AT&T-DirecTV Leverage With Programmers May Not Cut Bills

AT&T Inc. Chief Executive Officer Randall Stephenson told Congress that combining with DirecTV will provide more bargaining power with television programmers that can put “downward pressure” on prices.

Stephenson wouldn’t commit to actually lowering customer bills, only saying that price increases can be “mitigated.”

“A lot of consumers would find that answer unsatisfying,” Senator Richard Blumenthal, a Connecticut Democrat, said at the second of back-to-back hearings in Washington today. “If I’m the ordinary consumer I’m rolling my eyes.”

AT&T’s plan to buy satellite-television provider DirecTV for $48.5 billion follows Comcast Corp.’s proposal to acquire Time Warner Cable Inc. The two transactions stand to reconfigure U.S. telecommunications and are encountering skepticism from some in Congress as regulators debate whether to approve the deals.

There may be too much consolidation in the industry happening too quickly, Representative John Conyers, a Michigan Democrat, said at the earlier hearing before the House Judiciary Committee’s panel on antitrust law. The concept that merging allows companies to better compete may spur further deals, he said.

“What’s to stop competitors from using the same argument to justify even further consolidation,” he said. Future mergers “will without question result in fewer firms and may harm consumers by limiting choices and raising prices.”

‘Competitive Harm’

AT&T is the second-biggest U.S. mobile-phone carrier and operator of the television and Internet business U-verse. Consumer groups have sought to block the acquisition of DirecTV, saying AT&T has failed to show that combining with the nation’s largest satellite-TV company wouldn’t harm competition.

“The proposed merger would remove a pay-TV competitor from many local TV markets —- a direct competitive harm,” John Bergmayer, senior staff attorney with the Washington-based policy group Public Knowledge, told lawmakers. “Yet it offers only to do some limited price-matching for three years.”

DirecTV, based in El Segundo, California, is in every state, and Dallas-based AT&T sells U-Verse, its bundled broadband and television product, in parts of 21 states.

AT&T would gain 38 million video subscribers in the U.S. and in Latin America to compete as cable-TV providers such as Comcast bulk up. Comcast, the largest U.S. cable-TV company, proposed buying No. 2 Time Warner Cable in February. In addition, Japan’s SoftBank Corp. is eyeing T-Mobile US Inc. after buying control of Sprint Corp. last year.

Challenge Cable

“This is not Comcast/Time Warner, this is not two cable companies getting together,” Stephenson said in response to a question from Representative Darrell Issa.

Issa, a California Republican, had asked whether media companies need mergers to be viable competitors. Issa mentioned the Comcast-Time Warner deal and the possible bid for T-Mobile by Sprint.

AT&T and DirecTV said they would combine their complementary services and allow the new company to meet demands from consumers, who want bundled services that combine pay TV and broadband services.

The transaction “is overwhelmingly about the combination of complementary assets and products,” DirecTV Chief Executive Officer Michael White said at the Senate hearings. “It will create a company that will offer new services at a better value for customers.”

Open Internet

Senator Mike Lee, a Republican from Utah, said one benefit from the deal is AT&T’s plan to expand high-speed Internet access to rural areas.

“This deal may thus offer some real efficiencies and benefits to consumers,” he said during the second hearing before the Senate Judiciary Committee’s panel on antitrust and competition.

The AT&T deal, like Comcast’s merger, needs approval from U.S. regulators that opposed AT&T’s unsuccessful bid in 2011 for T-Mobile, saying it would damage competition. Congress doesn’t have a vote on the mergers. It oversees the regulators, approving their budgets.

AT&T, in announcing its deal May 18, promised the new company wouldn’t raise rates for at least three years on stand-alone broadband service and DirecTV video purchased separately.

AT&T pledged to roll out more high-speed broadband connections, a sweetener for the administration of President Barack Obama, which has made more broadband a policy priority.

AT&T said it will commit to abiding by the principles of net neutrality for three years, meaning it won’t block websites or selectively speed or slow Internet traffic.

The Federal Communications Commission is writing new net-neutrality rules to replace regulations it passed in 2010 that were rejected by a court this year.

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