Don't bet the farm on the US government approving AT&T's $85.4 billion agreement to buy Time Warner, at least not without some serious conditions being imposed upon AT&T.

In an extensive research report released Monday, MoffettNathanson LLC concluded that the odds of AT&T Inc. (NYSE: T) and Time Warner Inc. (NYSE: TWX) gaining regulatory approval of the blockbuster deal are no better than 50-50 and quite possibly as low as 20% to 25%. Moreover, the Wall Street analyst firm predicted that the pact will likely take federal regulators a good 18 months to review, meaning that no decision will be reached before spring 2018 at the earliest.

Playing journalists, the MoffettNathanson team interviewed more than 20 Washington regulatory experts over the past two weeks, including three former Federal Communications Commission (FCC) chairmen, five former FCC commissioners or bureau chiefs, three former FCC chief economists or attorneys, two senior staffers for Congressional telecom subcommittees and various academics and telecom and media executives. And what the analyst firm found is that while the experts' opinions vary widely on the deal's prospects, nobody thinks the proposed pact will just sail through its upcoming regulatory reviews. In fact, a good number think it could trip up somewhere along the way, even though such vertical integration mergers usually, if not always, pass muster.

In particular, the experts see trouble ahead for the deal if the FCC plays a major role in the regulatory review, as most think it will due to the broadcast station and other communications licenses that would need to be transferred from Time Warner to AT&T and the Commission's keen interest in media mergers. That's because the FCC, unlike the Antitrust Division of the U.S. Department of Justice , has a broader, more subjective and more political "public interest" mandate that enables it to block mergers or impose conditions based on suspected potential marketplace harms rather than objective evidence of those harms actually taking place.

"The public interest is basically what three members of the FCC say it is and the staff can gin up a public interest rationale for approving or denying almost any merger," one former senior FCC staffer and current academic told MoffettNathansin. "The public interest is based on little or no empirical data."

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Many of the interviewed experts, all of whom remain anonymous, also cited the unfavorable US political climate for any more big media mergers. With Republican presidential candidate Donald Trump slamming the AT&T-TW deal immediately after it was announced last month, and Democratic presidential candidate Hillary Clinton calling for close scrutiny of it just one day later, the experts argue that strong populist sentiment may keep whoever wins today's election from permitting the deal to go through. (See Trump: Dump AT&T/TW & Comcast/NBC.)

Moreover, even though such previous media vertical integration deals as Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s purchase of NBC Universal earned the DoJ's and FCC's blessing just a few years ago, the experts say that some regulators have expressed regrets about approving that deal, even with the conditions that were placed on it. "No question [that there is] buyer's remorse at the FCC and DoJ for having approved the Comcast/NBCU deal," one former FCC official told MoffettNathanson.

In what can't be considered a good omen for the deal's regulatory prospects, the DoJ filed suit against AT&T's new DirecTV unit just last week, charging that it colluded with its AT&T parent and two leading cable operators in negotiations over the rights to carry Los Angeles Dodgers baseball games. More specifically, the antitrust suit alleges that DirecTV unlawfully exchanged "competitively sensitive information" with Cox Communications Inc. , Charter Communications Inc. and AT&T during the companies' talks over the Dodgers Channel. (See US Justice Dept. Sues DirecTV for Collusion.)

Still, none of the regulatory experts view the deal as definitely a dead duck either. With so much political uncertainty in Washington right now, they largely agreed that, much like today's presidential election, it's both too close and too early to call.

But the proposed media mega-merger is certainly not off to a promising start in the nation's capital. Noting that Time Warner's shares now trade at "a yawning 24% discount to AT&T's offer price of $107.50," MoffettNathanson said investors are basically giving the deal only about a 33% chance of gaining approval.

— Alan Breznick, Cable/Video Practice Leader, Light Reading