AT&T/DirecTV Commitments Seen as Strong Case for FCC OK
Commitments to broadband expansion and over-the-top services in AT&T’s public interest statement on its $67 billion planned buy of DirecTV help make a strong case for approval, some telecom industry observers said in interviews. AT&T filed its public interest statement Wednesday, as expected (CD June 12 p8). It presented the combination of its wireline and broadband service with DirecTV’s stand-alone DBS service as complementary, rather than competing. Free Press remained critical of AT&T’s effort to acquire DirecTV. AT&T also filed its Form 425 with the SEC Thursday.
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AT&T said that without the transaction, it couldn’t bundle broadband and video services in certain ways. It will do so “in many areas where cable incumbents are currently the only bundled service providers,” the public interest executive summary said. AT&T customers can keep their U-Verse video service, which will be enhanced “by better content offerings and an improved user experience,” it said. DirecTV customers can purchase an integrated bundle combining DirecTV video service and AT&T broadband, it said.
AT&T makes a “good” public interest argument, said James Stenger, a mergers and acquisitions attorney at Chadbourne & Parke. With about 6 million video subscribers, “it’s not getting the pricing for cable programming that would allow them to be competitive,” he said. The public interest offer that AT&T makes to the FCC is based on being able to get a big enough subscriber base allowing it to get cable programming at competitive prices, he said. “They're investing a lot of money, making up the difference between what they have to pay for cable programming and what someone like Comcast pays,” he added. “That’s money that can be better spent bringing broadband to more Americans."
AT&T is making a bet that wireless plus DBS optimized for different services is a good and better alternative than one integrated type, said Scott Cleland, NetCompetition chairman. The transaction focuses on facilities-based competition, he said. “It’s a completely different facility vision and strategy than traditional cable or even traditional telco.” The deal also changes the business model economics for AT&T, he said. Opportunities that weren’t economic before, will be after the deal, he said. AT&T will be able to deploy more fiber to more consumers and “offer a better wireless local loop offering to 13 million customer locations in 48 states,” he said. AT&T is a member of NetCompetition.
Free Press held that AT&T should build rather than buy another company to become more competitive. “The notion that only by taking out a competitor in the video space will AT&T be incentivized to invest in broadband just seems plain silly to us,” said Matt Wood, Free Press policy director. DirecTV is video-only, but the deal is still a straight horizontal merger when it comes to the video offerings, he said. “That’s the part where the concentration numbers really go through the roof if this deal goes through.” There’s no reason to expect that cost savings will be passed on to customers of the merged company, he said. “If they were investing in actual new deployment, rather than mergers ... then we could actually see some robust, facilities-based competition."
AT&T expects a reduction in the costs to acquire video content demanded by consumers “resulting from the combined company’s larger subscriber base and ability to offer increased value to programmers,” said the Form 425 (http://bit.ly/1pp8zD3). The combined firm will have “the scale and expertise to bring new and innovative technologies and services to customers,” it said.
The commitments address concerns by some entities that an approval would harm competition, the observers said. AT&T said it focuses its U-Verse video marketing efforts “almost exclusively on bundles, and not on standalone video.” Competition between wireline and satellite multichannel video programming distributors is differentiated, it said. Even in limited areas of the country where AT&T and DirecTV both offer video services, “the two companies target different segments of the marketplace,” it said. AT&T said that “when customers drop the AT&T bundle, they largely switch to cable, not to satellite video providers such as DIRECTV.”
More people in rural areas can have more OTT video choice if the economics of the transaction enable better broadband, said Cleland. The commission “has been wanting more rural deployment, so that all Americans have high-speed services,” he said.
The broadband services deployments “will enable customers to access over-the-top programming,” Stenger said. “They're really opening the market for competing over-the-top services.” Even though those services may compete with AT&T’s video offerings, “AT&T is willing to foster that kind of competition because they're going to be making revenue from the broadband side of the equation,” he said.