AT&T ‘Confident' That Regulators Will Bless Proposed DirecTV Merger

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By Bryce Baschuk  

June 4 — AT&T Inc. said it is “confident” that federal regulators will approve its proposed $48.5 billion merger with DirecTV because the deal is beneficial to consumers and doesn't significantly decrease competition.

The nation's second largest wireless company said its bid to acquire the nation's top satellite-TV company will ultimately boost its ability to deploy high speed broadband services for 15 million customers, according to a recent filing at the Securities and Exchange Commission.

The success of the deal depends, in part, on whether the Federal Communications Commission and the Department of Justice determine that the merger will serve the public interest and comply with federal antitrust laws.

Increased Broadband Deployment

Consumers would benefit because the merged entity would be able to bundle DirecTV's video capabilities with AT&T's broadband, and wireless services, the filing said.

The proposed deal “gives the new merged entity the economic case to significantly increase investment in broadband infrastructure,” the filing said. If regulators approve the deal, the merged entity will upgrade its broadband services over the next four years to 15 million customers, many of whom are located in rural areas, it said.

AT&T said it expects its network upgrades will provide high speed broadband service capable of 1 gigabyte per second (Gbps) download speeds to 2 million new customers. The company said it will offer fixed broadband speeds of 10-15 megabytes per second (Mbps) to its other customers during peak periods.

Minimal Competitive Impact

The companies do not significantly compete with each other since AT&T is primarily a broadband company and DirecTV primarily offers video services, the filing said.

“By combining these assets, AT&T will be well positioned to offer customers better bundled options than either company could provide on their own,” it said. “This is especially true when you add in the strength of our wireless network.”

Programming Cost Reductions

AT&T said the deal will help the merged entity negotiate better TV programming deals that could ultimately save the company $1.6 billion per year.

AT&T's current video service, U-verse, spends 60 percent of its subscriber revenues on content licensing, the company said. Buying DirecTV will provide the company with greater scale to negotiate less expensive deals with cable, broadcast and online video providers, the company said.

“We estimate AT&T's U-verse content costs after the completion of the transaction will be reduced by approximately 20% or more as compared with our forecasted standalone content costs,” the company said.

Other Commitments

AT&T previously said it would commit to several other merger conditions aimed at pleasing FCC officials.

If the deal is ultimately approved, AT&T said it would:

  •  adhere to the agency's now-vacated 2010 Open Internet order for an additional three years; and
  •  “meaningfully participate” in the FCC's 2015 broadcast spectrum auctions by bidding at least $9 billion for certain spectrum configurations.
  • Those commitments come as the FCC prepares to hold its congressionally mandated broadcast TV spectrum auction in 2015 and re-implement the agency's remanded net neutrality rules. Both matters before the commission have the potential to drastically change the nation's telecommunications marketplace and may ultimately determine the success or failure of FCC Chairman Tom Wheeler's tenure.

    June 24 Hearing

    Later this month the chief executive officers of AT&T and DirecTV plan to testify before the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law.

    Members will “undertake a serious examination of what might be the fourth-largest telecommunications merger in history and provide a forum for proponents and critics of the proposed merger to publicly discuss its potential competitive impact on the telecommunications marketplace,” said committee news release.

    The hearing is scheduled to take place on June 24 at 10:30 a.m. in 2141 Rayburn.

    To contact the reporter on this story: Bryce Baschuk in Washington at bbaschuk@bna.com

    To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

    For more information, read AT&T's SEC filing here: http://www.sec.gov/Archives/edgar/data/732717/000073271714000048/qa8k.htm