AT&T: DirecTV Deal Could Lower Prices, Force Comcast, Other Cablecos to Do the Same

By Josh Long

**Editor’s Note: Please click here for a recap of the biggest communications mergers in Q1 2014.**

AT&T’s $49 billion acquisition of DirecTV will enable it to offer a “compelling” package of television and high-speed Internet services and better compete with U.S. cable companies, the telecommunications giant said Wednesday in a filing with the Federal Communications Commission.

“Through this combination, the companies will marry complementary assets to achieve what they could not achieve separately or through a contractual arrangement: a compelling bundle of video and broadband services,” AT&T declared in an executive summary of a public interest statement filed with the FCC.

Such packages have proved immensely popular — according to AT&T, more than 97 percent of its 5.7 million video customers subscribe to a bundle.

Competing with Cablecos

AT&T characterized its own video service, U-verse, as “uneconomic and not fully competitive with cable providers.” And while DirecTV has entered arrangements to offer broadband and/or voice services through third parties including AT&T, both companies “have been unable to make significant inroads against the integrated offerings of entrenched cable companies,” according to the executive summary.

AT&T, whose incumbent territory spans 22 states, has plans to cover 33 million locations with “fiber to the node” or “fiber to the premises” technologies that can deliver video services. But the company said that territory would cover less than one-quarter of all TV homes in the United States. AT&T indicated its lack of scale has hindered its ability to acquire content, the largest variable cost facing multichannel video programming distributors.

The merger will enable the combined companies to better compete with cable companies, whose “dominance” in the broadband and video services market will “swell even further” if the FCC approves Comcast’s $45 billion acquisition of Time Warner Cable, AT&T said, also referencing related deals between Comcast and Charter Communications. 

Charter has agreed to acquire 1.4 million Time Warner Cable subscribers following completion of the Comcast/Time Warner Cable merger. The divestitures will make Charter the second-largest U.S. cable company.

Lower Prices for Consumers?

AT&T indicated its merger with DirecTV could result in the combined company offering lower bundled prices, forcing cable companies to react with more competitive prices as well — benefiting American consumers.   

“There will be significant downward pressure on the prices of the new integrated bundles of AT&T broadband and DirecTV video, even without factoring in the improved quality such bundles will offer consumers,” AT&T declared. “There will also be downward pressure on the prices of cable bundles and standalone broadband and video products offered by cable operators.”

Commitments 

AT&T said it would make a number of commitments to preserve competition in the video market. The company outlined the following commitments: provide fiber to the premises wireline broadband service to 2 million additional customer locations; and for three years after closing: