In what appears to be the year of telecommunication consolidations, AT&T has just joined the race to becoming the country’s largest Internet and TV provider by announcing a bid for DirecTV. Such a merger—marrying the largest U.S. wireless company and the largest U.S. satellite television provider—would propel AT&T to the No. 2 spot in the telecommunications arena, behind a combined Comcast and Time Warner Cable (“TWC”), for which a merger is still pending. This deal, if approved, has been commended by some as a win for business in the United States, while condemned by others as a loss for consumers.
The Deal Terms
The proposed deal includes a stock and cash offer of $48.5 billion for DirecTV, where AT&T would pay DirecTV shareholders $95 per share. This would give DirecTV a 10 percent premium over last week’s closing price of $86.18 per share. Since rumors of the deal were leaked in April, DirecTV shares rose 12%, which benefits the company’s shareholders. The deal also includes a $1.4 billion “break-up fee,” in the event that DirecTV pursues a transaction with a higher bidder. In addition, AT&T has agreed to assume DirecTV’s debts, which values the deal at $67 billion. The merger received the approval of both boards on Sunday, May 18.
Although the merger will increase AT&T’s customer base, making it the second largest Internet and TV provider in the country, the deal has been heavily scrutinized. In addition to scrutiny from regulators and consumers, analysts and investors have criticized AT&T for purchasing DirecTV at a time when satellite subscriptions are giving way to web-based television services, such as Netflix.
Setting Up the Deal for Regulatory Approval
AT&T is geared up to make its case for regulators that will soon have to decide whether to approve the merger, promoting the deal as an opportunity to deliver Internet and TV services on a larger scale, through the use of multiple mediums. Among other strategies, the company is appealing to the Obama administration’s goal to increase access to the Internet by marketing a plan to increase the areas of service, with a specific focus on rural areas that currently lack broadband access. In addition to broadband expansion, AT&T has outlined a speed guaranty provision for its customers, a DirecTV continuance for at least three years at the current DirecTV prices, and a renewed commitment to net neutrality as “commitments” for the merger.
Competitive Concerns
Perhaps the largest hurdle that the merger will have to overcome is the competitive concern that comes along with the consolidation. The most glaring concern is that the merger will remove competition from areas where AT&T’s U-verse service currently competes with DirecTV for television services. At first glance, this may appear to be the same concern that any large telecommunications merger, such as Comcast-TWC, presents. However, the Comcast-TWC does not present the same overlap of service, and therefore does not carry the same danger of limiting competition. Therefore, according to Amanda Walt, a former antitrust attorney at the Federal Trade Commission (“FTC”), the AT&T deal does not pose the same competitive concerns as the Comcast-TWC merger. Because the AT&T deal would remove competition over the same types of products in the same market, the antitrust competitive concerns posed by the deal may even be more concerning than the ones posed by the Comcast-TWC merger.
Reaction to the Deal
Many of the individuals opposed to the Comcast Time Warner Cable merger, are standing in opposition to the announced AT&T-DirecTV merger for similar reasons: consumers fear that consolidation of the nation’s larger telecommunication providers will eliminate all remaining competition in the market and create a monopoly environment that will lead to higher prices.
The consumer advocacy group Public Knowledge, among many other such groups, has been a vocal opponent the telecommunications mergers. The group’s main concern can be summed up in one simple sentence: “the industry needs more competition, not more mergers.”
While the AT&T deal has to first endure the long road to regulatory approval, one thing is certain: between Comcast-TWC, AT&T-DirecTV, and a potential deal between Sprint and T-Mobile for $30 billion, telecommunication competition is sure to suffer this year. While proponents of these proposed mergers claim that this is an opportunity to “redefine the video entertainment industry and create a company able to offer new bundles and deliver context to consumers across multiple screens,” the dark side of the mergers is not to be overlooked. Consolidation of the largest companies in the telecommunication industry means less competition in the market, which could carry with it higher prices and less accountability to customers.