AT&T purchase of DirecTV: Is (much) bigger better for media consumers?

By purchasing DirecTV, AT&T would be poised to compete with the new Comcast-Time Warner behemoth. Industry officials and consumer advocates differ on the impact of the mega-merger, which requires FCC approval.

Richard Drew/AP
Traders gather at the post that handles AT&T on the floor of the New York Stock Exchange on May 19, 2014. Priming itself for the age of Internet-delivered video, AT&T Inc. said it would buy DirecTV for $48.5 billion in cash and stock, or $95 per share.

Another media super-titan is set to rise from the fast-changing telecommunications landscape after AT&T announced Sunday that it will buy satellite provider DirecTV for nearly $50 billion.

The move marks the second mega-merger between TV content providers this year, following Comcast’s acquisition of cable rival Time Warner in February – a $45 billion deal that will create an unprecedented media behemoth dominating the markets of 19 of America’s 20 largest cities.

AT&T currently operates a service called U-verse, a fiber-optic bundle of broadband, phone, and traditional TV with 5.3 million customers. But as it acquires DirecTV, it will instantly gain access to the satellite company’s 20.7 million subscribers to create the nation’s second-largest subscriber base to compete with the new Comcast giant.

“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, chairman and CEO of AT&T, in a statement.

Both mergers must be approved by the Federal Communications Commission (FCC), however, and observers say they will be scrutinized by regulators, since, as overall competition continues to shrink in the ever-changing industry, consumers could see rising prices.

Indeed, instead of promising savings for consumers as companies gain scale and efficiency, company executives say these deals only have “the potential to slow the increase in prices,” as Comcast executive vice president David Cohen told Congress this month.

Both mergers come during a tumultuous time in the nation’s blurring telecommunications industries. Companies like Comcast and AT&T control vast swaths of the Internet’s physical infrastructure – the networks of wires and cables that carry the digital information that touches nearly every aspect of modern life, from business dealings to personal relationships, and are as essential as utilities such as electricity and water.

At the same time, however, as these companies act as gatekeepers of the Internet and television offerings, they are also becoming full-fledged media competitors within the wires they control – creating incentives that could lead to uncompetitive behavior, critics say. Comcast also owns NBC Universal, and DirecTV currently owns the rights to distribute every out-of-market NFL game to viewers – one of its most valuable holdings.

“AT&T's takeover of DirecTV is just the latest attempt at consolidation in a marketplace where consumers are already saddled with lousy service and price hikes,” said Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of Consumer Reports, in a statement. “The rush is on for some of the biggest industry players to get even bigger, with consumers left on the losing end.”

The mergers also come during a time of regulatory uncertainty as the FCC has recently revamped its rules on “net neutrality,” the principle that prevented companies like Comcast and AT&T from favoring their own content over others, or slowing down their competitors for their own benefit. According to net neutrality, also known as the “open Internet,” all information flowing through the broadband pipes must be treated the same.

Earlier this year, however, a federal court ruled the FCC lacked the authority to enforce its open Internet rules. So last week, the regulatory agency voted 3-to-2 to revise its open Internet rules, for the first time allowing broadband companies like Comcast and AT&T to create an Internet fast lane for companies willing to pay extra for top-tier service – and most likely pass on those costs to consumers, net neutrality advocates say.

Still, to help win FCC approval, the companies announced they would maintain the older net neutrality rules for three years after the merger, and that DirecTV would continue to operate as a separate, stand-alone service during this time as well.

For the companies, the deal will yield greater scale and efficiency. The new titans will be able to offer a consolidated array of content and services that, if delivered separately by multiple competitors, would be frustrating and unwieldy.

The merger is a “significant win for consumers,” said DirecTV’s chief executive Mike White in a phone call with reporters Sunday. The combined company will be able to “deliver a competitive alternative to the cable bundle.”

Experts foresee more mergers like this in the coming months, pointing out how similar logic holds for companies like Verizon, satellite provider Dish Network, and cable operator Cox Communications, the third-largest cable and broadband provider.

But for all the billions being spent on these kinds of mergers, say consumer advocates, the nation could be investing in state-of-the-art broadband technology to create a robust and competitive media ecosystem. Instead, a small handful of huge companies will control the most essential services.

“For the amount of money and debt AT&T and Comcast are collectively shelling out for their respective mega-deals, they could deploy super-fast gigabit-fiber broadband service to every single home in America,” says Craig Aaron, president and CEO of Free Press, a Washington-based advocacy group. “But these companies don’t care about providing better services or even connecting more Americans. It's about eliminating the last shred of competition in a communications sector that's already dominated by too few players.”

[Editor's note: The spelling of DirecTV has been corrected throughout this story.]

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