AT&T lays out why DirecTV merger is good for consumers

Major telecoms are gearing up for a year of mergers, and AT&T laid out its case this week. It says that the merger with DirecTV would drive down the price of cable bundles and allow both companies to compete with the potential Comcast/Time Warner Cable behemoth.

By , Correspondent

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    The AT&T logo is shown on the side of a corporate office in Springfield, Ill., left, and a DirecTV satellite dish is shown atop a home in Los Angeles. The DirecTV deal helps AT&T expand its stake in Internet-delivered video.
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Though Comcast’s merger with Time Warner Cable has dominated headlines this year, it isn’t the only major telecommunications merger the Federal Communications Commission is facing.

Last month AT&T announced a plan to buy DirecTV for $48.5 billion. Obviously, one of the nation’s largest telecom companies purchasing a major satellite TV company has regulators concerned, and the FCC and Department of Justice are currently taking a look at the deal. This week AT&T laid out why the merger would be good for the American consumer, but that doesn’t mean there aren’t lingering questions.

In a public statement filed on Wednesday, AT&T says that the merger with DirecTV will actually allow competition in the cable market to flourish, because it would allow AT&T and DirecTV, two smaller cable companies, to compete with cable giants such as Comcast and Time Warner Cable (which could soon become one major cable behemoth).

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More specifically, AT&T says that since DirecTV only offers satellite services and not broadband, DirecTV will be crushed by the larger cable companies. AT&T pointed out that most customers purchase their cable plans “bundled,” meaning that they get a comprehensive package of TV, Internet, and phone. With the merger, AT&T says DirecTV could offer that option and compete with larger companies that handle all of these services.

On the other hand, AT&T says it doesn’t have the market influence it needs to provide a bundle that can compete with larger cable companies. It says that with DirecTV’s satellite services, it can lower the price of its cable bundles, therefore also forcing the price of Comcast and/or Time Warner Cable’s bundles.

"Each company cannot provide on its own what consumers increasingly demand: an integrated and efficient bundle of high-speed broadband and high-quality video from a single provider,” AT&T said in the filing.

Overall, AT&T does have fewer Internet and cable subscribers than Comcast, but it makes significantly more revenue: last year, it made $128.8 billion in revenue while Comcast made $64.7 billion. Comcast’s executives have said that regardless of merger outcomes, cable bundle prices would not go down, or even increase slower.

The major concern is where AT&T and DirecTV’s markets overlap. AT&T operates in 22 states, a smaller number than Comcast and Time Warner Cable, and the company says that this makes it more difficult to compete with these two cable giants. If the merger goes through, AT&T and DirecTV would have access to more than 48 states and would expand broadband access to mostly rural areas. The FCC and Department of Justice are likely to have questions about whether this improves competition or just extends AT&T’s reach.

AT&T also says it will abide by the 2010 net neutrality rules (the ones that were thrown out in a January court decision) for at least three years after the merger.

The merger is subject to questions and approval by the FCC and Department of Justice. If it goes through, it will likely be finalized by May 2015.

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