Update 9/25/2014: DirecTV shareholders approve $48.5 billion AT&T deal
It’s hard to imagine that AT&T’s $48.5 billion merger with satellite TV service provider DirecTV will result in increased competition for consumers. That said, I’m sure AT&T will do its best to “prove” this will indeed be the end result.
But reasonably speaking, there are a few things you can probably expect to happen should that merger gain approval from federal regulators.
Media consolidation as a business strategy
To really understand what effect a ATT-DirecTV merger would have on competition, you’ll have to think about the long term. Should federal regulators approve this deal, it will solidify the notion that consolidation is the most reasonable path for media companies looking for a solid business strategy.
That’s the wrong message we should be sending to these companies, which could be spending billions of dollars to innovate and upgrade existing services to grow the business instead of just merging.
“For the amount of money and debt AT&T and Comcast are collectively shelling out for their respective mega-deals, they could deploy super-fast, gigabit-fiber broadband service to every single home in America,” president of media advocacy group Free Press Craig Aaron said in a statement to VentureBeat.
“But these companies don’t care about providing better services or even connecting more Americans. It’s about eliminating the last shred of competition in a communications sector that’s already dominated by too few players,” he added.
Fewer real choices
A DirecTV service under AT&T might actually have more clout than the current iteration, but that would come at a cost that may not manifest itself for years. AT&T already has relationships for content licensing through its Uverse cable TV service, which could be used or combined when negotiating for DirecTV.
Why does this matter? Well, basically it means that Uverse and DirecTV’s programming will likely be very similar if not identical over the next few years. That means you’ve got one less choice for a pay TV service if you’re unhappy with AT&T as a cable TV provider.
“I’m skeptical that this deal is in consumers’ best interest,” said Sen. Al Franken (D-Minn.) in a statement about the merger.
“We’re moving toward an industry with fewer competitors — where corporations are getting bigger and bigger and gaining more and more control over the distribution of information. This hurts innovation, and it’s bad for consumers, who have been getting squeezed by higher bills.”
Franken said he plans to raise these issues with his fellow members of Congress.
AT&T likely wants this DirecTV merger to go through so that it can bundle the TV service along with its wireless cellphone plans. Both of these services are available nationwide, which would give AT&T an advantage over other carriers who don’t have a national option for bundling.
It also allows AT&T to charge more if you don’t want to bundle services while still being able to tell people prices are coming down.
For further proof that prices won’t come down, you need only look to the other massive media-company mashup being discussed, the Comcast-Time Warner Cable merger. Neither of those companies promised lower rates for television or Internet services, citing the high cost of content licensing agreements and expensive costs associated with upgrading existing broadband infrastructure.
Don’t be surprised if the same is true for AT&T, starting with a potentially much more expensive licensing deal to renew DirecTV’s NFL Sunday Ticket.
Of course, AT&T might also get a nice price break after becoming a more powerful player in the pay TV space, too.
“Two providers are going to control well over half of the pay TV market. More than half of all subscribers will belong to AT&T or Comcast. This gives leverage back to the service providers,” IDC analyst Greg Ireland told VentureBeat.
“If you’re the programmer, you have only two major distributors to work with.”
Ireland said this could cause programmers to be a bit more willing to negotiate lower pricing but that willingness is no guarantee the savings will get passed down to consumers.
Appearance of more choice
Should federal regulators approve an AT&T-DirecTV merger, it would likely be after the newly merged company agreed to some stipulations. One of those could be that AT&T has to sell off its existing TV service Uverse to a competitor. (Either that or all Uverse customers would be transitioned to DirecTV.)
Having recently forged a tentative agreement to take a large chunk of subscribers from Comcast-TWC, Charter might be one company that could take these Uverse customers. Alternately, the newly formed SpinCo (a new cable provider entity created by Comcast and Charter, post-Comcast/TWC merger) could also absorb some of those AT&T customers. And let’s not forget Cablevision or Cox.
One important thing to point out here is that none of these competitors are large enough to compensate for the loss of a major TV service provider like DirecTV.
VentureBeat staff writer Mark Sullivan contributed to this article.
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