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AT&T’s $48.5 billion deal to buy satellite-TV provider DirecTV may not set off the same sort of regulatory alarm bells as the phone giant’s failed 2011 bid for T-Mobile. But it certainly adds an extra layer of complexity to a host of issues regulators have already been tackling, not the least of which is Comcast’s* equally large deal to acquire Time Warner Cable.

It’s a great time to be an investment banker, with the Comcast-Time Warner Cable deal, AT&T/DirecTV and a rumored Sprint bid for T-Mobile coming soon. Not so much fun for regulators as deals are stacking up like sedans at a car wash while the Federal Communications Commission struggles to complete a few issues of its own making, including the much-discussed (if little read) net neutrality proposal.

Next year, the FCC is scheduled to hold a multi-billion dollar sale of TV airwaves to wireless companies in a complicated two-sided auction that the government has never tried before. If FCC Chairman Tom Wheeler and his staff can’t convince enough TV stations to sell their airwaves, the whole thing could collapse into an embarrassing mess.

And regulators have barely begun shifting through details of Comcast’s deal to acquire Time Warner Cable (and a related deal to spin off three million subscribers to Charter Communications through a swap and establishment of a new jointly owned company).

AT&T’s deal is not necessarily good news for Comcast, since it would eliminate one competitor in the pay-TV market in at least a fourth of the country where AT&T’s U-Verse video service is currently offered.

That’s not great for Comcast, which has hinged its deal on the fact that its deal won’t decrease competition in the pay-TV market since it doesn’t currently compete in any markets with Time Warner Cable. The loss of U-Verse as a competitor doesn’t help Comcast make the case that there’s plenty of other competition in the pay-TV market.


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AT&T executives argue their deal will actually increase competition in the pay-TV business since they can offer an integrated national wireless, broadband and pay-TV service on TV, tablet and smartphone screens. It would certainly increase competition in the broadband market if, as we discuss below, AT&T expands the availability of broadband across the U.S. The company is also pledging to sell “naked” Internet — which just means you can buy Internet-only service.

Like Comcast, AT&T is trying to make it as easy for distracted regulators as possible, dangling carrots in front of the FCC and Justice Department to show them how the deal is clearly in the public’s interest. It’s a common tactic for telecom and cable companies, which use the voluntary conditions to set the starting point for negotiations with regulators.

AT&T said Sunday that it would agree to abide by the FCC’s 2010 net neutrality, or Open Internet, rules (which were tossed by a federal appeals court earlier this year) for three years if regulators approve the deal. Net neutrality is the idea that all legal Internet traffic should be treated equally, and the FCC’s old rules barred blocking of or discrimination against data or websites.

It could be an intriguing condition for the FCC, particularly given Comcast’s proposal to protect Time Warner Cable subscribers under those net neutrality rules, too. Comcast is currently the only broadband provider in the U.S. still subject to those rules (and will continue to be until 2018) as a result of a condition of its 2011 deal to acquire NBCUniversal.

Telecom research analyst Craig Moffett recently estimated that Comcast would have about 29 million Internet subscribers after it acquires Time Warner Cable (and divests some customers). AT&T currently has about 16.4 million Internet subscribers.

As of November, there were about 83 million broadband subscribers in the U.S. So if both the AT&T/DirecTV deal and Comcast’s were approved, more than half of broadband subscribers in the U.S., or 45.4 million customers, would have some net neutrality protections even without new rules.

That’s not the sort of net neutrality victory consumer advocates are looking for. But it’s better than nothing, and it could give FCC officials a way of declaring partial victory on net neutrality.

AT&T also pledged to expand high-speed Internet access to 15 million customers, mostly in rural areas where the telecommunications giant doesn’t currently provide broadband service. AT&T said the expansion would be made possible through the “synergies” it will achieve through the deal, though a spokesman could not immediately offer specifics.

This could be attractive for regulators because they’ve struggled to find ways of expanding broadband access into rural parts of the U.S. FCC officials have overhauled an $8 billion annual government program that helps subsidize phone service in rural areas to cover Internet access instead.

AT&T said it will use other approaches to deliver high-speed Internet access in more remote places, including fixed wireless local loop technologies — a complex industry term for a technology that uses a radio link to connect users to the nearest telephone network exchange.

The telecommunications company has said it hoped to extend its broadband access to 57 million customers by 2015. Its additional rural commitment would bring that number to more than 70 million.

AT&T said it would draw from a variety of technologies to fulfill its broadband commitment, which it pledged to complete within four years of the deal closing.

As part of the deal, the company would expand availability of the fiber network it launched in Austin, Texas. That service delivers a gigabit of data a second into homes, with enough capacity to deliver high-speed Internet access and television programming.

AT&T previously said it is in discussions to bring its AT&T U-verse with GigaPower service to 100 markets, including such major cities as Atlanta, Chicago, Los Angeles and San Francisco. In the wake of the DirecTV deal, it said it would explore 25 additional markets for deploying its fiber optic network.



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