AT&T (T, Financial) is making every effort to win the seal of approval for its DirecTV (DTV, Financial) merger proposal from the FCC. The second largest U.S. telecom provider is hopeful to get through the regulatory process to join forces with the pay-TV provider and enhance its offerings. AT&T claims that the mega-merger would enable it build a solid fiber-based video network and provide attractive bundled services in addition to bolstering its bottom line by lowering programming costs.
The acquisition will increase AT&T’s video customer base phenomenally from 5.7 million to 20.3 million. Additionally, AT&T’s pay-TV customer base would also improve to 26 million. The regulatory rule is expected anytime soon and is very likely to be in favor of the deal, though not without some last-minute opposition from rivals. Here’s a low-down on the latest from the deal.
Final hurdle before the finish line
The anxiety among cable providers is rising as the deal nears the final verdict. If regulators award a go-ahead to the merger, AT&T and DirecTV would become the largest pay-TV distributor in the country. Cable operators have petitioned the FCC to impose certain conditions to safeguard their interest and protect them from huge sports cost. The American Cable Association has appealed the FCC to put a price ceiling on what the combined entity could charge small operators for RSN rights.
Cable operators are extremely apprehensive about how the new arrangement would impact the prices of regional sports. They fear a massive price hike on DirecTV owned regional sports network operating in Pittsburgh, the Northwest, Southwest, and the region in and around the Rocky Mountain. Distribution partners presently incur around $2 to $3.77 per subscriber a month for the channels. However, DirecTV could begin demanding a higher rate from multichannel video programming distributors (MVPDs) post-merger. This would increase their cost, which in turn would be passed on to the subscribers in the form of higher subscription fees. However, AT&T and DirecTV have assured to provide cheap broadband for low-income families to calm concerns of rate hikes and make its way through such resistance.
Making commitments to facilitate deal closure
AT&T has been making broadband related promises to the FCC to assure that it will introduce the 1 Gbps fiber-to-the-premises (FTTP) service and extend it to locations spanning 11.7 million customers if its acquisition deal is sanctioned. The company also pledges to deploy FTTP and complete the build plan in four years’ time from the merger closure.
AT&T also promises to provide discounted internet to food stamp recipients provided the FCC gives a green signal to the acquisition. In a regulatory filing with the FCC, the Dallas-based carrier expressed its intentions of providing a couple of inexpensive internet plans falling within its wireline coverage to cater low-income households for a span of four years. The first plan would offer DSL-based service in areas where AT&T has installed at least 3 mbps of speed for a charge of $10 a month in the first year. Once the promotional phase ends, the monthly charge would double in the second year. The second plan would be applicable in areas where AT&T’s deployed speed is under 5 mbps. Under this plan, the company’s DSL service with speed capped at 1.5 mbps would cost a mere $5 in the first year. The price would increase to $10 a month in the next year.
AT&T would continue offering discounts for a period of four years. Comcast (CMCSA, Financial), too, runs a similar internet program called Internet Essentials. But there’s one major difference with the one AT&T’s proposed – the eligibility criteria. Only those customers that fall under the Supplemental Nutritional Assistance Program (SNAP) of the U.S. government would be eligible to join AT&T’s low-end internet service program.
AT&T is doing a lot of things that would make the deal appear favorable to the regulatory authorities and reduce their concerns. The telecom player may also agree to the FCC’s net neutrality rules, if required.
A step closer to the finish line
According to a Bloomberg report, the Department of Justice is already done with its review of the acquisition deal. A person close to the matter reported that DoJ officials have given a favorable ruling to the proposal without imposing any conditions. The ball is in the FCC’s court for the final decision. The agency may put some conditions and demand AT&T to comply with the net neutrality rules. In June, FCC chairman Tom Wheeler said that they would soon arrive with a decision. The key parties to the merger deal are hoping to get a positive result. The fate of Time Warner Cable (TWC, Financial) and Comcast deal where the FCC and the DoJ stringently opposed the proposal may raise doubts on AT&T-DirecTV’s destiny. But there are plenty of reasons to believe that the deal will succeed the regulatory test.
AT&T has made several promises that it will abide by if the FCC approves the deal. Both AT&T and DirecTV recently said that they are postponing the “termination date”. This comes as a positive sign, suggesting the deal is close to clearance. The merger has faced numerous blockades at various steps, but AT&T and DirecTV have worked through it. The proposal doesn’t raise any red flags. Both AT&T and DirecTV operate and specialize in different industries. The merger does not pose a threat to competition as seen in the case of Time Warner and Comcast, where two stalwarts of the same industry were intending to consolidate and combine their market share to create a virtual monopoly. AT&T and DirecTV are not hurting competition. The merger should get a positive response from the regulators. It’s only a matter of time.
