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June 24 — Lawmakers said the rising tide of consolidation in the telecommunications industry could concentrate too much market power in the hands of a few companies to the detriment of consumers.
Though lawmakers did not outright condemn AT&T Inc.’s proposed $48.5 billion merger with DirecTV during a pair of House and Senate oversight hearings June 24, both Democrats and Republican signaled their concerns that the industry could soon become too concentrated.
In addition to the AT&T-DirecTV deal, the Department of Justice and the Federal Communications Commission are evaluating Comcast Corp.’s $45 billion bid to buy Time Warner Cable and potentially a forthcoming combination of Sprint Corp. and T-Mobile US Inc.
Though Congress does not have a direct role in the approval of such mergers, members often seek to influence the regulatory process.
Sen. Amy Klobuchar (D-Minn.), the chairwoman of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, said the deal cannot be evaluated in a vacuum. “At what point is it enough?” she asked during a subcommittee hearing. “With the rumors of T-Mobile, Sprint and Comcast, Time Warner Cable what point is the tipping point for antitrust laws to step in?”
Rep. Darrell Issa (R-Calif.) said he too was concerned about the increased trend toward consolidation in the industry. “Are we looking at a future in which in order to be competitive, companies have to find these partnerships, these mergers in order to make real, viable competitors?” Issa asked witnesses during a separate hearing held by the House Subcommittee on Regulatory Reform, Commercial and Antitrust Law.
“There may be too much and too rapid consolidation in the telecom industry,” said House Judiciary Committee ranking member John Conyers (D-Mich.). “This ongoing wave of consolidation will result in fewer firms and may harm consumers by limiting choices and may rise prices,” he said at the House hearing.
AT&T Chief Executive Officer Randall Stephenson sought to distinguish the AT&T, DirecTV deal as “very, very different,” from the other proposed and rumored mergers in the marketplace. The AT&T- DirecTV deal seeks to “combine companies with primarily complementary services,” he said.
“This is not Comcast, Time Warner. This is not two cable companies getting together. This is not Sprint and T-Mobile,” Stephenson told lawmakers at the House hearing.
AT&T is seeking to combine its wireless and wireline telecommunications business with DirecTV's satellite video services in order to offer consumers better prices with efficiencies created by the merged entity, he said. “There is not a content player per se in this transaction,” he said.
Regulatory approval of the AT&T-DirecTV deal will enable the merged entity to exert “downward pressure on prices” by gaining leverage in its negotiations with content providers, Stephenson said.
Currently AT&T's U-verse video service loses money because $0.60 of every dollar the company spends on video goes to content acquisition, he said. “Content costs are growing roughly eight percent per year and we are raising rates by half,” Stephenson said. “DirecTV makes our video product profitable. It changes the economics.”
Sen. Richard Blumenthal (D-Conn.) did not believe the cost savings touted by Stephenson would ultimately be passed on to consumers and directly asked him to make such a commitment. Stephenson could not and said the deal would merely “mitigate price increases” for subscribers.
“You are saying you won't see a drop in prices,” Blumenthal told Stephenson at the Senate hearing. “At best we will see a reduction in rate increases and I don't think most consumers would be satisfied with that response.”
DirecTV Chief Executive Officer Michael White told senators the proposed acquisition will help his company decrease the cost of video services by bundling them with AT&T's voice and broadband services. DirecTV currently spends $850 to install a satellite dish on each new customer's premises, said White. The merged entity could reduce those costs by offering a bundle of broadband, voice and satellite services with a single installation, he said.
Sen. Al Franken (D-Minn.) bristled at the idea of creating more bundles if they fail to benefit the public interest.
“Bundles are only good for consumers if they offer actual cost savings, not infrastructure to hide the true cost of each service or force people to buy products that they don't want,” Franken said at the Senate hearing. “Many of my constituents complain to me about bundles; they feel like they're getting a raw deal.“
Lawmakers noted that the transaction could result in a reduction of a video competitor in many U.S. marketplaces. DirecTV is available nationwide and AT&T's U-Verse is offered in 22 states, roughly 25 percent of U.S. households. The current competitive overlap could affect how the DOJ and the Federal Trade Commission calculate marketplace competition, a measure known as the Herfindahl-Hirschman Index.
Stephenson argued at the Senate hearing that most of AT&T's U-Verse subscribers aren't video-only consumers like DirecTV's as they have access to U-Verse as a part of a larger bundle of other telecommunications services.
“If you look at our customer base of video there are less than 170,000 of those that you might call video-only subscribers in the market,” said Stephenson. “Our video footprint does overlap in 25 percent of the user base. But we are a bundled video providers,” he said.
White added that in the areas where the two companies compete “the consumer is going to get better choice because today DirecTV does not have a seamless bundle.”
Lawmakers asked witnesses how the AT&T-DirecTV merger would affect DirecTV's lucrative sports programming deals. Over the past two decades, DirecTV has held the exclusive rights to the National Football League's Sunday Ticket programming. DirecTV also owns three regional sports networks.
Stephenson acknowledged that the deal hinges on DirecTV's ability to successfully renew its rights to the NFL's Sunday Ticket after this coming season. White said he's confident DirecTV will renew its agreement by the end of the year.
White said the merger will not affect DirecTV's three regional sports networks in Pittsburgh, Denver and Seattle. “AT&T doesn't have an overlap in any of those geographies and they wouldn't be impacted by the merger,” he said.
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