Market Scrutiny to Follow AT&T-DirecTV Deal Approval

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By Lydia Beyoud

July 28 — The Federal Communications Commission released the text of its recent order approving a merger between AT&T Inc. and satellite provider DirecTV Inc. to become the nation's largest pay TV provider with more than 25 million video subscribers.

The FCC announced approval of the $48.5 billion merger on July 24. Commissioner comments released with the text of the order July 28 reveal broader concerns with the state of competition in the pay TV and over-the-top video markets.

“A combined AT&T-DirecTV offers consumers a viable competitor to cable by providing a bundle of broadband and video,” FCC Chairman Tom Wheeler said in his statement. “Competition means lower prices for both customers of the new company and customers of cable.”

Yet Wheeler also acknowledged that the combined entity could pose risks to market competition by causing about a quarter of U.S. households to lose a pay TV competitor. And AT&T's ability to provide pay TV programming nationwide could lead the company to throw up roadblocks to emerging services using broadband to distribute paid TV content, he said.

Wheeler and fellow commission Democrats approved the deal with a number of conditions that they said should serve to counterbalance the potential for consumer harm, among them a commitment to bring high-speed fiber-to-the-premises broadband to nearly 10 times as many households as AT&T currently provides, and increase the nation's residential fiber build by more than 40 percent.

Democratic Commissioner Mignon Clyburn approved the deal but raised concerns with a combined AT&T-DirecTV's ability to make it more difficult for smaller multichannel video programming distributors to access programming at affordable rates.

She called on Wheeler to initiate proceedings to “take a fresh look” at the FCC's carriage and program access rules.

“While the analysis underlying this transaction does not find that these challenges are made demonstrably worse by this merger, I believe it is now time to reevaluate our program access rules, and to examine barriers to program carriage and distribution, in order to address significant concerns about the impact on small businesses and diverse or independent programmers,” said Clyburn.

Fellow Democratic Commissioner Jessica Rosenworcel also highlighted independent programming and program access issues as an area meriting additional FCC attention, beyond the parameters of the merger.

“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 in her approval of the deal.

Republicans Reject Conditions

The commission's two Republicans criticized the conditions to the merger as having little to do with the issues presented by the combined companies themselves, and instead as methods of advancing Democrats' policy goals.

Commissioner Ajit Pai, approving in part and dissenting in part, rejected any merger conditions wholesale, stating that the transaction's “benefits clearly outweigh any harms.” Democrats' claims of the potential for AT&T to block other online video programming distributors are belied by the Department of Justice's approval of the deal, Pai said. “Any attempt by AT&T to hamper its broadband customers’ access to over-the-top video providers would only end up hurting the company” and pushing them to depart for other providers, he said.

He further noted that the order's conclusions on the state of competition in the broader video marketplace were skewed toward allowing the FCC to have a stronger hand in the company's transactions.

Commissioner Michael O'Rielly approved in part and concurred in part, saying that the FTTP requirement diverts needed broadband build-out resources from rural areas to metropolitan regions. “Generally, we should be supportive of innovative, voluntary private sector solutions to connect unserved areas, but in this item we have rejected the opportunity,” he said.

He also questioned a condition requiring the disclosure of AT&T's interconnection agreements, which he said come perilously close to rate regulation of broadband. “While the item states that the record does not contain “any evidence that would support blanket restrictions on all interconnection agreements” between the applicants and online video providers, it is clear that the table is being set for exactly that,” he said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

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

Text of the order is at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0728/FCC-15-94A1.pdf.

Text of Clyburn's statement is at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0728/FCC-15-94A3.pdf.

Text of O'Rielly's statement is at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0728/FCC-15-94A6.pdf.

Text of Pai's statement is at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0728/FCC-15-94A5.pdf.

Text of Rosenworcel's statement is at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0728/FCC-15-94A4.pdf.

Text of Wheeler's statement is at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0728/FCC-15-94A2.pdf.