Executives Want to Sell Capitol Hill on Virtues of AT&T/DirecTV Deal

"The merged company will be perfectly poised to give consumers what they want,” AT&T CEO Randall Stephenson will tell lawmakers, according to prepared testimony for the House Judiciary Antitrust Subcommittee (http://1.usa.gov/1yG7BoB): “This transaction solves our challenges in video and realizes the full potential of our networks.” Expect a “much better” home experience, with innovations in set-top boxes, customer interfaces and DVRs “that will be seamlessly integrated across all of our networks and devices” and with AT&T’s home automation expertise, Stephenson will say. He will say the company would “build and enhance high-speed broadband service to at least 15 million customer locations, most of them rural, within four years of the transaction closing” and be “meeting or exceeding the FCC’s net neutrality standards.”

DirecTV will focus on its marketplace shortcomings, pointing to the rise of bundling over “pure video” offerings. “Video itself has combined with the Internet to satisfy customers’ demands for more video on demand, TV Everywhere, and expanded recording capabilities,” CEO Michael White will tell House members (http://1.usa.gov/1qF9T4Z), saying U.S. subscribership has fallen: “Our competitors’ advertising highlights our lack of an Internet offering and their speed advantages.” Its residential and commercial U.S. subscriber additions have gone from 939,000 in 2009 to 169,000 in 2013, according to White. The company “must serve those who want over-the-top offerings as a complement to or substitute for traditional video service,” White will say.

But conditions should apply if the acquisition is approved, the American Cable Association will say. The deal would “increase the incentive of DIRECTV-affiliated programmers to charge higher prices to their rivals, including hundreds of small and medium-sized MVPDs,” a situation requiring “conditions to head off this potential harm,” ACA Senior Vice President-Government Affairs Ross Lieberman will testify, speaking before the House (http://1.usa.gov/V6CiEv) and later before the Senate Judiciary Antitrust Subcommittee. “The deal also highlights existing problems in the video marketplace, such as significant price discrimination in the programming contracts of the large programmers and broadcasters, as well as rules and regulations that do not apply in a competitively and technologically neutral manner.” It would “not be adequate to adopt similar arbitration conditions to those previously imposed on DIRECTV or the more recent version imposed on Comcast-NBCU,” Lieberman will say, citing concern among ACA members.

Regulators should not approve the deal at all, Public Knowledge Senior Staff Attorney John Bergmayer will warn. Evidence suggests it “would hamper competition in many markets, further the digital divide, and exacerbate harmful industry trends,” Bergmayer will testify before the House (http://1.usa.gov/1j89d0q). He will question how AT&T has framed its promises, such as a goal to serve 70 million customers with its high-speed fixed broadband service. “The 70 million figure is not new. In fact, AT&T has already promised more,” he will say. “In its 2012 press release touting ‘Project VIP,’ AT&T promised to provide wireline broadband service to 57 million customer locations, and wireless broadband to 19 million additional customer locations. That’s a plan to serve 76 million customer locations with a broadband product -- 6 million more than the number it is promising to serve after this deal.” The AT&T numbers cited in pledging the deal “cannot count as a merger-specific public interest benefit when AT&T already plans to serve 76 million,” Bergmayer will insist. In his testimony, Stephenson will say the commitment of 70 million refers to wireline broadband service.

"The amount of consolidation that has taken place and is still underway is breathtaking,” Writers Guild of America, West President Chris Keyser will testify before the Senate, urging rejection of the AT&T/DirecTV deal (http://bit.ly/1lLgmIr). “If both the Comcast-Time Warner Cable and AT&T-DirecTV mergers are approved, the two companies will control half of the MVPD [multichannel video program distributor] and ISP markets.”

"I'm sure the companies view the hearing as a necessary step and a chance to tout the supposed benefits of the deal, but as always we remain skeptical of the bizarre claim that fewer competitors means more competition,” Free Press Policy Director Matt Wood told us. He will testify at Senate hearing, intending to say the pay-TV market would become less competitive after the deal, all for “some uncertain cost savings and some underwhelming broadband promises,” Wood said. “If AT&T were serious about an upgraded broadband deployment, it would stop claiming -- just as it did with T-Mobile -- that taking out a competitor is the magic formula for unleashing investment. Instead of dumping almost $70 billion into a merger, AT&T could use that money to triple its fiber footprint and sign up more video customers on that network than DIRECTV has today.”

In written testimony, Wood slams what he will say is AT&T’s same old playbook, trotted out with every proposed merger. The company must hope people possess short memories and high doses of credulity, Wood will tell Senate lawmakers: “How else to explain the fact that AT&T suggests merger-specific benefits that, in fact, either have nothing to do with this merger or provide no discernible benefits to its current and would-be customers?”

Georgetown University Center for Business and Public Policy Project Director Larry Downes, a witness before the Senate hearing, sees the “no-brainer” of a deal as “a natural response” to marketplace changes, he told us. These hearings “can often highlight the edges of the transactions where Congress may have concerns,” Downes said. “These in turn can lead, implicitly, to voluntary or mandatory conditions on approval once the regulators complete their process.” He hopes senators are “willing to engage in a little introspection” and thus “recognize that a big part of what is driving this and other pending and future transactions in the industry is the unintended legacy” of decades of Capitol Hill and FCC attempts to “resolve tensions between old business models and new technologies through regulatory compromises” that now amount to a “regulatory tangle that highly constrains the ability of MVPDs to respond quickly to changing technology risks and opportunities and to consumer demand, often to the unwanted detriment of consumers,” Downes said.

Communications Workers of America also backs the deal, President Larry Cohen told Senate Judiciary Antitrust Subcommittee Chairwoman Amy Klobuchar, D-Minn., in a letter, saying it would “expand high road labor standards and create substantive video competition.” CWA is not testifying. The letter was also sent to House and Senate Democrats on the antitrust subcommittees, a CWA spokeswoman said.

AT&T’s Stephenson will agree. “Due to technology and economic limitations, we can offer video in only a small portion of the country -- less than a quarter of American households and even in our wireline service territory, only in more densely populated areas,” Stephenson will say of current offerings. AT&T has around 5.7 million video subscribers to its U-verse service, with 130,000 stand-alone video subscribers. The House subcommittee hearing will take place at 10:30 a.m. in 2141 Rayburn and the Senate hearing at 2:30 p.m. in 226 Dirksen. (jhendel@warren-news.com)