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AT&T Says Its $50 Billion DirecTV Buyout Is What Consumers Want

Senior executives from AT&T and DirecTV appeared before Congress on Tuesday to make their case for a merger that critics call just the latest example of US media consolidation run amok.
Image: Theron Trowbridge/Flickr

Senior executives from AT&T and DirecTV appeared before Congress on Tuesday to make their case for a merger that critics call just the latest example of US media consolidation run amok.

In back-to-back hearings before House and Senate oversight panels, the executives argued that if approved, the $48.5 billion deal would benefit consumers and increase competition in the broadband market—two assertions that are vigorously contested by many public interest groups.

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The proposed merger faces intense scrutiny from the Justice Department, which is charged with ensuring that the deal doesn’t violate antitrust laws, and the Federal Communications Commission, which must ensure that the pact doesn’t harm the public interest. Although lawmakers don't have an official say in whether the deal is approved, they can still exert influence on the regulators that do.

“This transaction is about meeting consumer demand,” AT&T CEO Randall Stephenson told lawmakers. “It’s about bringing new competition, new services, and new levels of customer satisfaction in ways that neither company could do on its own.” Stephenson added that the deal would give AT&T "the confidence to expand and enhance" the company's high-speed Internet service to 15 million additional homes, mostly in rural and underserved areas, within the next four years.

It’s not hard to see the logic of the deal from their point of view. Satellite giant DirecTV is the second largest pay-TV company in the US, with 20 million subscribers, but it lacks a competitive broadband Internet offering of its own. AT&T is the largest mobile and fixed phone company in the country, but it lags behind the cable giants in video, so acquiring DirecTV’s pay-TV business would be a major prize. The combined company would be able offer bundled packages of broadband, video and phone service that will boost the combined company’s profit margins, pleasing Wall Street.

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The deal’s benefits to consumers and competition are less clear-cut. John Bergmayer, senior staff attorney at DC-based consumer advocacy group Public Knowledge, argues that not only are AT&T and DirecTV executives exaggerating the merger’s benefits for consumers, the deal would actually reduce competition and harm the public interest.

"This proposed deal fails the antitrust test, it fails the public interest test, and it raises many concerns,” said Bergmayer. "AT&T and DirecTV directly compete in more than 60 local TV markets. This deal runs afoul of the Department of Justice's antitrust guidelines. It's hard to accept AT&T's claims that buying a direct rival can be good for competition.”

In testimony before the Senate on Tuesday, Matt Wood, policy director at DC-based public interest group Free Press, urged regulators to block the deal. "There is nothing to this transaction but more concentration, less competition and the same old string of promises used to sell such bad deals to the public," Wood said.

AT&T’s proposed buyout of DirecTV comes as merger mania has gripped much of the US telecommunications industry. Comcast, the nation’s largest cable company, has proposed buying Time Warner Cable, the second largest cable company, in a $45 billion deal that would create an unprecedented industry giant with immense market power. And just last year, Comcast completed its $30 billion purchase of NBCUniversal, combining the cable giant’s vast distribution network with one of the crown jewels of the American entertainment business.

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Sprint, the nation’s third largest wireless provider, is expected to launch a bid for smaller rival T-Mobile in a deal that could be worth more than $40 billion. And earlier this year, Verizon completed a $130 billion purchase of Vodafone’s 45 percent stake in Verizon Wireless.

This wave of industry consolidation could dramatically reshape the telecom landscape into a field dominated by a handful of corporate giants at a time when many public interest groups and industry experts believe that the US needs more competitive players in order to spur investment and innovation.

“The cumulative impact of these transactions will transform the industry, the competitive marketplace and the consumer experience and should be cause for concern,” Ross J. Lieberman, senior vice president of government affairs at the American Cable Association, told lawmakers on Tuesday. Lieberman warned that the merger could give the combined company an incentive to charge its distribution rivals higher prices for DirecTV-affiliated content, including several sports networks.

Like Comcast, AT&T has pledged to abide by the FCC’s now-defunct 2010 Open Internet rules for three years, in a concession aimed at convincing federal regulators to approve the deal. Those net neutrality rules prohibit companies like AT&T from blocking or discriminating against rival online services like Netflix or Skype. But AT&T's promise rings hollow for some open Internet supporters.

“I don’t think the open Internet should come with an expiration date,” said Josh Stearns, a veteran public interest and tech policy advocate.

AT&T is no stranger to Washington, DC. Over the years, it has repeatedly sought regulatory approval for various mergers and buyouts. A few years ago, the company tried to swallow T-Mobile, but regulators sued to block that deal, saying it would violate antitrust law and reduce competition. It was a rare DC defeat for AT&T, which is one of the Capitol’s most powerful private interests. Since 1998, AT&T has spent nearly $300 million lobbying the federal government, according to the Center for Responsive Politics.