FCC Chair gives AT&T/DirecTV Merger Preliminary Approval…with a Catch

7/22/2015

Tom Wheeler, the chairman of the Federal Communications Commission (FCC), announced his support on Tuesday of AT&T’s $48.5 billion merger with DirecTV. The announcement makes it very likely that the deal will pass any forthcoming regulatory obstacles involved with completing such a massive consolidation. Wheeler’s approval is conditional however; contingent on the willingness of the two companies to abide by the new Net Neutrality laws that went on the books June 12^th. The rules prohibit providers from slowing down, speeding up, or blocking internet use based on payment. The deal must still be approved by the other 4 FCC commissioners, although Wheeler’s endorsement should make that more of a formality. The merger will also require approval from the Justice Department, who reviews all major mergers and acquisitions over antitrust concerns. While the merger is expected to pass the regulatory scrutiny, the department did pressure Comcast to walk away from a deal to acquire Time Warner earlier this year over  concerns that the combined company would occupy too much of the limited internet bandwidth, reducing customer options.

The new rules are currently under appeal by several internet service providers (ISPs), however Wheeler noted in his press-release that, “the conditions will build on the Open Internet Order already in effect.” AT&T has agreed not to “exclude affiliated video services and content from data caps on its fixed broadband connections.” In other words, the combined company would not limit any traffic that comes across any of its services although the company can set caps on content from other providers; however it cannot favor one outside provider over another. Streaming content providers, most notably Netflix, have complained that companies like Comcast and Verizon charge them additional fees due to the high volume of data transmission. It is unknown yet if the new rules will completely curb the practice, the FCC will review these deals on an individual case basis. Wheeler also stated that the FCC will appoint “an independent officer to help ensure compliance with these and other proposed conditions.” AT&T’s cooperation will certainly enhance the agency’s argument for the rule changes during the appeals process.

Unlike the Comcast/Time Warner deal, Wheeler believes that this merger will actually enhance customer experience, noting the investment that the company is planning to make for additional access to streaming and other online options. While the merger does reduce competition to some degree, Wheeler noted the enhanced opportunity for customers to access AT&T’s gigabit broadband service. The company has agreed to expand the service tenfold to 12.5 million customers, expanding consumer access to the high speed fiber-optic broadband networks by 40 percent, and triple the number of metropolitan areas with the service. While AT&T’s U-verse TV service is offered in certain regions, the addition of DirecTV will allow the company to provide nationwide television service as well. Combined, the company will be able to give customers the opportunity for a “quadruple play” bundle, combining mobile phone, landline phone, high-speed internet, and pay-TV services. AT&T’s investment also helps to refute the theory that companies will not be as willing to innovate due to the broadband industry’s reclassification under Title II of the Communication Act, from that of an information provider with little oversight, to that of a common carrier, similar to many landline phone and other utility companies.

Despite many, including Forbes contributor Nelson Grandados, believing that the merger is a win-win-win for the FCC, AT&T/DirecTV, and consumers, some still question the amount of influence a single company should have within the industry. Consumer advocacy groups such as Public Knowledge are skeptical if the additional clout of the combined company will really benefit consumers, and will instead prevent any smaller telecom providers from remaining competitive. Also, the deal will help to give cause for other companies to merge within the industry in order to remain competitive, thus limiting competition further. That complaint may be both futile and late in coming. In addition to this deal, Charter Communications has already agreed to purchase Time-Warner, and T-Mobile and Dish Network have also agreed to combine. Given Wheeler’s comments and AT&T’s Net Neutrality cooperation, the merger sets a conditional precedent that could make regulatory approval of the other deals easier, provided that they also agree to comply with the new rules in a similar manner.

Sources:

CNET – Marguerite Reardon

Forbes – Nelson Granados

U.S. News and World Report – Tom Risen