Partners: Monster AT&T-Time Warner Deal Could Add Value Beyond Connectivity… If It Wins Approval

The massive merger proposed between telecom giant AT&T and media powerhouse Time Warner demonstrates how much AT&T wants to add value to its connectivity services and get into the content arena. But many partners believe the proposed deal may not make it off the ground.

Following speculation around a possible Time Warner purchase last week, Dallas-based AT&T formally announced on Saturday that it plans to buy Time Warner Inc. for $85.4 billion in a stock-and-cash transaction that values media giant Time Warner at $107.50 a share.

Incumbent carriers are making content-related acquisitions primarily to deliver their own content to mobile devices and morph into bigger companies with more diversified interests, according to Rob Chamberlin, co-founder and chief revenue officer for DataXoom, a Walnut Creek, Calif.-based solution provider and AT&T partner.

[Related: AT&T's Q3 Revenue And Earnings Gains Overshadowed By Blockbuster Time Warner Deal]

With competition from the likes of Google, Apple, and Netflix, who are leveraging connectivity to deliver lucrative content to consumers and businesses, incumbent service providers can't rest on their laurels any more, said Michael Bremmer, CEO of TelecomQuotes.com, a telecom consultancy based in Moreno Valley, Calif.

"Content is king and pipes are dead," Bremmer said. "AT&T wants to buy Time Warner because they want to be relevant."

The carrier is also facing competition from fellow service providers who have already entered the content space. Verizon scooped up media provider AOL and has a deal on the table to acquire Internet content provider Yahoo to advance its growth in the mobile content arena. In a deal similar in size to the proposed AT&T/Time Warner deal, cable giant Comcast scooped up NBCUniversal in 2009.

The proposed AT&T-Time Warner deal will combine Time Warner's vast library of content with AT&T's extensive customer relationships, large pay TV subscriber base, and mobile and broadband distribution, a spokesperson for the carrier told CRN.

Via the terms of the deal, which is still subject to regulatory approvals, AT&T will acquire Time Warner's content assets, including HBO, CNN, TNT, TBS and Warner Brothers Studios.

"We are on the cusp of the next wave of innovation in video … Time Warner’s content will allow us to offer new, innovative digital video services across multiple platforms. That will spur others to innovate as well - all for the benefit of customers and making us a stronger competitor to cable," the AT&T spokesperson said.

DataXoom's Chamberlin believes that AT&T's latest move, along with Verizon's recent and planned acquisitions, demonstrate that carriers need the channel more than ever as a salesforce for their business services while the giant service providers focus on its consumer-focused acquisitions and content strategies.

"If you're a partner of a large carrier, you're focused on mid-market and SMB business primarily, so this consumer-centric move into content just reaffirms that [service providers] will rely on partners to support their business sales efforts," he said.

But the proposed deal may not come to fruition. Wall street has only given the deal a 40 percent chance of meeting regulatory approval, and channel partners aren't convinced the merger will be permitted. Time Warner shareholders also must approve the deal.

"I think there are some really big questions around whether this acquisition will even clear the regulatory hurdles it would need to clear," said one AT&T partner that requested anonymity.

In addition to the hurdles that both companies will be up against from regulatory bodies and shareholders, the current political climate could also stop the proposed acquisition in its path, Bremmer said.

Democratic presidential hopeful Hillary Clinton and her running mate, vice presidential candidate and Virginia senator Tim Kaine, said the merger needs to be further scrutinized because marketplace competition is "healthy" for consumers, a campaign spokesperson said.

Republican candidate Donald Trump, like the Clinton camp, is skeptical about the deal. Trump believes the combination could put too much concentration of power into too few hands, the GOP candidate said during a rally on Saturday.

If approved, however, the deal isn’t likely to close until the end of next year, according to the Wall Street Journal. In the meantime, partners shouldn't be impacted, the anonymous partner executive said.

"This will be a massive integration that will take several years after they get regulatory approval," the partner said. "If it has any impact on the channel, it's a couple years out, and in the meantime, it’s a wait-and-see thing for partners."