Why the AT&T-DirecTV merger might actually limit choices for consumers

Fewer, bigger companies often mean less competition, with less incentive to innovate

Published: July 27, 2015 03:30 PM

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Will AT&T's acquisition of DirecTV provide lower-cost options for TV and Internet?

When it comes to pay TV service, bigger isn't always better for consumers—especially when it  reduces choice in an already consolidated business. But that's about to happen again. Last week, the Federal Communications Commission signed off on the proposed AT&T-DirecTV merger, which has already received clearance from the Justice Department.

The resulting AT&T-DirecTV company will be the nation's largest pay TV operator, with more than 26 million customers, surpassing Comcast, the current leader with about 22 million pay TV subscribers. To hear the companies talk about it, the AT&T-DirecTV merger will be a win for consumers. DirecTV will be able to offer broadband to many of its 20 million TV customers in about 21 states, and AT&T—which has about 6 million U-verse customers—will be able to develop new services and bundles that include TV, broadband, and both landline and cellular phone service.

The companies also contend that the combined entity will have more leverage for negotiating better content deals. “Combining DirecTV with AT&T is all about giving customers more choices for great video entertainment integrated with mobile and high-speed Internet service,” said Randall Stephenson, AT&T chairman and CEO, in a statement.

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But Consumer Reports and its policy and advocacy arm, Consumers Union, don't believe that bigger companies do better for their customers. In fact, the opposite is often true. The largest companies have earned low scores for value, service, and customer satisfaction in our recent consumer surveys. Tellingly, the AT&T-DirecTV merger statement said nothing about lower prices or better customer service, high priorities for most consumers.

"We've been skeptical about the AT&T-DirecTV merger from the beginning," says Delara Derakhshani, policy counsel for Consumers Union. "It raises real concerns about the consolidation of pay TV options in markets where AT&T and DirecTV already offer competing services."

In approving the AT&T-DirecTV merger, the FCC imposed several conditions, including a requirement that AT&T increase its fiber-broadband service, offer super-fast gigabit service to eligible schools and libraries within its footprint, provide discounted Internet service to low-income households, and count its own video services under any broadband data caps (AT&T is the only major Internet service provider to impose them on all its fixed broadband customers). The FCC is also requiring AT&T to submit its interconnection agreements for review by both internal and independent compliance monitors.

"These conditions are a positive step to help consumers, but they do not address the underlying problem of consolidation in the video marketplace, " Derakhshani said. "Looking ahead, we urge the FCC to stay focused on keeping the Internet open and spurring competition."

Consumers Union and other consumer organizations also believe the AT&T-DirecTV merger will fuel additional consolidation in the pay TV and broadband industry as other companies strive to remain competitive. That could ultimately result in fewer choices and higher prices for consumers. Although Comcast's pursuit of Time Warner is now off the table—Comcast canceled the deal when it appeared the FCC would block it—the ink was barely dry on Comcast's statement when Charter Communication put in its own bid to acquire both Time Warner and Bright House Networks, a small, highly regarded operator. And some analysts see the AT&T-DirecTV merger as a reason for Verizon to pursue Dish Network, the country's number-two satellite-TV company.

"The rush is on for some of the biggest industry players to get even bigger, with consumers left on the losing end," Derakhshani said. "With fewer industry players, there's a greater likelihood that prices will go up, since it's competition that keeps prices down."

Since the deal was just announced last week, it's much too early to judge how much of an impact AT&T's acquisition will have on current and future customers. AT&T says that current programming packages and pricing for both AT&T U-verse and DirecTV services will remain unchanged for the time being. The company also says it will roll out new offers across its TV, mobile, and Internet services in the coming weeks.

—James K. Willcox




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