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October 2016

Taking cyber power seriously

[Commentary] As Wired magazine put it, Oct 21’s distributed denial of service (DDoS) attack on Domain Name System provider Dyn was “a definite reminder of the fragility of the web, and the power of the forces that aim to disrupt it.” The fact that we haven’t experienced a serious kinetic-effects attack does not mean one is not coming or that we are prepared for it if it does. As National Security Agency's Curt Dukes noted, not one of the attacks in the past 24 months (OPM, the Democratic National Convention hacks, and so forth) has involved use of a “zero day” exploit — the most potent and unpredictable kind of cyberattack, because it involves a software vulnerability that has not yet been discovered or used. They have all been carried out using more mundane, well-understood vulnerabilities.

What would it mean to take cyber power more seriously? Earlier this year, AEI published a report on An American Strategy for Cyberspace, which I coauthored with other AEI scholars. Our recommendations included being more willing to retaliate against cyberattacks when they occur, loosening the reins on government’s use of active defense, and if the stakes merit it, even taking preemptive action. Whatever the details of the solution, the time has come to realize that cybersecurity is no longer just about embarrassing e-mails and lost credit card numbers. In today’s world, cyber power has the capacity to cripple infrastructures, disrupt economies, enable deadly terrorist attacks, and profoundly threaten America’s national security. We ought to be taking it more seriously than we are.

A merged AT&T-Time Warner may not do consumers much good

AT&T and Time Warner are playing up how their $85.4 billion merger will lead to innovative new experiences for customers. But analysts, public-interest groups and some politicians are far from convinced. Republican presidential candidate Donald Trump said it should be killed. Sen Tim Kaine (D-VA), the Democratic vice presidential nominee, said less concentration in media "is generally helpful." And the Republican chairman and Democratic ranking member of the Senate's antitrust subcommittee said that the deal would "potentially raise significant antitrust issues."

The potential harm to consumers from this deal could be subtle — far more so than if AT&T were simply acquiring a direct competitor like a big wireless or home broadband company. Time Warner makes TV shows and movies; AT&T gets that video to customers' computers, phones and TVs. But the concern is that anything AT&T might do to make its broadband service stand out by tying it to Time Warner's programs and films could hurt consumers overall. The company certainly wants to do that. "With great content we believe you can build a truly differentiated service," said AT&T CEO Randall Stephenson. "In particular, mobile." There's another way AT&T could favor its own media offerings. The company currently lets many of its wireless customers stream from the DirecTV app on their phones without counting it against their data caps, a practice known as "zero rating." AT&T has suggested it may also zero-rate its upcoming live-streaming DirecTV Now service, which doesn't require customers to install a dish on their homes.

Time Warner’s Non-Mogul Mogul Who Foretold Its Worth

Jeffrey L. Bewkes, the chief executive of Time Warner, made a big bet in the summer of 2014 when he rejected an $80 billion takeover bid by 21st Century Fox, controlled by Rupert Murdoch. Bewkes had promised shareholders that Time Warner would create more value on its own than any proposal Fox was positioned to offer. Privately, Bewkes was telling colleagues and investors that Time Warner was likely to land a much more lucrative deal if it were put on the market a couple of years later. Among the potential bidders, Time Warner reasoned, were deep-pocketed technology companies like Apple and Google — and even, possibly, AT&T, which was tied up with a different deal at the time.

Over the next two years, it was not clear that Bewkes had played his cards right. Fears of cord-cutting, ratings declines and a weak advertising market stoked panic across the industry over the future of traditional media in a digital world. And while Time Warner introduced several efforts to transform the company, such as a stand-alone streaming service for HBO, questions persisted about whether the company would have the resources to compete with the likes of Netflix and Amazon. As it turns out, Bewkes’s bet paid off. In a big way. On Oct 22, AT&T announced that it had agreed to buy Time Warner for about $85.4 billion, or $107.50 a share in cash and stock — about a 35 percent premium to where Time Warner’s stock was trading before reports of the merger talks, and well above the $85 a share Fox was offering. For Bewkes, the deal has sealed his legacy as a behind-the-scenes non-mogul media mogul.

The Corporate Confidence of the AT&T-Time Warner Deal

On Oct 22, AT&T said it planned to acquire Time Warner for $85.4 billion — the biggest deal of the year. On Oct 21, British American Tobacco offered $47 billion for the portion of Reynolds American that it does not already own. And this week, the chip maker Qualcomm is expected to make a $37 billion offer for the rival company NXP Semiconductors. Such megadeals are often postponed during times of political or economic uncertainty. Yet at what feels to many like a tumultuous moment for the global economy, many corporate titans apparently see smooth sailing ahead.

The most imminent economic concern may be the outcome of the race for the White House. Though Donald Trump has positioned himself as a successful businessman, economists have warned of market upheavals if he is elected. But with Hillary Clinton’s lead over Trump wide and still growing with less than three weeks until Election Day, chief executives appear to be betting that the race is all but over. But while corporate executives are monitoring a laundry list of political and economic risks, no single factor appears to be a major cause for concern. Instead, there is a growing sense that the combination of slow but steady economic growth, rapid technological innovation and an uncertain geopolitical landscape is here to stay for some time, or what business leaders call “the new normal.”

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