Advanced Television

AT&T: DirecTV deal boosts competition but won’t lower prices

June 25, 2014

By Colin Mann

Randall Stephenson, Chairman, CEO, and President of AT&T, has told the United States House of Representatives, Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial and Antitrust Laws that there are “significant” consumer benefits of AT&T’s acquisition of DirecTV, and that the transaction would enhance rather than reduce competition. He also claimed that a merger would “dramatically” improve the economic case to invest in new broadband infrastructure.

Addressing the Committee Hearing on The Proposed Merger of AT&T and DirecTV, Stephenson described the transaction as about meeting consumer demand. “It’s about providing consumers with the integrated video and broadband Internet services they want, delivered over any type of device, to nearly anywhere in the country. It’s about fuelling investments that bring new and faster broadband connections to millions more Americans, the vast majority of whom reside in underserved rural areas. It’s about bringing new competition, new services, and new levels of customer satisfaction in ways that neither company could do on its own,” he stated.

He said that by integrating DirecTV’s video capabilities with AT&T’s strength in fixed and mobile broadband delivery, the pair would create a new competitor with unprecedented capabilities. “And, the substantial cost savings and other synergies associated with the transaction will allow us to price all of our services more competitively, which will drive cable and other competitors to lower their prices and improve their own offerings,” he claimed.

He suggested that the transaction fundamentally improves the business case for expanding AT&T’s broadband infrastructure to millions more Americans. “Indeed, being able to offer DirecTV’s video product on a nationwide basis gives us the confidence to expand and enhance our high-speed broadband service to at least 15 million customer locations across 48 states, mostly in underserved rural areas, within four years after deal close. This represents a multi-billion dollar commitment of capital that AT&T simply could not make without the ability to pair DirecTV’s video products and scale with our newly-expanded broadband services,” he said.

According to Stephenson, the transaction will position AT&T to meet consumers’ evolving video preferences and, in particular, to propel the development of new over the top video services offered by AT&T, Netflix, Hulu, Amazon and others. And, we will do all that while meeting or exceeding the FCC’s net neutrality standards and extending our best-in-class diversity and labour practices to the employees and suppliers of the combined company.

Among the detailed points Stephenson made in his evidence was a lack of geographic coverage compared with the cable industry and a lack of scale needed to forge strong relationships with programmers and compete effectively against the dominant cable companies.

“The merged company will be perfectly poised to give consumers what they want. This transaction solves our challenges in video and realises the full potential of our networks. We will combine Internet and home services with video and video interfaces. Our mobile network can become a national video distribution system. Video can be delivered everywhere to mobile phones, computers, tablets, cars, even planes. We will offer value to programmers that will lead to better traditional video services and bundles and to new over-the-top video services,” he assured.

“By combining complementary services and generating deep cost savings and operational synergies, the merger allows AT&T to price more competitively and to provide a higher quality experience,” he said.

He described the addition of a profitable video product to AT&T’s portfolio as “a game-changer” in the economics of deploying broadband. “This transaction will allow us to lower content costs for AT&T video subscribers by 20 per cent or more, and we project total cost synergies to exceed $1.6 billion annually within three years after closing. These transformative effects will dramatically improve the economic case to invest in new broadband infrastructure to millions of customer locations,” he advised.

In terms of competition, he advised that the vast majority of the country, AT&T and DirecTV do not compete at all. “In those areas, the transaction unambiguously enhances competition because it makes AT&T a stronger competitor and will accelerate innovation and the deployment of new broadband infrastructure,” he suggested, adding it was unlike most mergers because it primarily combines complementary products and capabilities.

“AT&T operates in a competitive environment that is only becoming more competitive. The cable companies already dominate both broadband and video. Google Fiber, Netflix, ever-faster mobile wireless services and others are transforming competition on a daily basis. This transaction gives AT&T the combination of capabilities to be a more effective competitor to cable and to anticipate and lead in the fast-changing world of communications and entertainment,” he stated.

Stephenson also told Congress that combining with DirecTV will provide more bargaining power with television programmers that can put “downward pressure” on prices. But he wouldn’t commit to actually lowering customer bills, only saying that price increases can be “mitigated.”

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