EconomyFinancialAT&T and Discovery will pay a fine established by...

AT&T and Discovery will pay a fine established by Cofece to speed up their merger

AT&T and Warner Bros will pay the fine of 51,573,920 pesos imposed by the Federal Economic Competition Commission (Cofece) for failing to notify a merger in terms of the Federal Economic Competition Law.

According to a source close to the process who asked not to be cited, the companies have decided to face the Cofece fine to avoid delays in the asset merger process that will allow them to create a new streaming giant, which could be ready next summer 2023.

Both companies have 30 days to pay the amount imposed by the antitrust entity.

The origin of the fine

Last week, Cofece stated in a statement that the merger of both companies contemplated the acquisition by Discovery of the AT&T business known as Warnermedia, including the Mexican business, as well as the purchase by AT&T shareholders of 71% of the shares of the company resulting from the transaction, which would be renamed Warner Bros. Discovery .

But before Cofece issued its authorization, the companies separated only part of Warnermedia’s business in Mexico, which created, at least for a time, market structures and legal relationships that were not considered in the originally notified operation and that for this reason they could not be analyzed preventively by Cofece.

On August 26, the Federal Telecommunications Institute (IFT) approved the concentration of Warner Media, owned by AT&T, and Discovery to create a new streaming content giant.

According to the source, Discovery and Warner separated the assets from Mexico to speed up the resolution process in other international markets, because in Mexico these types of determinations take longer than they should compared to regulatory authorities in other nations.

The announcement of the union of the portfolios of both companies was announced on May 21, 2021, that is, just over a year ago, and to endorse the merger, the companies had to wait for the approval of national and international regulators. For this reason, Discovery and AT&T informed the telecommunications regulatory body that on April 8, 2022 they closed the acquisition of Warner Media at an international level, with only Mexico missing.

“Cofece does not see competition problems, what it is fining is that the operation was closed before it was authorized. Separating certain assets is very common in this type of operation (company mergers) when the Commission is very slow. Now that Cofece decided to fine the companies even though it took longer than any competition authority in the world to endorse the merger, it seems even cynical to me. Discovery and Warner are going to pay the fine so that they no longer have problems and can carry out their operation”, affirms the source.

Lack of will between Cofece and the IFT to work together?

The merger between AT&T and Discovery to create a new streaming content giant brought the debate back to the table as to whether this type of decision is the responsibility of Cofece or the IFT.

The regulators had already faced a dispute two years ago when they “fought” to determine who had the power to endorse the merger between Uber and Cornershop, whose conflict ended in specialized competition courts. Cofece ended up resolving the merger.

Now, the telecommunications regulatory body has demanded before specialized Courts the remission of the issue of the merger between AT&T and Discovery, since it considers that the streaming market is within its competence.

Finally, the Institute was the one that decided to endorse the union of assets of the companies even when it detected that Warner Media participates in the market for the provision and licensing of children’s content, through the channels of Cartoon Network and Cartoonito (formerly owned by Warner Media). , as well as Discovery Kids (previously owned by Discovery), which could represent a risk to competition.

However, the companies presented a proposal to “remedy any risk to competition”, and that considers meeting and negotiating all requests for access to Warner Media’s restricted channels made by any pay TV service operator.

In this regard, the source assures that the companies are obliged to respect the conditions assigned to them by the IFT to avoid competition problems and for which they must submit an annual report to the telecommunications regulator that demonstrates that they are respecting the competition rules.

Alejandra Palacios, former president of Cofece, commented during her participation in the Postcovid Competitiveness panel within the Inter.Mx Expansión Summit 2022 that the antitrust entity has acted positively on issues of resolution of mergers and acquisitions and cited the case of the fine to AT&T and Discovery with a good example of their work. “(Cofece) has worked well… Last week it fined two media companies.”

The lack of clarity about which markets each body is responsible for regulating comes from the telecommunications reform that was enacted in 2013 to create the IFT, which is in charge of monitoring competition in broadcasting and telecommunications and granting concessions.

Some experts previously consulted point out that both regulators must work together to defend their autonomy and strengthen their powers.

“There should be a concurrence, that is, that the two authorities can authorize the cases,” said Elena Estavillo, former IFT commissioner in an interview she gave to Expansión in January of this year.

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