AT&T's Fight to Control Merger Terms a Battle of Nuance, Compromise

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By Tim McElgunn

June 3— AT&T and DirecTV are offering to abide by the Federal Communication Commission's network neutrality rules—which AT&T is challenging in court—to help gain approval of their proposed $49 billion merger. The Washington Post is reporting that unnamed sources familiar with the negotiations say AT&T is discussing commitments that it will not block or throttle any legal website, a practice the company and its peers insist they have never engaged in anyway.

As with most negotiations, neither side is likely to get exactly what it initially proposes. But the company is very anxious that its DirecTV deal succeed, given the expensive failure of its attempt to buy T-Mobile USA, Inc. The company sees the addition of scale and content that the satellite TV provider brings as absolutely crucial to its competitive position against rapidly growing over-the-top providers and consolidating cable operators.

AT&T is therefore likely to agree to a number of merger conditions it might have challenged in the abstract, and be limited to small victories in crafting the specific terms of those agreements.

The telco is also offering to market an Internet-access-only plan that would deliver up to 6 Mbps for $35 per month. Various critics of the merger plans have called for requiring the company to offer a standalone high-speed data plan providing up to 25 Mbps for $30 per month. There is also disagreement on how long AT&T should be required to maintain a standalone offer, with the company saying three years is long enough and critics looking to force the company to maintain a standalone plan for seven years.

Willing to Abide by Older Net Neutrality Rules

AT&T's stance is reportedly premised on adherence to the FCC's older network neutrality rules, which were struck down by the courts. The telco is apparently balking at reversing its opposition to the FCC's new framework based on Title II of the Communications Act of 1934. Those rules include requirements governing interconnection between Internet backbone providers. AT&T and other ISPs have begun charging content distributors, notably Netflix, for connections with sufficient capacity and quality to ensure acceptable video quality for streaming service subscribers.

Critics call for the company to abide by the long-standing principle of peering—exchanging approximately equal amounts of traffic over high capacity connections at no charge—while AT&T argues that interconnection deals among backbone providers are a normal and unremarkable aspect of the telecom market and should not be subject to any regulation beyond the normal rules of commerce.

How to Protect Zero Rating as Amenity for Capped Data Plans?

Finally, in what may prove an intractable sticking point, AT&T is looking to protect the practice of zero-rating—allowing traffic from some sites to reach data subscribers without being counted against any monthly caps they may have agreed to in signing up for a given tier. Banning the practice would most immediately impact AT&T's wireless business, where providing “free” access to music services and other specified content sources has been a common amenity offered to mobile data subscribers.

AT&T's longer term concerns likely center on restricting its ability to cap its wireline data plans and still give subscribers access to its own on-demand library without those streams pushing them over their cap and generating additional charges.

To contact the reporter on this story: Tim McElgunn in Cherry Hill, NJ at tmcelgunn@bna.com

To contact the editor responsible for this story: Bob Emeritz at bemeritz@bna.com