Behind the Time Warner campus in Atlanta, more than a dozen massive dishes silently stream CNN newscasts, Cartoon Network shows and Turner Sports games to satellites in outer space.
They're a vital link in the media giant's global news and entertainment business. But they operate under licenses from the U.S. Federal Communications Commission, which means they also could be the biggest threat to Time Warner's aspirations to merge with AT&T Inc.
Time Warner has dozens of FCC licenses, according to a Bloomberg review of FCC databases. Transferring them to AT&T would trigger a review by the agency, and the company is looking for ways to avoid that, according to a person familiar with the situation. Otherwise, the $85.4 billion deal could be exposed to an agency that's been a graveyard for mergers.
In theory, Time Warner could sell its dishes to an unaffiliated third party and enter into a contract with them for the same services -- but in that case, the buyer would need to ask the FCC for a license to provide services in the same location over the same airwaves, said Andrew Jay Schwartzman, senior counselor at the Georgetown University Law Center in Washington.
It's possible the FCC would accept the application without a fuss, Mr. Schwartzman said. But, he said, FCC officials also might say, "Wait a minute! We're not stupid -- you are evading this review."
In that case, the FCC, which regulates airwaves use, could insist on a thorough public hearing for the new license application, Mr. Schwartzman said.
The likely outcome? "Maybe, maybe not, is the bottom line," he said.
AT&T believes it can "offload" licenses that would trigger an FCC review, RBC Capital Markets analyst Jonathan Atkin said in a note summarizing a Nov. 10 presentation by company executives to RBC's Technology, Internet, Media and Telecommunications Conference.
Time Warner also holds a license for a TV station, WPCH in Atlanta. There are well-established procedures to place such licenses into a trust while potential buyers are found, in effect removing them from a review, Mr. Schwartzman said.
According to Fred Campbell, a former chief of the FCC's wireless bureau, the company could simply surrender the TV license.
Keith Cocozza, a spokesman for New York-based Time Warner, declined to comment.
AT&T General Counsel David McAtee said "AT&T and Time Warner are currently determining which FCC licenses, if any, will be transferred to AT&T."
"To the extent that one or more licenses are to be transferred, those transfers are subject to FCC review," Mr. McAtee said in an e-mail. "We take a very simple approach here: we follow the law and so whatever the law requires that's always what we'll do."
AT&T says the Justice Department, which also will review the merger, has never denied a transaction that joins companies from different industries on antitrust grounds. "So from that perspective, we're optimistic," AT&T Chief Financial Officer John Stephens told investors Nov. 9.
The FCC's review is broader, and includes an assessment of whether a deal is in the public interest. In past deals it has weighed such factors as accelerating deployment of advanced services, ensuring a diversity of information sources, and managing airwaves.
In addition the FCC can send deals to a lengthy public hearing, essentially killing a deal through delay. FCC plans for a hearing helped to kill AT&T's bid to buy smaller T-Mobile US Inc. in 2011, and to end top U.S. cable provider Comcast Corp.'s deal for Time Warner Cable Inc. last year.
"There is a very big political component that lies beyond the facts," said Jim Kahan, a former AT&T strategy chief. "Nobody likes big companies. It's easy for politicians to be anti-big business, and Washington's philosophy has been moving away from big deals like this."
As a candidate, President-elect Donald Trump said he would block the deal. Still it's not clear an FCC with his appointees would move to do so, as power shifts to Republicans who generally view mergers less skeptically than Democrats.
The probability of the deal going through may be starting to edge up as a Trump-led shake up in Washington threatens to dismantle some of the FCC's rulemaking power.
'New regulatory day'
Calling it "the potential dawn of a new regulatory day," Craig Moffett, an analyst at MoffettNathanson LLC, wrote in a note Thursday that under the Trump administration the merger may not involve an FCC review and could face lighter conditions imposed by the Justice Department. Mr. Moffett upgraded Time Warner to a buy and gave the deal as much as a 65% chance of approval, up from even odds previously.
Time Warner shares rose as much as 1 percent to $89.81 in early trading Thursday. The stock is still well below the $107.50 deal price AT&T agreed to pay as investors remain skeptical that the combination will be approved.
"There could be a good shot at avoiding FCC review," John Nakahata, an attorney at Harris, Wiltshire & Grannis and former FCC chief of staff. "But that comes with a big caveat: What signals does the Trump administration send to the FCC on how it wants it to proceed?"
Jeffrey Eisenach, who is working with Mr. Trump's FCC transition team, has proposed stripping the FCC of merger review power, Bloomberg Intelligence analyst Matthew Schettenhelm said in a Nov. 15 note. FCC Republicans haven't scrutinized deals as closely as Democrats, and only Mr. Trump's negative comment about the AT&T-Time Warner merger points in the opposite direction, Mr. Schettenhelm said. Eisenach declined to comment.
Both current Republican members of the FCC have time remaining in their terms and are likely to serve under Mr. Trump, who takes office Jan. 20. The senior Republican commissioner, Ajit Pai, has criticized the Democratic-led FCC for demanding too much from merging companies.
Last year Mr. Pai criticized requirements placed upon AT&T to allow its purchase of DirecTV, calling it "forced tribute" like the mortal combat demanded by the despotic Capitol in "The Hunger Games" movie. Fellow Republican Michael O'Rielly faulted the same review for taking more than a year, and for imposing requirements "outside the scope of our proper role," such as having AT&T expand broadband service to more U.S. cities.
The FCC routinely grants satellite earth-station licenses, placing them on public notice and giving the public 30 days to object, said Campbell, the former wireless bureau chief.
If Time Warner is able to spin off its licenses, "I don't see how the FCC reviews," he said.
-- Bloomberg News