AT&T, DirecTV Face Consolidation Fears in Congress

Merger that would serve 26 million people faces worries on antitrust and growth of online video.

A DirecTV sattelite dish sits on a roof on May 19, 2014, in New York City.

AT&T's proposed purchase of satellite television provider DirecTV has stoked concerns over consolidation in the telecom industry.

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Decisions regulators make on the proposed mergers of media giants in the coming months will reshape the telecom industry, so the House and Senate will discuss the merits of one of those proposed deals Tuesday during hearings with the top executives of DirecTV and AT&T.

DirecTV is a nationwide competitor with AT&T in online video, so a merger of these companies would serve 26 million Americans and reduce the number of providers in the sector.

[READ: AT&T, DirecTV Proposal Hastens Media Consolidation]

The deal risks opposition from regulators because it would merge direct competitors in the video business, but potential consumer benefits may result in approval, says Paul Gallant, a managing director at Guggenheim Partners investment firm.

“I suspect AT&T’s commitment to limit DirecTV pricing and expand broadband availability will ultimately get this merger over the finish line,” says Gallant, a former legal adviser to the FCC.

Company officials are expected to argue the deal was in the public interest.

DirecTV CEO Michael White said in his prepared remarks for the House hearing that when the company expands its video services to AT&T Wireless devices, it could in turn lower content costs and allow the combined firm more money to expand broadband to 15 million more customers in rural areas within four years of the deal.

The merger is a response to the evolving online video industry but the core business of AT&T will “remain the wireless and wireline delivery of broadband,” the company’s CEO Randall Stephenson said in prepared remarks for the House hearing.

[ALSO: FCC Limits Spectrum-Buying Power of Verizon, AT&T]

Along with the $48.5 billion deal proposed by AT&T and DirecTV, regulators are also considering Comcast Corporation’s proposed purchase of Time Warner Cable for $45.2 billion, just a year after Comcast completed its acquisition of NBCUniversal, giving it vast ownership of programming. AT&T’s combined company would make it the second-largest pay TV provider if Comcast’s deal is approved.

There are also reports Sprint and T-Mobile are planning a merger, which would reduce the top four players in the telephone market to three. Pressure from the Department of Justice and the Federal Communications Commission led AT&T to abandon its proposed merger with T-Mobile in 2011, so it is unclear whether the Obama administration would see the loss of a major U.S. telecom as damaging to competition.

The DOJ will review antitrust concerns, but the provisions of AT&T’s deal may appeal to the FCC’s broader analysis of public interest concerns, including whether the merger would improve efficiency and consumer services. AT&T is already catching fire from Democratic members of Congress, including Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., and Sen. Al Franken, D-Minn.

“I am concerned that the telecommunications marketplace is trending even further toward one that favors big companies over consumers,” Leahy said in a news release after the announcement of AT&T’s merger proposal.

In their separate proposals AT&T and Comcast have 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 backdoor regulation.

[MORE: AT&T Eyes Football in DirecTV Buy]

“We will have every incentive to work with, rather than against, the new generation of over the top providers of interactive and video services like Netflix, Amazon, and Google,” Stephenson said. “Our broadband and mobile Internet access services depend on creating and delivering that rich environment of cutting edge content.”

Scrutinizing AT&T’s claims of consumer benefit during the House hearing will be John Bergmayer, senior staff attorney for consumer advocacy group Public Knowledge. Arguing in his prepared remarks that AT&T has not proven the deal would benefit consumers and preserve competition, Bergmayer said the telecom’s plans to upgrade its networks may actually be a current pending investment rather than the expected result of cost savings from the deal.

“AT&T claims that these cost savings will allow it to become more competitive with cable – but it does not commit to actually lowering its prices or improving its service in any specific, verifiable ways,” Bergmayer said. “ In short, AT&T has not provided the compelling public interest justification it needs if it is to be allowed to purchase DirecTV.”