FCC Seen Approving AT&T/DirecTV Soon With Conditions, Without Dissent
FCC commissioners are expected to approve AT&T's planned buy of DirecTV in coming days, since Chairman Tom Wheeler circulated a draft approval order with conditions (see 1507210078), analysts said. In notes to investors, New Street Research analysts said they expect approval “later this week or early next week (likely a 5-0 vote),” while Bank of America Merrill Lynch analysts said they expect FCC action in “3-7 business days” and without “any material opposition.”
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With the Department of Justice announcing it won’t challenge the transaction in court, FCC approval would set the stage “for deal closure early next week,” UBS analysts said. Some AT&T/DirecTV critics welcomed the proposed conditions, but others suggested they wouldn’t go far enough to address potential market harms.
Wheeler said Tuesday that the draft recommending AT&T/DirecTV approval included conditions that would boost broadband competition, including by requiring AT&T to serve 12.5 million customer locations with high-speed fiber connections. “This additional build-out is about 10 times the size of AT&T’s current fiber-to-the-premise deployment, increases the entire nation’s residential fiber build by more than 40 percent, and more than triples the number of metropolitan areas AT&T has announced plans to serve,” he said in a statement.
Wheeler said the proposed conditions would “build on” the FCC net neutrality order by addressing two deal-specific issues: To prevent discrimination against online video competition, AT&T wouldn't be allowed to exclude affiliated video services and content from its data caps for fixed broadband; and to increase transparency the telco would be required to provide the FCC with all its interconnection agreements and with regular reports on network performance. He said the agency would also “require an independent officer to help ensure compliance with these and other proposed conditions.”
Wheeler made no mention of any condition that would require AT&T/DirecTV to comply with net neutrality rules if they're thrown out in court, as Comcast and NBCUniversal accepted in conditions attached to FCC and DOJ actions approving their 2011 deal. Public Knowledge Senior Staff Attorney John Bergmayer told us Wednesday that he didn't believe Wheeler was proposing such a condition for AT&T/DirecTV, but Cogent CEO Dave Schaefer told us he believed the chairman was doing so. Someone familiar with the proceeding said there doesn't appear to be a deal condition requiring AT&T to comply with the net neutrality rules if they’re rejected in court. Various parties said some caution was in order until the full list of conditions is revealed and approved. Bank of America Merrill Lynch analysts said they expected to learn about “many more” conditions. FCC and AT&T staffers had no comment.
DOJ announced Tuesday it wouldn't challenge AT&T/DirecTV in court. “After an extensive investigation, we concluded that the combination of AT&T’s land-based internet and video business with DirecTV’s satellite-based video business does not pose a significant risk to competition,” said Assistant Attorney General Bill Baer of the Antitrust Division in a statement. “The commitments that the proposed FCC order includes, if adopted, will provide significant benefits to millions of subscribers.”
AT&T said it was pleased by the DOJ announcement and with the FCC circulation of the draft approval order with conditions (statements here and here). “We hope the order will be approved by the Commission quickly and we expect to close shortly thereafter,” AT&T said.
Cogent’s Schaeffer, who pushed for an interconnection condition, lauded the draft order. “We think it’s definitely a step in the right direction,” he told us Wednesday. “The idea of including additional oversight on interconnection agreements will help keep AT&T/DirecTV honest." Schaeffer said it was particularly noteworthy that Wheeler was facilitating the rise of over-the-top video as a major market force by preventing AT&T from using its network control to harm online competition. He also said it was significant that the FCC would take a more active “policing” role in the AT&T/DirecTV interconnection condition while it took a more reactive enforcement role in the net neutrality order, which put the onus on competitors to file complaints. “As a normal citizen, you’re presumed innocent,” he said. “But it’s almost like you are on parole; you’re under suspicion,” he said referring to AT&T under the proposed condition.
Comptel said it was pleased “interconnection was taking center stage” in the AT&T/DirecTV draft order. The transparency condition will give the FCC “the tool it needs to review AT&T’s interconnection practices to determine whether it is living up to the industry’s standard of no access fees,” CEO Chip Pickering said in a statement.
Public Knowledge applauded “any conditions that will help shed light on the opaque world of interconnection” and welcomed the condition against discriminatory data caps, Bergmayer said in a statement. “Nevertheless, as reflected in our filings, we believe additional steps would be helpful to fully protect competition and consumers.”
Free Press Policy Director Matt Wood was more critical. “The merger conditions announced thus far won't do enough to offset this deal's many harms,” he said in a statement. “We need to see the final order to pass final judgment, but what's been revealed at this point doesn’t go nearly far enough -- and doesn't appear to address the problems from pay-TV consolidation at all. … This FCC must take steps to back up Wheeler’s mantra about competition as millions of people continue to see never-ending price hikes and reduced choices.” American Cable Association President Matt Polka said the draft order lacks “key consumer protections and will result in all pay-TV subscribers paying higher prices” for TV services in Denver, Houston, Pittsburgh and Seattle, where he said AT&T/DirecTV will have increased incentive to charge pay-TV competitors “higher prices for the four Root Sports regional sports networks” they’ll control post-transaction.
But Georgetown University professor Adonis Hoffman criticized the interconnection proposal as going too far. "Requiring AT&T to submit interconnection agreements to the FCC for approval is the exact type of regulation net neutrality opponents warned against,” said Hoffman, a former aide to Commissioner Mignon Clyburn, in an emailed comment. “This is neither light touch nor restrained regulation, and instead looks like government interference in market relations. AT&T has very little wiggle room in the transaction, and if that's not regulating the Internet, what is? Could rate review be far behind?"
The Bank of America Merrill Lynch analysts said the FCC condition requiring 12.5 million fiber connections “appears to be a substantial evolution which will focus AT&T's competitive broadband investment presumably in areas where it will compete more directly with cable than rural wireline or wireless players. AT&T's current FTTP GigaPower business is targeted to serve 25 'markets' and 100 'municipalities'. The FCC statement appears to suggest this will now grow to 300 municipalities. While the notion of a fixed line rather than a wireless has been floated in the market, this concession appears to be a new strategic commitment on the part of AT&T.”