FCC Chairman Recommends OK Of $48.5B AT&T-DirecTV Deal

22 Jul 2015 | Author: | No comments yet »

AT&T’s acquisition of DirecTV appears headed for approval with conditions.

WASHINGTON — After more than a year of negotiations, the federal government appears ready to approve the $67 billion merger between Dallas-based AT&T and DirecTV.

AT&T’s acquisition of DirecTV appears headed for approval, with Tom Wheeler, chairman of the Federal Communications Commission circulating to commissioners an order recommending approval, although with some conditions. Assistant Attorney General Bill Baer of the Antitrust Division said in a statement that the division had concluded that the combination of AT&T’s land-based Internet and video business with DirecTV’s satellite-based video business does not pose a significant risk to competition. The F.C.C. reviewed whether the deal, announced in May 2014, would serve the public interest; the Justice Department review was to determine whether it would harm competition. The company would have 26.4 million TV subscribers in the U.S., topping Comcast as well as a possible new giant, Charter, which wants to buy Time Warner Cable. He states: “The proposed order outlines a number of conditions that will directly benefit consumers by bringing more competition in the broadband marketplace.” If the order is approved and pending more details, this can be a positive result for the three key players: The FCC, AT&T, and DirecTV.

It would also include AT&T’s nationwide network of tens of millions of wireless customers, its Internet and landline phone services and DirecTV’s millions of customers in Latin America, where AT&T wants to grow. Consolidation has swept the industry as people increasingly turn to the Internet for video and content costs rise for cable and satellite TV companies. Under one condition, AT&T would be required to build its current high-speed fiber Internet connection to about 10 times its current size, extending the service to 12.5 million customer locations. To prevent discrimination against online video competition, AT&T will not be allowed to exclude affiliated video services and content from data caps on its fixed broadband connections. Last April, AT&T led the petition to halt the rules while the appeal process is completed, but the court rejected it so the rules came into effect last June 12.

AT&T issued a statement late Tuesday: “We are pleased that an order to approve our DirecTV transaction with certain conditions is circulating at the FCC. Such agreements provide for a company like Netflix to pay a fee to a distributor, like Comcast or AT&T, for better service when it creates a lot of traffic for a network.

That proposal had seemed to rattle those concerned with the hyper-concentration within the telecommunications industry in a way that the proposed AT&T deal has not. That’s because regulators were concerned that a bigger Comcast would have had too big a chunk of the country’s high-speed Internet customers, which are seen as the future of the industry. AT&T executives have promoted the deal as an opportunity to create a company that could offer customers the ability to watch television on the go across a wide variety of screens. The bigger AT&T wouldn’t have a significant entertainment arm like Comcast’s NBCUniversal, and buying DirecTV does not add to AT&T’s U.S. wired Internet subscriber count of just over 16 million. Users are relying on mobile phones and tablets for more and more Web-based activities, from watching movies to video conferencing to streaming live personal broadcasts on apps like Periscope.

In March, AT&T executives told The Dallas Morning News that the DirecTV acquisition would be part of the company’s strategy to focus more on business customers. Netflix urged regulators to reject the transaction as it was proposed, arguing that the combined company would be able to harm online video distributors like Netflix while protecting its core TV business.

For example, with the satellite provider, AT&T can bundle its big data connections at hotels and hospitals with television service in guest or patient rooms. Michael White, chairman, president and CEO of DirecTV, left, looks on as Randall Stephenson, CEO of AT&T Inc., speaks during a House Judiciary Subcommittee hearing in Washington, D.C. Streaming lots of Netflix video could potentially tip a user over an AT&T Internet data cap and trigger additional charges, while streaming video from a service from AT&T wouldn’t. The FCC’s decision has come against a backdrop of tense relations between AT&T and the agency, which in 2011 helped kill previous plans by AT&T to merge with T-Mobile.

Wheeler also proposed that AT&T must submit to the FCC commercial Web traffic arrangements it makes with companies like Netflix or Internet backbone companies like Cogent “to bring greater transparency” to such deals. In addition, an increasingly aggressive FCC and FTC have each recommended or imposed substantial fines against AT&T, including a proposed $100 million fine in June tied to AT&T’s throttling the speeds of its customers who pay for unlimited data. Still, there is a concern about the uncertainty the ruling has generated, because it’s not clear how the FCC may regulate these agreements, but the explicit commitment from the merged company to provide the details would be a victory in itself.

The FCC has become concerned about the potential of fights over such traffic agreements, called “interconnection” deals, to disrupt service for consumers. AT&T has also led the outrage — and legal pushback — among Internet companies and others who object to the FCC’s landmark 3-2 decision this spring to sweep broadband Internet service under its regulatory oversight.

That latter conflict was clearly on Wheeler’s mind, as he announced Tuesday that if the merger is approved, AT&T will agree to treat video data consumed by its customers on an equal basis, regardless of whether it originates from DirecTV or a competitor. The only drawback for any merger is the potential that competition is reduced, and in this particular case, it will happen in areas where AT&T offers its U-verse service, which competes with DirecTV. But given that AT&T’s fiber-optic service only has 6% market share of the pay-TV market, it’s not as big a downside compared to the benefits of the conditions for the merger that favor neutrality and transparency of the merged company’s business practices. As a faculty member of the Graziadio School of Business at Pepperdine University, Nelson researches digital trends in travel, media, and entertainment.

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