AT&T rivals make wish lists as review of Time Warner deal begins

As AT&T and Time Warner Inc. seek government approval for their $85 billion megadeal, some of their most important negotiations may take place in private conversations with rival executives instead of in the nation's capital.

The merger offers competitors and partners a rare opportunity to cut more favorable deals with both companies in exchange for their public endorsement, which can be valuable in getting regulators to sign off.

Meanwhile, other pay-TV providers and programmers will lobby to block the deal or place limits on an empire that would own many movies and shows it delivers to wireless, internet and video subscribers.

"The part you never see is what the various players demand behind the scenes in order to support the deal in Washington," said Craig Moffett, an analyst at MoffettNathanson LLC. "You'll have all kinds of programmers essentially demanding a pound of flesh. It's a gravy train for everybody."

A hint of that back-channel dealing popped up two years ago. Discovery Communications Inc., owner of TLC and Animal Planet, argued against Comcast Corp.'s purchase of Time Warner Cable Inc., saying it would use its bigger size to hurt TV networks. In response, Comcast claimed Discovery demanded "unwarranted business concessions," such as higher carriage fees and greater distribution of its channels, in exchange for not opposing the merger.

Discovery denied Comcast's claim at the time. Both companies declined to comment last week on the old dispute.

The biggest question is whether Netflix backs the deal, Moffett said. The streaming-video giant opposed Comcast's bid to buy Time Warner Cable, and the deal was blocked. Time Warner Cable was later purchased by Charter Communications Inc., with Netflix's blessing.

Regulators have made protecting the online video market a top priority. They've used their oversight over big mergers to win commitments from large internet providers to treat content equally on their networks, including competing video services.

"Netflix, for better or worse, will end up speaking on behalf of an entire class of would-be competitors," Moffett said. "That gives them tremendous negotiating leverage for their support of the deal."

So far, Netflix has been conditionally in favor of the AT&T bid for Time Warner. "We want to make sure it doesn't give an unfair advantage to HBO," Netflix CEO Reed Hastings said at a conference last month. "If it's open competition, we love that."

Programmers have already asked for assurances about video streamed online, since AT&T is one of the biggest providers of wireless and residential internet service and Time Warner owns widely viewed cable networks such as HBO and TNT.

AT&T lets subscribers to its DirecTV satellite service watch video on mobile devices without it counting against their wireless-data use, a practice known as "zero-rating." The carrier plans to introduce a $35-a-month web TV service that would work similarly.

Other media companies will probably demand that their online services, such as CBS Corp.'s All Access, are zero-rated, too.

"The idea that DirecTV could avoid usage caps while Netflix would run up data charges for customers is never going to fly," Moffett said.

Some media companies have expressed concerns about the AT&T deal. "A transaction of this magnitude obviously warrants very close regulatory scrutiny," Walt Disney Co. said shortly after the acquisition was announced.

Others have been silent. They may be waiting to see what regulators require or what AT&T and Time Warner offer on their own. Some will stay mum or back the deal rather than jeopardize their relationships.