Making way for new levels of American innovation

New fifth-generation “5G” network technology will equip the United States with a superior wireless platform unlocking transformative economic potential. However, 5G’s success is contingent on modernizing outdated policy frameworks that dictate infrastructure overhauls and establishing the proper balance of public-private partnerships to encourage investment and deployment.

Most people have heard by now of the coming 5G revolution. Compared to 4G, this next-generation technology will deliver near-instantaneous connection speed, significantly lower latency – meaning near-zero buffer times – and increased connectivity capacity to allow billions of devices and applications to come online and communicate simultaneously and seamlessly.

While 5G is often discussed in future tense, the reality is it’s already here. Its capabilities were displayed earlier this year at the Olympics in Pyeongchang, South Korea, where Samsung and Intel  class=”m_4430823757643656150MsoHyperlink”>showcased a 5G enabled virtual reality (VR) broadcasting experience to event goers. In addition, multiple U.S. carriers including Verizon, AT&T and Sprint have announced commercial deployments in select markets by the end of 2018, while chipmaker Qualcomm unveiled last month its new 5G millimeter-wave module that outfits smartphones with 5G compatibility.

BARCELONA, SPAIN – 2018/02/26: View of the phone company QUALCOMM technology 5G in the Mobile World Congress.
The Mobile World Congress 2018 is being hosted in Barcelona from 26 February to 1st March. (Photo by Ramon Costa/SOPA Images/LightRocket via Getty Images)

While this commitment from 5G commercial developers is promising, long-term success of 5G is ultimately dependent on addressing two key issues.

The first step is ensuring the right policies are established at the federal, state and municipal levels in the U.S. that will allow the buildout of needed infrastructure, namely “small cells”. This equipment is designed to fit on streetlights, lampposts and buildings. You may not even notice them as you walk by, but they are critical to adding capacity to the network and transmitting wireless activity quickly and reliably. 

In many communities across the U.S., 20th century infrastructure policies are slowing the emergence of bringing next-generation networks and technologies online. Issues including costs per small cell attachment, permitting around public rights-of-way and deadlines on application reviews are all less-than-exciting topics of conversation but act as real threats to achieving timely implementation of 5G according to recent research from Accenture and the 5G Americas organization.

Policymakers can mitigate these setbacks by taking inventory of their own policy frameworks and, where needed, streamlining and modernizing processes. For instance, current small cell permit applications can take upwards of 18 to 24 months to advance through the approval process as a result of needed buy-in from many local commissions, city councils, etc. That’s an incredible amount of time for a community to wait around and ultimately fall behind on next-generation access. As a result, policymakers are beginning to act. 

13 states, including Florida, Ohio, and Texas have already passed bills alleviating some of the local infrastructure hurdles accompanying increased broadband network deployment, including delays and pricing. Additionally, this year, the Federal Communications Commission (FCC) has moved on multiple orders that look to remedy current 5G roadblocks including opening up commercial access to more amounts of needed high-, mid- and low-band spectrum.

The second step is identifying areas in which public and private entities can partner to drive needed capital and resources towards 5G initiatives. These types of collaborations were first made popular in Europe, where we continue to see significant advancement of infrastructure initiatives through combined public-private planning including the European Commission and European ICT industry’s 5G Infrastructure Public Private Partnership (5G PPP).

The U.S. is increasing its own public-private levels of planning. In 2015, the Obama Administration’s Department of Transportation launched its successful “Smart City Challenge” encouraging planning and funding in U.S. cities around advanced connectivity. More recently, the National Science Foundation (NSF) awarded New York City a $22.5 million grant through its Platforms for Advanced Wireless Research (PAWR) initiative to create and deploy the first of a series of wireless research hubs focused on 5G-related breakthroughs including high-bandwidth and low-latency data transmission, millimeter wave spectrum, next-generation mobile network architecture, and edge cloud computing integration.

While these efforts should be applauded, it’s important to remember they are merely initial steps. A recent study conducted by CTIA, a leading trade association for the wireless industry, found that the United States remains behind both China and South Korea in 5G development. If other countries beat the U.S. to the punch, which some anticipate is already happening, companies and sectors that require ubiquitous, fast, and seamless connection – like autonomous transportation for example – could migrate, develop, and evolve abroad casting lasting negative impact on U.S. innovation. 

The potential economic gains are also significant. A 2017 Accenture report predicts an additional $275 billion in infrastructure investments from the private sector, resulting in up to 3 million new jobs and a gross domestic product (GDP) increase of $500 billion. That’s just on the infrastructure side alone. On the global scale, we could see as much as $12 trillion in additional economic activity according to discussion at the World Economic Forum Annual Meeting in January.

Former President John F. Kennedy once said, “Conformity is the jailer of freedom and the enemy of growth.” When it comes to America’s technology evolution, this quote holds especially true. Our nation has led the digital revolution for decades. Now with 5G, we have the opportunity to unlock an entirely new level of innovation that will make our communities safer, more inclusive and more prosperous for all.

SIM swap hacker caught in Florida

Florida police have arrested a 25-year-old named Ricky Joseph Handschumacher. The young man is suspected of grand theft and money laundering. Handschumacher used SIM swapping techniques to steal thousands in Bitcoin and to “drain bank accounts,” according to security researcher Brian Krebs.

Handschumacher’s scam was simple: He called telecom operators and asked them to swap his SIM card for the victim’s SIM card. This, in turn, gave him access to two-factor authentication techniques via SMS and allowed him to access email accounts, bitcoin wallets and file storage systems. I experienced this firsthand a year ago when my phone stopped working and all of my Google passwords began changing without my control.

“In some cases, fraudulent SIM swaps succeed thanks to lax authentication procedures at mobile phone stores. In other instances, mobile store employees work directly with cyber criminals to help conduct unauthorized SIM swaps, as appears to be the case with the crime gang that allegedly included Handschumacher,” wrote Krebs.

The takedown happened after a mother overheard her son pretending to be an AT&T employee. Police found multiple SIM cards and a Trezor in the Michigan home of the first hacker, as well as logins for Telegram and Discord channels dedicated to SIM swapping. The police found that the hackers had stolen 57 bitcoins from one victim. Handschumacher was head of the group.

The hackers were allegedly targeting the Winklevoss twins before Handschumacher was arrested.

According to the police complaint, “Handschumacher and another co-conspirator talk about compromising the CEO of Gemini and posted his name, date of birth, Skype username and email address into the conversation. Handschumacher and the co-conspirators discuss compromising the CEO’s Skype account and T-Mobile account. The co-conspirator states he will call his ‘guy’ at T-Mobile to ask about the CEO’s account.”

Worried about getting hacked? Given the ease with which Handschumacher and his team worked, non-SMS-based two-factor authentication is still the best solution for ensuring you aren’t effected. There are also methods to add a SIM lock to your phone so outsiders can’t swap your SIM as easily, but remember: All the protection in the world can’t stop a dedicated hacker. Keep your important data and cryptocurrencies offline if possible.

The Department of Justice isn’t done fighting the AT&T-Time Warner merger

The U.S. Department of Justice has filed to appeal a federal judge’s decision to approve AT&T’s acquisition of Time Warner.

Back when he was campaigning for the presidency, Donald Trump said his administration would block the deal, and indeed, the DOJ sued to stop the merger, arguing it would hurt competition.

Last month, however, U.S. District Court Judge Richard J. Leon ruled that the deal could move forward without conditions. He said from the bench, “The court has now spoken. … The defendants have won” — and the deal closed later that week.

In fact, we’re already starting to see some of the fallout, with AT&T’s reported plans for Time Warner-owned HBO leading to a flurry of worried headlines in just the past couple days.

The deal also seemed to set the stage for even more consolidation between telecom and media companies, leading Comcast to challenge Disney for ownership of Fox’s film and TV assets. (TechCrunch was already a very small part of this trend, since we’re owned by Verizon.)

“The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned,” said AT&T General Counsel David McAtee in a statement. “While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances. We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals.”

AT&T collaborates on NSA spying through a web of secretive buildings in the U.S.

A new report from the Intercept sheds light on the NSA’s close relationship with communications provider AT&T.

The Intercept identified eight facilities across the U.S. that function as hubs for AT&T’s efforts to collaborate with the intelligence agency. The site first identified one potential hub of this kind in 2017 in lower Manhattan.

The report reveals that eight AT&T data facilities in the U.S. are regarded are high value sites to the NSA for giving the agency direct “backbone” access to raw data that passes through, including emails, web browsing, social media and any other form of unencrypted online activity. The NSA uses the web of eight AT&T hubs for a surveillance operation code named FAIRVIEW, a program previously reported by the New York Times. The program, first established in 1985, “involves tapping into international telecommunications cables, routers, and switches” and only coordinates directly with AT&T and not the other major U.S. mobile carriers.

AT&T’s deep involvement with the NSA monitoring program operated under the codename SAGUARO. Messaging, email and other web traffic accessed through the program was made searchable through XKEYSCORE, one of the NSA’s more infamous search-powered surveillance tools.

The Intercept explains how those sites give the NSA access to data beyond just AT&T subscribers:

“The data exchange between AT&T and other networks initially takes place outside AT&T’s control, sources said, at third-party data centers that are owned and operated by companies such as California’s Equinix. But the data is then routed – in whole or in part – through the eight AT&T buildings, where the NSA taps into it. By monitoring what it calls the ‘peering circuits’ at the eight sites, the spy agency can collect ‘not only AT&T’s data, they get all the data that’s interchanged between AT&T’s network and other companies,’ according to Mark Klein, a former AT&T technician who worked with the company for 22 years.”

The NSA describes these locations as “peering link router complex” sites while AT&T calls them “Service Node Routing Complexes” (SNRCs). The eight complexes are spread across the nation’s major cities with locations in Chicago, Dallas, Atlanta, Los Angeles, New York City, San Francisco, Seattle, and Washington, D.C. The Intercept report identifies these facilities:

“Among the pinpointed buildings, there is a nuclear blast-resistant, windowless facility in New York City’s Hell’s Kitchen neighborhood; in Washington, D.C., a fortress-like, concrete structure less than half a mile south of the U.S. Capitol; in Chicago, an earthquake-resistant skyscraper in the West Loop Gate area; in Atlanta, a 429-foot art deco structure in the heart of the city’s downtown district; and in Dallas, a cube-like building with narrow windows and large vents on its exterior, located in the Old East district.

… in downtown Los Angeles, a striking concrete tower near the Walt Disney Concert Hall and the Staples Center, two blocks from the most important internet exchange in the region; in Seattle, a 15-story building with blacked-out windows and reinforced concrete foundations, near the city’s waterfront; and in San Francisco’s South of Market neighborhood, a building where it was previously claimed that the NSA was monitoring internet traffic from a secure room on the sixth floor.”

While these facilities could allow for the monitoring of domestic U.S. traffic, they also process vast quantities of international traffic as it moves across the globe — a fact that likely explains why the NSA would view these AT&T nodes as such high value sites. The original documents, part of the leaked files provided by Edward Snowden, are available in the original report.

AT&T completes its acquisition of Time Warner

AT&T has sealed the deal to buy Time Warner in a major piece of media and technology consolidation.

The deal — which is $85.4 billion and a total of $108 billion with debt — was first announced in October 2016 and, having passed a court approval earlier this week, it was completed on Thursday.

That’s a long cycle to complete a transaction, but this is a complicated one that sees AT&T take control of Time Warner, as well as HBO, Warner Brother’s film studio and its Turner channels. That’s likely to create a complicated web of conflicts, as both media distribution and content creation come together under the same parent.

“The content and creative talent at Warner Bros., HBO and Turner are first-rate. Combine all that with AT&T’s strengths in direct-to-consumer distribution, and we offer customers a differentiated, high-quality, mobile-first entertainment experience,” Randall Stephenson, chairman and CEO of AT&T, said in a statement. “We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.”

The deal is vital for AT&T. The firm said it expects to save $2.5 billion in “synergies” and return to significant revenue growth within four years. For a snapshot, AT&T’s new look business — which will include Time Warner and Turner — generated some $31 billion last year alone.

This week’s court decision followed a government antitrust suit to block the deal on the grounds that the vertical merger — a term for when companies that provide different or complementary offerings join forces — could harm consumers, particularly on price. The deal was dubbed the antitrust case of the decade, and it was the first time a court has adjudicated over a vertical merger since cell phones were invented, and thus changed the media and distribution landscape.

Now done, AT&T-Time Warner has opened the gate for other mega media deals. This week, Comcast launched a $65 billion bid for Fox, setting up a battle with Disney which bid $52.4 billion in December.

Disclosure: TechCrunch is owned by Oath, a digital media subsidiary of Verizon which competes with Comcast and AT&T.

Court approves merger of AT&T and Time Warner

United States District Court Judge Richard J. Leon has ruled in favor of AT&T in the government’s antitrust suit to block AT&T’s proposed merger with Time Warner .

That decision matches word on the street over the past few weeks, and delivers a stern rebuke to the Trump Administration, which had opposed the deal from its earliest days. The decision was made following the close of markets in New York, and after hours trading was muted to the decision.

In light of today’s decision, Comcast, which has been eyeing its own content creator takeover of 21st Century Fox, will likely move forward with a bid as early as tomorrow.

In October 2016, AT&T announced its plan to acquire Time Warner for $85.4 billion, and a total of $108 billion with debt. The DOJ moved to block the merger in March, arguing that the merger would reduce competition and hurt consumer choice.

The nuances of this case are important, as the implications of this decision reach far beyond the individual businesses of AT&T and Time Warner to the vast media landscape as a whole.

First off, it’s worth noting that the overall goal of antitrust regulations is to protect the consumer from unfair business practices that may arise from a consolidation of power within a single company. But size isn’t necessarily what’s most important in these types of cases. In fact, sometimes a merger can help competition and consumer choice, as is more often the case with vertical mergers.

A vertical merger is when two companies who provide different or complimentary offerings join forces, giving consumers access to a more comprehensive set of services, at a lower price, while still generating profits. That’s not to say that vertical mergers get through regulatory approval free and clear — the FTC has fought 22 vertical mergers since 2000 — but they receive less scrutiny than horizontal mergers.

AT&T-Time Warner is considered a vertical merger, as AT&T is a content distributor and Time Warner is a content creator. But the overall landscape complicates the decision a great deal.

There are only a handful of companies in this space, and they are some of the most powerful companies in the world. AT&T itself is the largest telecom provider in the world, and via DirecTV, it is also the largest multichannel video programming distributor in the U.S. Time Warner, meanwhile, owns channels like TBS and TNT, HBO, Warner Bros, not to mention the assets to live sports and news orgs such as NBA, MLB, NCAA March Madness, and PGA.

The DoJ has argued that this type of consolidation would give the merged AT&T Time Warner the ability to raise prices, thwarting the competition’s ability to compete by forcing them to raise prices to maintain carriage rights. The government has also argued that the newly rolled back Net Neutrality rules would no longer protect AT&T from, say, throttling Netflix if it didn’t purchase and distribute Time Warner content.

On the other side, AT&T and Time Warner (big as they may be) face steep competition from the FAANG companies (Facebook, Apple, Amazon, Netflix and Google), all of whom have made video a top priority. In fact, CNNMoney reported that AT&T-Time Warner’s counsel Daniel Petrocelli made the argument that traditional media orgs have already been left behind in the digital revolution.

From the report:

Petrocelli told Judge Leon that their estimates show FAANG is worth $3 trillion collectively, while an AT&T-Time Warner entity post-merger would be worth $300 billion. ‘We’re chasing their tail lights,’ Petrocelli said.

It’s also worth noting that President Trump has been publicly opposed to the deal since he was on the campaign trail. Remember, Time Warner owns CNN, which is the object of some of Trump’s most focused hatred. At a campaign rally in 2016, Trump said his administration would not approve the deal, raising concerns over political interference. The government has argued that Trump did not communicate with antitrust officials over the deal and that their choice to fight the merger was not influenced by the White House.

What President Trump Doesn’t Know About ZTE

Although top senators, including Democrat Chuck Schumer and Republican Marco Rubio, are urging the administration not to bend on ZTE, President Trump is planning to ease penalties on the Chinese telecommunications giant for violating sanctions against Iran and North Korea.

But what Mr. Trump may not realize is that ZTE is also one of the world’s most notorious intellectual property thieves — perhaps even the most notorious of all. And since stopping Chinese theft of U.S intellectual property is supposed to be one of the President’s top trade objectives, he should not ease up on ZTE until it stops its high-tech banditry and starts playing by the rules in intellectual property (IP) matters.

To get a sense of just how egregious ZTE’s behavior truly is, we need only to consult PACER, the national index of federal court cases. A search of PACER reveals that in the U.S. alone, ZTE has been sued for patent infringement an astonishing 126 times just in the last five years. This number is even more shocking when you consider that only a subset of companies who believe their IP rights have been violated by ZTE has the means or the will to spend the millions of dollars needed to wage a multi-year lawsuit in federal courts.

But ZTE’s IP thievery is not confined just to the United States. According to one Chinese tech publication, ZTE has also been sued for patent infringement an additional 100 times in China, Germany, Norway, the Netherlands, India, France, the United Kingdom, Canada, Australia, and other countries. As an intellectual property renegade, ZTE certainly gets around.

Even when it’s not being sued, ZTE thumbs its nose at the traditional rules of fair play in intellectual proper matters, commonly engaging in delay, misrepresentation, and hold out when dealing with patent owners. While ZTE is more than happy to accept royalty payments for the use of its own intellectual property, it rarely if ever pays for the use of others’ IP.

Consider ZTE’s treatment of San Francisco-based Via Licensing Corp, a Swiss-neutral operator of patent pools covering wireless, digital audio, and other building-block components of complex products. Patent pools offer one-stop shopping for product makers to acquire licenses to patents from multiple innovative companies at once. Pools are generally a more efficient, and less litigious, way for product makers to acquire the IP rights they need at reasonable prices.

In 2012, ZTE joined Via’s LTE wireless patent pool, whose members also include Google, AT&T, Verizon, Siemens, China Mobile, and another Chinese tech powerhouse, Lenovo, maker of Motorola-branded smartphones. It helped set the royalty pricing of the pool’s aggregated patent rights, and even received payments from other product makers for their use of ZTE’s own patents within the pool.

But in 2017, precisely when it was ZTE’s turn to pay for its use of other members’ patents in Via’s LTE pool, it suddenly and without ceremony quit the patent pool. Via and its member companies are still trying to get ZTE to pay for its use of their intellectual property — and to abide by the very rules it helped establish in the first place.

Even among much-criticized Chinese companies, ZTE’s behavior is completely outside the norm. Despite what you may hear, some Chinese companies are actually good IP citizens — Lenovo for one. In fact, Via’s various patent pools include more than two dozen Chinese companies who play by the rules.

But ZTE is not one of them. It is a blatant serial IP violator who gives other Chinese companies a bad name. And our government should not reward such behavior.

Ease sanctions on ZTE only when it finally starts respecting intellectual property rights.

AT&T launches its LTE-powered Amazon Dash-style button

When we first told you about AT&T’s LTE-M Button, the information was socked away in a deluge of AWS Re:Invent announcements. The telecom giant was a bit more upfront when announcing its availability earlier this week — but just a bit.

After all, it’s not a direct-to-consumer device. Unlike the product-branded hunk of plastic you can presently pick up from Amazon to refresh your supply of Goldfish crackers and Tide Pods, this one’s currently open to developers at companies looking to build their own. What it does have going for it, however, is LTE-M, a cheaper, lower cost version of 4G that’s set to power a future generation of IoT devices.

That means it can be used for your standard Dash-like activities — letting customers replenish items with a press — and it can also be implemented in some more interesting scenarios, out of the bounds of regular WiFi. AT&T offers up a couple of case uses, including customer feedback in public venues and use in places like construction sites where home/office Wifi isn’t an option.

Of course, without the direct retail feedback loop, it’s not really a Dash competitor — and besides, AWS is helping power the thing, so Amazon’s still getting a kickback here. Oh, and then there’s the price — the buttons start at $30 a piece, which amounts to a lot of Tide Pods. As such, we likely won’t see them take off too quickly, but they do provide an interesting usage as AT&T looks to LTE-M to push IoT outside of the home. 

Verizon stealthily launched a startup offering $40-per-month unlimited data, messaging and minutes

Earlier this year, Verizon quietly launched a new startup called Visible, offering unlimited data, minutes, and messaging services for the low, low price of $40.

To subscribe for the service, users simply download the Visible app (currently available only on iOS) and register. Right now, subscriptions are invitation only and would-be subscribers have to get an invitation from someone who’s already a current Visible member.

Once registration is complete, Visible will send a sim card the next day, and, once installed, a user can access Verizon’s 4G LTE network to stream videos, send texts, and make calls as much as their heart desires.

Visible says there’s no throttling at the end of the month and subscribers can pay using internet-based payment services like PayPal and Venmo (which is owned by PayPal).

The service is only available on unlocked devices — and right now, pretty much only to iPhone users.

“This is something that’s been the seed of an idea for a year or so,” says Minjae Ormes, head of marketing at Visible. “There’s a core group of people from the strategy side. There’s a core group of five or ten people who came up with the idea.”

The company wouldn’t say how much Verizon gave to the business to get it off the ground, but the leadership team is comprised mostly of former employees, like Miguel Quiroga the company’s chief executive.

“The way I would think about it.. we are a phone service in the platform that enables everything that you do. The way we launched and the app messaging piece of it. You do everything else on your phone and a lot of time if you ask people your phone is your life,” said Ormes. The thinking was, “let’s give you a phone that you can activate right from your phone and get ready to go and see how it resonates.”

It’s an interesting move from our corporate overlord (Verizon owns Oath, which owns TechCrunch), which is already the top dog in wireless services, with some 150 million subscribers compared with AT&T’s 141.6 million and a soon-to-be-combined Sprint and T-Mobile subscriber base of 126.2 million.

For Verizon, the new company is likely about holding off attrition. The company shed 24,000 postpaid phone connections in the last quarter, according to The Wall Street Journal, which put some pressure on its customer base (but not really all that much).

Mobile telecommunications remain at the core of Verizon’s business plans for the future, even as other carriers like AT&T look to dive deeper into content (while Go90 has been a flop, Verizon hasn’t given up on content plans entirely). The acquisition of Oath added about $1.2 billion in brand revenue (?) to Verizon for the last quarter, but it’s not anywhere near the kind of media juggernaut that AT&T would get through the TimeWarner acquisition.

Verizon seems to be looking to its other mobile services, through connected devices, industrial equipment, autonomous vehicles, and the development of its 5G network for future growth.

Every wireless carrier is pushing hard to develop 5G technologies, which should see nationwide rollout by the end of this year. Verizon recently completed its 11 city trial-run and is banking on expansion of the network’s capabilities to drive new services.

As the Motely Fool noted, all of this comes as Verizon adds new networking capabilities for industrial and commercial applications through its Verizon Connect division — formed in part from the $2.4 billion acquisition of Fleetmatics, that Verizon bought in 2016 along with Telogis, Sensity Systems, and LQD Wifi to beef up its mobile device connectivity services.

Meanwhile, upstart entrants to challenge big wireless carriers are coming from all quarters. In 2015, Google launched its own wireless service, Project Fi, to compete with traditional carriers and Business Insider just covered another would-be wireless warrior, Wing .

Founded by the team that created the media site Elite Daily, Wing uses Sprint cell-phone towers to deliver its service.

David Arabov and co-founder Jonathan Francis didn’t take long after taking a $26 million payout for their previous business before getting right back into the startup fray. Unlike Visible, Wing isn’t a one-size-fits-all plan and it’s a much more traditional MVNO. The company has a range of plans starting at $17 for a flip-phone and increasing to an unlimited plan at $27 per month, according to the company’s website.

As carriers continue to face complaints over service fees, locked in contracts, and terrible options, new options are bound to emerge. In this instance, it looks like Verizon is trying to make itself into one of those carriers.

The nuanced challenges of antitrust and AT&T-Time Warner

It’s been almost 18 months since the boards of AT&T and Time Warner unanimously voted to sign an agreement to merge their two companies and create a content and distribution powerhouse. That deal, pegged at $108 billion including debt from Time Warner, would be among the largest corporate mergers in American history. The U.S. Department of Justice sued to block the deal this past November, and now after long last, the antitrust trial that will determine the deal’s fate is about to start tomorrow with opening statements, following a snow delay today in Washington, DC.

This case is sprawling — the Justice Department intends to present 519 exhibits already — and much of the case will hinge on technical legal minutia. However, at its heart is a critical question of whether a combination of AT&T and Time Warner would help or hurt competition and thus ultimately consumer welfare.

This is a very important case to understand, because the court will have to reach a nuanced understanding of antitrust law in the complex and deeply interconnected world of video services. The decision rendered here could drastically affect consumer choice, as well as the business practices of companies across the tech industry.

A framework to understand antitrust

Before getting into the specifics of AT&T-Time Warner though, we need to understand how antitrust works — which is quite a bit more nuanced than the media generally describes.

The essential goal of antitrust regulations is to protect consumers from predatory business practices driven by companies that hold outsized market power. While companies can grow market power over time (think a fast-growing startup eating more and more market share), the reality is that the U.S. government by and large avoids using antitrust to target a company in the normal operation of its business (Microsoft back in the 1990s being a notable exception).

Instead, the Federal Trade Commission and the Department of Justice directs its attention to mergers and acquisitions as key decision points where it can review a transaction and determine whether the combined company helps or hurts competition. Companies conducting transactions must submit documentation to antitrust bodies as part of what is known as the HSR process.

Mergers are generally divided into two categories. The first is a horizontal merger, which is when two direct competitors join forces and merge — think Uber and Lyft hypothetically. The other form is a vertical merger, which is when two companies with related businesses come together in order to offer a more comprehensive and synergistic set of services in their product market.

In reviewing these transactions, the FTC’s goal is to increase competition and improve consumer welfare in all industries. Horizontal mergers are generally placed under strong scrutiny, since by definition, removing a competitor from a marketplace reduces competition (although there are exceptions).

Here is where the nuance starts to become more pronounced. The FTC generally views vertical mergers more positively, since combining related companies can reduce costs, which ultimately improves consumer welfare.

In a speech earlier this year, Bruce Hoffman, the acting director of the Bureau of Competition at the FTC, explained vertical merger theory and why the FTC generally looks more favorably on the practice:

As compared to arm’s-length contracting, a vertically integrated firm can more readily realize efficiencies in the form of lower costs or improved quality, conditions that greatly benefit customers of the firm. In addition, vertical mergers can eliminate the problem of “double markup,” which occurs when two firms, each with market power over a complementary product, set prices independently. Due to the problem of double markup, separate price setting leads to higher prices and lower levels of output. A vertical merger of these two firms allows for joint price setting over the two products, which leads to higher profits but also increased output. These built-in effects, while not necessarily large or dispositive in all cases, render the starting point for our analysis of vertical mergers more challenging than horizontal mergers.

The FTC may look more favorably upon vertical mergers, but that doesn’t mean it always supports them. Hoffman noted in his speech that the FTC has fought 22 vertical mergers since 2000. He indicates three typical concerns: that the merged companies can block new competitors, that they can foreclose competitors from customers or key inputs, and that they may have confidential information that allows them to compete with competitors unfairly. Each of these may be a reason to either block a transaction, or to demand changes or ongoing monitoring of a merger.

So to review, the FTC doesn’t care about size per se — it isn’t against consolidation, and in fact, may favor consolidation in cases where the newly merged company can be a more effective competitor in the marketplace and therefore increase consumer welfare.

Antitrust and AT&T-Time Warner

With that framework in mind, AT&T-Time Warner becomes much more complicated. The video production and distribution industry is oligopolistic — there are a handful of major studios, channels, distributors and platforms in the industry that drive most of the value here. Balancing those competing interests against each other is the best route toward maximizing competition and therefore consumer welfare.

The players in this space are some of the largest companies in the world. Through DirecTV, AT&T is the largest multichannel video programming distributor (MVPD) in the U.S. with 25 million subscribers, and, of course, it is the largest telecom company in the world. Time Warner is one of the most powerful content producers in the U.S., owning channels like TBS and TNT, premium subscription services like HBO, as well as Warner Bros, which is one of the largest and most profitable movie studios.

The two companies may be powerful, and combining them will only heighten those powers. However, they are facing incredible headwinds from the technology industry, namely the so-called FAANG group of internet giants: Facebook, Apple, Amazon, Netflix and Google (and by extension, YouTube). Every single one of these companies has made video a top priority, and their war chests and valuations are similarly powerful.

As the counsel for AT&T-Time Warner pointed out in trial, according to CNNMoney, “Petrocelli told Judge Leon that their estimates show FAANG is worth $3 trillion collectively, while an AT&T-Time Warner entity post-merger would be worth $300 billion. ‘We’re chasing their tail lights,’ Petrocelli said.”

Given that industry context, the critical question then is whether combining AT&T and Time Warner would help consumer choice in the video industry by allowing the two companies to more effectively compete as equals with the internet giants, or whether it would use its assets to leverage additional fees from competitors, and ultimately suck its competitors dry by forcing more customers on to its platforms, thereby limiting consumer choice.

The Department of Justice is clearly arguing the latter. There are a couple of considerations. In the government’s favor, Time Warner owns the assets to several critical live sports and news organizations, including the NBA, MLB, NCAA men’s basketball tournament (i.e. March Madness) and the PGA, along with CNN and associated networks. This live programming is increasingly valuable for distributors, because viewers watch ads and also perceive the content to have scarcity.

Therefore, such programming is considered “must have” for distributors, so Time Warner is able to charge a premium for access. If AT&T and Time Warner merged, the fear is that they would raise prices on this sort of critical content, forcing its competitors to increase prices to retain carriage rights. AT&T could keep the prices of its own distribution level (they own the content after all), which would make its services more attractive to consumers. Ultimately, that limits consumer choice.

Another factor in favor of the government, particularly since December when the FCC repealed net neutrality, is that AT&T, as a major mobile telecom provider, will have significant power to control the quality of service that customers of the internet giants will experience. AT&T could throttle Netflix, for instance, unless Netflix buys Turner-produced content. A merger gives the company more market power, and that would likely cause price increases in the industry.

The government doesn’t have a simple case to make, though. A factor in favor of AT&T-Time Warner is that its content costs are increasingly being dwarfed by the internet giants. Time Warner’s HBO segment spent $2.2 billion in 2017 according to the company’s 10-K form, compared to more than $6 billion dollars by Netflix in the same time period. Turner, the segment that includes TBS and TNT, spent $4.46 billion.

In other words, Netflix is spending almost as much money as Time Warner as a whole does, and also owns its customers through its streaming subscription model. Add in large original content budgets from Google, Apple and Amazon, and suddenly Time Warner looks like a (relatively) small fish in a very large pond.

Another point in favor of the merger is that the government allowed Comcast’s acquisition of NBC to go through, albeit with restrictions on the deal and active monitoring. As Hoffman of the FTC said in January though, “…we prefer structural remedies — they eliminate both the incentive and the ability to engage in harmful conduct, which eliminates the need for ongoing intervention.” Structural remedies here means divestitures or an outright block, as opposed to active monitoring requiring the DOJ to continually work with a company to ensure compliance.

These are just some of the points that both sides are going to argue over the next six to eight weeks in district court. The court will have to decide how consumers are going to fare in a merger scenario and whether they are better off with or without it.

In my view, the merger is unlikely to be favorable to consumers, given the history of similar mergers in the past, AT&T’s business actions in recent years and the generally positive business models of Netflix and other online streaming services with their convenience and efficiency for consumers.

The caveat is that the internet giants are just that — giants, and their continued growth means that fewer and fewer companies can compete with them in these markets. Allowing AT&T-Time Warner to go through may limit competition today, but that may already happen in the future if Time Warner falls behind its content competitors.

Unfortunately, markets are dynamic, while the conclusion of tomorrow’s case is a static decision in a point of time. While the future may be hard to predict, it seems unlikely that FAANG’s aspirations are going to diminish, and their consolidation may limit what little competition exists in this space. On balance, the court should probably say no, but that decision may well have been different a year or two from now.

As Judge Leon, who is overseeing the case, said this week quoted by CNNMoney, “I always tell people at parties, I don’t have a crystal ball. In this case I have to get a crystal ball! Maybe at one of those second-hand stores somewhere!” Let’s hope that crystal ball is very good indeed.