AT&T/DirecTV Conditions Prove Controversial

The FCC’s conditions on AT&T (NYSE:T)’s US$48.5bn takeover of DirecTV (NASDAQ:DTV), have come under fire from critics, with some arguing that they go too far and others saying they don’t do enough.

The FCC’s conditions on AT&T (NYSE:T)’s US$48.5bn takeover of DirecTV (NASDAQ:DTV), have come under fire from critics, with some arguing that they go too far and others saying they don’t do enough.

In the recently released order approving the deal, which creates the largest US pay-TV provider, the FCC said it has determined that the combined company will “be a more effective, multichannel video programming distributor (MVPD) competitor, offering consumers greater choice at lower prices”.

Neither company had previously been able to compete with the dominant video providers, the commission said. DTH player DirecTV has about 20 million video subscribers but lacks broadband capabilities, limiting its ability to provide popular video-on-demand and other interactive viewing experiences, it noted. Meanwhile, AT&T’s video product is hampered by higher programme procurement costs, making it harder to lower prices and expand its broadband footprint.

The deal closed last week after securing FCC and Department of Justice approvals. Conditions include requirements to extend fibre-to-the-premises to 12.5 million customers, offer discount broadband to low-income consumers, report to the commission on interconnection deals, and adhere to net neutrality principles on data caps. The latter condition means AT&T will not be allowed to exclude affiliated services and content from data caps on its fixed broadband connections, ensuring all content providers have fair access.

In the order, the FCC said it found that the combined company would boost competition for video and broadband packages which will, in turn, stimulate lower prices.

“We also expect that this improved business model will spur, in the long term, AT&T’s investment in high-speed broadband networks, driving competition and thus expanding consumer access and choice. This is, in other words, a bet on competition.”

The commission said the conditions attached to the merger together “create the opportunity for more robust broadband and video distribution competition …”

Some, however, have argued that they go too far.

Republican Commissioner Ajit Pai said in his own statement that he supports the decision to approve the deal, but not the 17 pages of attached conditions.

“The transaction’s benefits clearly outweigh any harms,” he said. “As a result, there is no need to impose conditions upon it.”

He argues that the conditions “satisfy a regulatory wish list that has nothing to do with the transaction at hand”.

Some, such as the requirement to offer discounted broadband services, amount to an attempt at policymaking via the merger review process, he contended. He noted that the commission had already determined that the deal would lead to “little change (positive or negative)” in the standalone broadband prices of competitors.

Conversely, commissioners Jessica Rosenworcel and Mignon Clyburn have argued that there should have been an additional condition covering access to programming outlets.

Rosenworcel noted that the issue of independent programming and securing access on traditional video distribution platforms came up repeatedly during the review process, but is not addressed by any of the conditions.

“I think this issue is ripe for examination and hope that the commission can find another forum for discussion of this important topic,” she said.

Clyburn also called upon FCC chairman Tom Wheeler to initiate a review of programme access rules to determine whether there are better ways of ensuring there is a level playing field so smaller operators can remain competitive.

“Indeed the transaction itself highlights the need for a re-examination of our rules when a provider as large as AT&T merges with DirecTV in part to reduce programming costs,” she said.

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