Henry Dubroff

Thirty five years ago, I was a reporter for Springfield Newspapers in Massachusetts when AT&T was broken up and the era of the “Baby Bells” began.

That era effectively ended this month when a reconstituted AT&T announced a $68 billion merger with Time Warner, the owner of Warner Brothers, HBO, CNN and other assets that are some of the most valuable in the entertainment industry.

Behind the merger is a lot of ego and the ability to exploit a huge gap in merger rule-making. But it also raises the troubling question of whether a version of the “too big to fail” doctrine that has enabled massive concentration in financial services will now spread to other U.S. industries.

First, the ego part. AT&T boss Randall Stephenson and Jeff Bewkes, his counterpart at Time Warner, are the consummate deal guys. Under Stephenson, AT&T has just finished digesting DirecTV, a satellite broadcaster that gives the giant wireless provider a big new pipe for delivering content.

A successful merger with Time Warner would cement his legacy as a worthy successor to Ed Whitacre, who reconstituted much of the original AT&T franchise and pushed the company into wireless.

Bewkes has been slimming down Time Warner to its essential broadcast and film assets, selling off publications and enormous cable TV holdings, along the way fending off a lower priced offer from Rupert Murdoch’s 21st Century Fox empire. An exit to AT&T would cap his career as well.

When it comes to antitrust, what’s got the pair of CEOs and their attorneys practically salivating is that on the surface it is not a merger of competitors. AT&T doesn’t own any networks and, without its cable holdings, Time Warner doesn’t own any delivery platforms.

So, the argument goes, this is a vertical merger that may draw some political heat for its scope but doesn’t really deserve serious Justice Department objection. Wall Street, of course, is salivating over the huge fees that will be paid as AT&T taps the financial markets for $40 billion or more to pay for the deal.

But, as with many things about our time, the outrage isn’t about what’s illegal — it’s about what is legal. Putting the dominant wireless company and some of the nation’s most trusted news channels under one roof may involve more financial and reputation risk than the deal’s advocates are willing to admit.

Beyond the legalities, the deal would cement in place an oligarchy of content and distribution channels for perhaps a generation. Fox, Disney, Comcast, AT&T and Viacom/CBS would own most of the nation’s media and entertainment assets with Verizon looking to gobble up more. Two very large Internet platforms, Google and Facebook, dominate digital advertising distribution just as Apple and Samsung dominate smart phone manufacturing.

In addition to raising questions about the future of media and our society, the proposed merger of Time Warner and AT&T once again raises the question of whether our large media companies will join the nation’s dominant banks and its automakers as being simply “too big to fail.”

To that point, part of the subtext is that the smartphone era has given AT&T and Verizon the cash they need to transition from wired to wireless and HBO has given Time Warner a predictable cash generator.

But many people think the iPhone7 marks the high water mark of smart phones and AT&T’s ability to grow income off sales and subscribers. The Samsung Galaxy disaster points to how complex these devices have become.

For Time Warner, chord cutting is beginning to sap the strength of HBO. The strength of these two brands hides some inherent weaknesses, making the merger more risky than the headlines suggest.

• Reach Editor Henry Dubroff at hdubroff@pacbiztimes.com.