AT&T May Have to Break Out Its Dancing Shoes

It will keep prices at their current low level. It will hire more people, lots more. It will sell a significant chunk of T-Mobile’s stock. If it has to, it will go to court. AT&T, in short, appears ready to jump over whatever hurdles the Department of Justice places before it to win its prize — the acquisition of T-Mobile.

The company was apparently caught completely off guard by the blow DoJ dealt to its proposed US$39 billion merger with T-Mobile this week. The department filed a lawsuit to block AT&T from acquiring T-Mobile, claiming that such a merger would violate antitrust regulations.

It noted, for instance, that AT&T and T-Mobile currently compete head-to-head in 97 of the nation’s largest 100 cellular market areas. Were the merger to proceed, there would only be three providers owning 90 percent of the market. Competition in price, quality and innovation would be diminished.

This is not the end of the matter, of course, as even the Justice Department has made clear.

“We apprised them of our serious concerns and, as any party can do, our door is open,” Sharis Pozen, acting assistant attorney general for the Anti Trust Division, said at the agency’s news conference.

“If they want to resolve those concerns, we can certainly do that,” Pozen continued. “Here we filed a lawsuit and we’re going to proceed in Court. We’ll see what happens next.”

Taking Stock

AT&T is apparently not willing to let the merger die and is taking inventory of its options. It did not respond to the E-Commerce Times’ request to comment for this story, but according to news accounts, it plans to come back to the Justice Department with a proposal.

Unfortunately for the company, few of those options are palatable, and some are downright ugly. One of the more benign, no doubt, from AT&T’s perspective: It could promise to keep T-Mobile’s inexpensive price plans on the market.

It could divest T-Mobile assets in specific markets, or it could sell a significant portion of T-Mobile’s stock — 25 percent is one number being bandied about.

However, the latter proposal probably wouldn’t be effective in the long term, according to N. Venkatraman, a business professor at Boston University, told the E-Commerce Times.

Of course, the final option for AT&T could be battling it out in court.

FCC or Justice?

The situation looks dark for AT&amolT now, said Ryan Radia, an analyst with the Competitive Enterprise Institute, but it could be worse.

The Federal Communications Commission could have wound up being the point agency to derail the merger, he told the E-Commerce Times.

“Oftentimes with these deals, the antitrust agencies stay out of it, while the FCC takes the lead role,” noted Radia. “Given that the DoJ has taken the lead, I would assume it will play the primary role of ascertaining the merits of the conditions that AT&T will offer.”

What that means is that these conditions will be scrutinized through the lens of antitrust law rather than the public interest standard employed by the FCC, he explained. “Therefore, we are less likely to see completely arbitrary conditions placed on this deal.”

The FCC did not respond to the E-Commerce Times’ request for comment.

AT&T would rather reach a settlement than engage in a protracted court fight, according to multiple reports citing unnamed sources familiar with the company’s thinking on the issue.

The bad news for AT&T is that the merger would molder, perhaps for years, before all the legal issues were settled in court, Radia said.

The good news, in his view, is that AT&T’s chances of winning are pretty fair. “The matter will be heard before a federal judge who will apply antitrust doctrine. Many antitrust legal scholars who have examined this deal believe that AT&T has a very strong case.”

It has the potential to set an important precedent, said Radia. “You have to realize that the Department of Justice loses in court as much as it wins — at least in antitrust suits.”

Before it gets to this option, however, there is one other route AT&T could go.

A Public Argument

One step AT&T hasn’t taken — at least not with much fervor — is to make a broad appeal to the public.

“AT&T should come out clean and show how it benefits consumers and how the prices will be lower, as USA is still one of the high-tariff countries in the world for mobile data,” Boston University’s Venkatraman said.

“Till it convincingly demonstrate that winning value proposition, the merger may be seen as helping shareholders and managers, but not necessarily consumers,” he reasoned.

“If I were in AT&T’s shoes, I would go straight to the consumers now,” agreed Michael Hussey, CEO of PeekYou. “Fight these charges in the public arena.”

One argument that might win people over, he told the E-Commerce Times, is a promise to invest heavily in improving its network and capacity.

“There are other countries with better cellphone services that have far fewer mobile options than the U.S.,” he said. “A promise to invest more money in the network, as opposed to marketing,” would resonate.”

Job creation is another argument, although AT&T has already tried that route. Before the Justice Department filed its suit, AT&T had said the merger would allow it to bring 5,000 outsourced jobs back into the U.S.

“AT&T can offer job creation as one overture as it seeks to build out the 4G (LTE) network on a country-wide basis,” Venkatraman said. “It is timely, as everyone is focused on jobs, but one that may not be truthfully valid, as T-Mobile could potentially create those jobs.”

Go for It

Whatever it takes, AT&T should try, Venkatraman said.

The T-Mobile acquisition would be a great coup for AT&T to get a lead over Verizon now that Apple’s iPhone is no longer a differentiator, he said, adding, “AT&T needs this to happen.”

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E-Commerce Times Channels

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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