FCC Approves AT&T-DirecTV Merger

AT&T and DirecTV’s merger cleared its final federal regulatory hurdle on Friday, garnering the votes at the FCC for approval.

The $49 billion transaction will create a bundling powerhouse, with the combined company’s ability to offer video, broadband and voice services. The combined company will have about 26 million video subscribers, making it the largest pay-TV provider, exceeding even the 22 million video subscribers of Comcast.

AT&T announced shortly after the FCC’s vote that it had completed the merger, and will integrate the two companies over the coming months.

“This transaction allows us to significantly expand our high-speed Internet service to reach millions more households, which is a perfect complement to our coast-to-coast TV and mobile coverage,” said Randall Stephenson, chairman and CEO of AT&T. “We’re now a fundamentally different company with a diversified set of capabilities and businesses that set us apart from the competition.”

DirecTV CEO Mike White will retire, and AT&T is naming John Stankey as CEO of AT&T Entertainment & Internet Services, overseeing DirecTV and AT&T Home Solutions.

Earlier this week FCC chairman Tom Wheeler said that he was recommending approval of the AT&T merger with DirecTV with conditions, including provisions to prevent the combined company from discriminating against online video competition.

The Department of Justice, which also has been reviewing the transaction, said it would not challenge the deal, concluding 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.”

AT&T and DirecTV will be required to expand its high-speed fiber broadband service to 12.5 million customer locations as well as certain schools and libraries. AT&T said that the condition requires it to offer such a service to at least that many within four years. FCC officials had expressed concern that there would be less incentive for the combined company to expand the network given that AT&T’s U-verse and DirecTV compete in some markets.

The combined company will be prohibited from discriminating against rival Internet video distribution services via the use of data caps, like waiving the caps for AT&T-DirecTV video. The FCC noted that AT&T was the only major Internet service provider that applied data caps across the board for its fixed broadband customers.

They also will have to submit so-called interconnection agreements to the commission for review. Those are pacts in which content companies like Netflix secure links of their traffic to broadband services.

The conditions also require that the combined company make low price standalone Internet service available to low-income residents in their coverage area. Service with speeds of at least 10 Mbps will be offered for $10 per month in areas where it is available. In other places, 5 Mbps service will be offered for $10 per month or 3 Mbps service will be offered for $5 per month.

The company also will be required to engage a third-party compliance officer to make sure that the conditions are being followed.

The conditions will be in effect for four years.

Wheeler was joined by Mignon Clyburn and Jessica Rosenworcel in supporting the merger. All three are Democratic appointees. Commissioner Michael O’Rielly concurred, and commissioner Ajit Pai supported but dissented to the conditions.

The conditions do not include a provision that would require that the combined company abide by the FCC’s recently passed open Internet rules, regardless of what happens with an ongoing court challenge. An FCC spokeswoman said that the open Internet rules “are already in effect industry-wide and do not need to be duplicated in this transaction. The interconnection and data cap conditions go beyond the open Internet rules and are specific to this merger.”

Earlier this week, John Bergmayer, senior staff attorney at the public interest group Public Knowledge, said that they were “gratified that the commission appears to have addressed the merger specific issues related to AT&T’s ability — through discriminatory application of data caps and through other means — to disadvantage rival over-the-top video competitors.”

But he said that they remained concerned about the “underlying problem of our lack of competition” in the marketplace.

Matthew Polka, president and CEO of the American Cable Assn., which represents small- and medium- sized cable operators, said on Wednesday that the combined company would still have the incentive to charge pay-TV rivals higher prices for four Root Sports regional sports networks under their control.

“By charging higher prices for its RSNs to its pay-TV rivals, the new AT&T-DirecTV will not only drive up its rivals’ customers’ subscription fees, but it will reduce their funds available for deploying high performance broadband services in new areas,” Polka said in a statement.

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