AT&T/DirecTV Deal All About Better Bundles, CEOs Promise Capitol Hill

Senate Subcommittee Chairwoman Amy Klobuchar, D-Minn., said in her opening statement the deal “will eliminate a competitive video provider.” Will AT&T have the incentive to continue and expand U-verse? she asked. Be “on guard” to ensure the government doesn’t choose winners and losers in such antitrust proceedings, subcommittee ranking member Mike Lee, R-Utah, said.

Both Stephenson and White touted possible savings to the companies and potentially, they told lawmakers upon questioning, even consumers. The AT&T/DirecTV bundles “will be a better value for consumers, absolutely,” White said. “There are going to be a lot of cost savings outside of programming,” Stephenson told Klobuchar, who asked if any savings would be limited to the U-verse sliver of AT&T, which has 5.7 million customers. DirecTV has 20 million customers.

"If I'm the ordinary consumer, I'm rolling my eyes because I've seen this show before,” Sen. Richard Blumenthal, D-Conn., said. “I am very, very skeptical as a senator and not just as a consumer.” He’s dubious about cost savings and whether they'll be passed on to consumers, he said. “Even giants like Comcast and Time Warner have continued to see rising cost in their content and they have been unable to achieve the cost savings that you are projecting.” Will cost savings be “passed along, dollar for dollar,” to consumers, Blumenthal asked the CEOs.

"Dollar for dollar? No, sir, I can’t commit to that,” Stephenson said, citing the highly competitive industry. Programming cost trends may be changed though, with price increases possibly mitigated, he said. Stephenson said he can’t predict what prices will be two or six months from now and certainly not three years from now. “I have a sense we're watching a rerun here,” Blumenthal said. “We're not going to see any drop in prices.” He said consumers would find the answer “unsatisfying.”

"I'm not sure that’s what consumers want,” Sen. Al Franken, D-Minn., who has opposed industry consolidation, said of the AT&T/DirecTV bundling. Bundles can be structured to hide the true cost of individual services, causing some consumers to complain of getting a “raw deal,” Franken said. Franken asked if AT&T would commit to a “clear and visible” stand-alone broadband product, and Stephenson agreed.

Stephenson trumpeted the company’s commitments to build out broadband, as both executives cited the benefits of possible savings they would achieve and the virtues of providing to consumers better bundles than ever, with AT&T currently paying 60 cents on every video dollar to programmers. The deal would change the economics of broadband buildout and cause more deployment, Stephenson said, repeating a commitment to rural consumers and saying the deal would help the company serve them. AT&T would be “a more effective competitor to cable” as well as over-the-top companies, Stephenson said. He and White emphasized the complementary nature of their services and tried to make the case their video offerings aren’t particularly competitive currently. “This is not Comcast/Time Warner,” Stephenson said of what he called a unique value proposition. “This is not Sprint/T-Mobile.”

White is confident DirecTV will renew its contract with the NFL “before the end of the year,” when it’s set to expire. If DirecTV loses its relationship with the NFL, AT&T has a provision in the deal that it can walk away. DirecTV has partnered with the NFL for two decades, offering what it calls its NFL Sunday Ticket. Sen. John Cornyn, R-Texas, said sporting events are shaping the pay-TV industry, also noting the deal was contingent on DirecTV’s NFL partnership.

Several witnesses in both hearings slammed the deal. Free Press Policy Director Matt Wood and Public Knowledge Senior Staff Attorney John Bergmayer expressed doubt about the real virtues of the acquisition promises and said approving the deal would reduce competition. Writers Guild of America, West President Chris Keyser echoed that. The American Cable Association testified at both hearings and, while it did not advocate outright rejection of the deal, wanted regulators to approve it only with strong conditions. “I can’t discount the importance of just being large,” ACA Senior Vice President-Government Affairs Ross Lieberman said, citing financial resources and the possibility of DirecTV using its leverage to force rivals to pay higher programming costs. White referred to fierce negotiations waged frequently and said the deal’s thinking has everything to do with bundles and little to do with its leverage and charging rivals more.

House Receptive

House lawmakers expressed little concern with the proposed deal. Subcommittee Chairman Spencer Bachus, R-Ala., said AT&T and DirecTV are “very different companies” that offer different types of services. Bachus acknowledged discriminatory pricing is “a concern.” Subcommittee ranking member Hank Johnson, D-Ga., also said he’s receptive to the deal and hopes regulators make sure the merged company keeps to the commitments it’s making. “There is little to suggest AT&T offers serious direct competition with DirecTV’s video services,” Johnson said, saying the deal would “create substantial public interest benefits” in various ways. “We should be mindful that assuring the best interests of consumers is the ultimate goal,” Judiciary Committee Chairman Bob Goodlatte, R-Va., said in his opening statement.

Goodlatte asked about how DirecTV currently partners with broadband providers to offer what the company calls “synthetic bundles” and the state of partnerships DirecTV has with Verizon. The AT&T and DirecTV executives argued that bundles following the acquisition would be far superior and come with more efficiencies than in the synthetic bundle arrangements that DirecTV has formed currently. “So how does Verizon solve that problem? Do they acquire Dish?” Goodlatte asked. Stephenson said he did not expect substantial changes to any of those offerings from DirecTV.

In the House, committee ranking member John Conyers, D-Mich., voiced dissent. “I am looking at a transaction that highlights a concern that there may be too much and too rapid a consolidation in telecommunications, especially when viewed in the light of a flurry of deals either announced or rumored,” Conyers said, referring to possible further consolidation proposals “as part of what might be viewed as a race to the bottom.”

Johnson praised AT&T’s labor standards and the support of Communications Workers of America for the deal. “It would be their choice” of whether to collectively bargain or not, Stephenson said of DirecTV employees, who by and large are not currently unionized. White agreed. “Our cultures are very, very compatible,” leading to a “seamless integration in that regard,” Stephenson said of the two companies’ commitment to diversity. Rep. Doug Collins, R-Ga., asked: “DirecTV will not be forced to unionize, correct?” Stephenson said it would be the workers’ choice. AT&T has a “very good track record” of attrition and putting people in other assignments, Stephenson said of how the deal would affect the companies’ workers. “These are hard hat jobs” that come with the company’s commitment to broadband buildout, Stephenson said, providing fiber to cell sites, new antenna arrays on top of cell site structures, work in customers’ homes, “a lot of capital investment tied to this” that is “synonymous with jobs.”