AT&T, DirecTV Proposal Hastens Media Consolidation

Senators criticize telecom deal as latest in a trend that damages consumer protection.

This May 19, 2014, photo shows a satellite dish belonging to DirecTV in Washington, D.C.

AT&T announced Sunday that it plans to buy satellite television provider DirecTV for $48.5 billion.

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The rapid shift in the telecom business is gaining momentum with AT&T’s proposed $48.5 billion acquisition of DirecTV, presenting the Federal Communications Commission with a second large merger that could allow two giant companies to dominate the U.S. online video market. AT&T’s proposal, announced Sunday, has already met swift criticism from high-ranking senators worried that growing the companies could allow them to set prices of their choosing without real competition from less-expensive services.

AT&T’s decision to buy DirecTV is likely in part a response to Comcast’s plan to buy Time Warner Cable for $45.2 billion, pending approval from regulators, Sen. Al Franken, D-Minn., said in an email. The company created from the proposed Comcast deal would serve approximately 40 percent of U.S. Internet subscribers and make it the largest online video service.

AT&T’s combined company would make it the second-largest pay TV provider if Comcast’s deal is approved. DirecTV is a nationwide competitor with AT&T in online video, so a merger would serve 26 million Americans and reduce the number of providers in the sector. Consolidation in deals like this is taking the telecom industry in “exactly the wrong direction,” Franken said.

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“I’ve been concerned about media consolidation for years because of its impact on competition and on consumers,” Franken said. “Comcast has argued that its acquisition of Time Warner Cable would spur more competition in the telecommunications industry. What we’re seeing is the exact opposite: It’s spurring even more consolidation.”

This trend of consolidation is in part a tactic to change with the times, as telecom companies try to combine assets to offer more services in an era when more businesses are developing their own shows and other video, which customers are watching more often on devices rather than via TV.

“This is a unique opportunity that will redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens – mobile devices, TVs, laptops, cars and even airplanes,” said Randall Stephenson, CEO of AT&T, in a press release announcing the deal Sunday.

Other telecom companies have acquired or merged with rivals in recent years, including Comcast and NBCUniversal in 2011 – a merger that Franken also opposed.

“Consumers get stuck with worse service and higher bills when a few huge corporations get so much control over information distribution,” Franken said.

The fate of these telecom deals rests with the Justice Department, which reviews antitrust concerns, and the FCC, which reviews public interest concerns, to determine whether consolidation would improve efficiency and consumer services enough to be worth a potential negative impact on competition.

[FCC Limits Verizon, AT&T's Spectrum of Buying Power]

“I am concerned that the telecommunications marketplace is trending even further toward one that favors big companies over consumers,” Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., said in a press release on the deal.

Verizon and AT&T are the two largest mobile providers, and set prices they favor with a de facto agreement not to compete in other areas in a way that could pressure either firm to lower costs or improve services, according to past statements from Susan Crawford, a former tech policy adviser for the Obama administration. Crawford is now a visiting professor at Harvard Law School.

AT&T promised to expand broadband access in rural areas if the merger with DirecTV is approved, and to preserve DirecTV cable packages as a standalone service for three years.

“I welcome the commitments made by the two companies to enhance service to rural America, but those commitments must be real and quantifiable, and the companies have to live up to their promises,” said a press release from Senate Committee on Commerce, Science, and Transportation Chairman Jay Rockefeller, D-W.Va.

AT&T and Comcast have also each pledged to uphold the ideals of net neutrality and treat all digital traffic equally through their services if their separate mergers were approved. A federal appeals court struck down the 2010 open Internet order that codified those regulations, so the companies are offering the conditions as back-door regulation. During Comcast’s acquisition of NBCUniversal, the company also agreed to conditions including granting rival businesses access to NBCU programming for online video services.