but with Netflix, this could be on another scale,” he concluded.

John P. Mello Jr. has been an ECT News Network reporter since 2003. His areas of focus include cybersecurity, IT issues, privacy, e-commerce, social media, artificial intelligence, big data and consumer electronics. He has written and edited for numerous publications, including the Boston Business Journal, the Boston Phoenix, Megapixel.Net and Government Security News. Email John.

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