Executives at AT&T and DirecTV Defend Their Broadband Merger Against its Critics

WASHINGTON, July 1, 2014 – AT&T and DirecTV have no doubt their merger will actually strengthen broadband, competition and consumer choice, contrary to naysayers. Both companies had to fend off fears of market consolidation in back-to-back hearings on Tuesday, June 24, before the House Judiciary Committee and Senate Judiciary Committee.

This proposed merger isn’t like that of Comcast and Time Warner Cable, said AT&T Chairman and CEO Randall Stephenson. AT&T and DirecTV offer mostly complementary services with little overlap. A merger would allow both companies to “respond to consumer demand.”

Specifically, DirecTV doesn’t have the broadband platform to adapt to the modern Internet landscape, said DirecTV Chairman and CEO White. By the same token, AT&T doesn’t have DirecTV’s programming. It hardly makes any money at all from its U-Verse video service, Stephenson said.

A merger with AT&T would let DirecTV integrate video with broadband, serve users with complementary over-the-top offerings, optimize video service, and manage content cost increases, White said. What’s more, Stephenson said AT&T could cut video subscriber costs by 20 percent or more.

“When complementary providers join forces, the net result is downward pressure on prices and increased incentive to invest in innovation, integration, and infrastructure,” Stephenson said. .

AT&T would also be able to build out a “fixed wireless” solution at 15-20 Megabits per second (Mbps) and “enhance high-speed broadband service to at least 15 million customer locations, most of them rural, within four years of the transaction closing,” Stephenson said. AT&T’s Gigapower offering could be expanded to two million locations in the U.S.

“Combining with AT&T will enable us to meet our greatest challenge and better compete in today’s marketplace,” White said. “We will unlock new growth opportunities to provide new services to customers at a better value. As we offer subscribers better and more innovative services, cable operators and other competitors will have to respond in kind. The result will be more competition and a better video experience for all Americans.”

Others at the hearing weren’t as thrilled. Michigan Democratic Rep. John Conyers said the merger may spur “too much” and “too rapid” consolidation in the telecommunications industry.

“I am concerned about the loss of a competitor for paid television services in many of the largest markets,” Conyers said. “We should also consider whether smaller video providers in the aftermath of the sheer size of a combined AT&T-DirecTV, could face increased content prices, potentially driving some of them out of business.”

Public Knowledge senior staff attorney John Bergmayer questioned the sincerity of AT&T’s promises to provide fiber to 15 million customers, and even more so, building out Gigabit to two million homes. He called these “marginal upgrades and not new build-out.”

“The remaining two million of AT&T’s 15 million number likewise does not consist of new buildout, but instead references fiber-to-the-premises upgrades to AT&T’s existing network,” he added. “These upgrades are for the most part already in the planning.”

Ross Lieberman, Senior Vice President of Government Affairs at the American Cable Association, also expressed concern that while AT&T can “buy its way out of programing cost problems” by acquiring DirecTV, small and medium-sized operators “without AT&T’s financial resources and scale” will be forced out of business.

And in rural communities with few competitors, a merger would further reduce options for residents, incentivizing AT&T to inflate prices.

Both Lieberman and Bergmayer suggested that AT&T “actually invest” rather than make empty promises.

Stephenson fired back, saying that “two million with fiber to the home is a significant capital investment” and not something to be scoffed at.

In the merger’s defense, Sen. Mike Lee, R-Utah, said regulators should be wary of acting against AT&T and DirecTV.  Doing so may backfire and cause as much harm to consumers as consolidation. In fact, Lee agreed that in some cases like AT&T’s, mergers represent intelligent decisions on part of telecom companies adapting to the industry.

“It’s essential in considering important transactions, such as the one before us, that we apply rigorous economic analysis,” Lee said. “By ensuring we protect competition, and not any individual company or competitor, we can help to create market conditions that benefit the consumers.”