AT&T, DirecTV Merger Hearings Underway at the House, Senate

Witnesses have begun explaining the complicated pros and cons of an AT&T-DirecTV merger to House and Senate subcommittees.

AT&T DirecTV merger

AT&T and DirecTV executives told tales of changing times, fast-advancing technologies and underserved Americans in rural areas, as they presented their case for a proposed merger before the U.S. House of Representatives Subcommittee on Regulatory Reform, Commercial and Antitrust Law June 24.

After the morning's hearing with the House (which all testimony that follows is from), the merger candidates moved on to an afternoon date with the Senate.

Joining AT&T Chairman and CEO Randall Stephenson and DirecTV Chairman and CEO Michael White on the House's witness list were Ross Lieberman, senior vice president of Government Affairs at the American Cable Association, and John Bergmayer, senior staff attorney with consumer advocacy group Public Knowledge.

Both White and Stephenson argued that together their companies will do "what neither company can do on its own." They'll offer competitive bundles of services that enable consumers to "watch more of what they want, when they want and where they want"; provide new or faster broadband to at least 15 million consumers, most of them in rural areas; and compete more effectively with cable bundles by creating a "new and unique alternative," said White, who also highlighted a faltering DirecTV.

Because the pay-TV provider currently isn't great at bundling, White explained—even showing screengrabs of competitors' ads highlighting DirecTV's inability to offer a "really good Internet package"—subscriber growth has slowed in recent years. While it has tried to address its shortcomings via partnerships, including a partnership with AT&T, such arrangements ultimately make for a bad customer experience, said White, since they're more expensive, installation is difficult and customer support is two-pronged, instead of unified.

Stephenson testified that AT&T and DirecTV have few overlapping pay-TV markets and so very little competition would be lost. Consumers would gain, instead, a "new competitor with unprecedented capabilities." Plus, he continued, "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."

The transaction would allow AT&T to lower content costs to video subscribers by at least 20 percent and create cost synergies in excess of $1.6 billion annually within three years. "These transformative effects," continued Stephenson, "will dramatically improve the economic case to invest in new broadband infrastructure to millions of customer locations."

Customers in rural locations will particularly benefit from the merger, said Stephenson, promising to build and enhance high-speed broadband service "to at least 15 million customer locations, most of them rural, within four years of the transaction closing."

Further, AT&T will bring broadband Internet access to 13 million customers in rural areas in 48 states.

"Rural customers will be able to purchase this new broadband service, DirecTV and IP telephone service with advanced features and larger calling areas as an integrated package or, if they prefer, on a stand-alone basis," said Stephenson. "We estimate that nearly 20 percent of these rural consumers today have no access to a high-speed wireline broadband service, and that another 27 percent are hostage to only one provider."

Stephenson added, "This is big news for rural America."

Merger Fatigue

Public Knowledge's Bergmayer worried that with so many pending mergers making headlines (Comcast/Time Warner Cable, a rumored Sprint/T-Mobile deal), "merger fatigue may be settling in." As such, he welcomed scrutiny of whether each merger could significantly reduce competition and harm the public interest.

In the case at hand, AT&T has failed to prove that competition wouldn't be harmed, or that the deal is in the public interest, Bergmayer argued. Further, he said, AT&T's "record of following through on past public interest commitments gives good reason to be skeptical even of the limited claims it makes."