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From Antitrust Law Daily, June 25, 2014

AT&T and DirecTV defend merger at Senate hearing

By Linda O’Brien, J.D., LL.M.

During a Senate subcommittee hearing yesterday, lawmakers expressed concern that potentially significant cost savings realized from the pending merger of AT&T and DirecTV would not be passed along to consumers, while the CEOs of the merging companies maintained that the combination would provide consumers with superior video and broadband services at competitive prices. The exchange took place before the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights.

Committee Chairman Patrick Leahy (D-Vt.) began the hearing—billed “The AT&T/DIRECTV Merger: The Impact on Competition and Consumers in the Video Market and Beyond”—by noting that “the merger will impact millions of consumers due to the size of the transaction.” The satellite industry plays a vital role for many rural consumers who would not otherwise receive television service. If the transaction is allowed to go forward, Leahy expressed hope that the combined company would maintain its commitment to rural areas.

Leahy stated that the merger differs from the proposed Comcast-Time Warner Cable transaction. “AT&T and DirecTV directly compete against each other with video products in 25 percent of the country,” he said. “The potential for consumers to lose a competitor in the overlapping territory means that this deal warrants close examination by the antitrust authorities. At a time when too many consumers lack meaningful choice in television providers, a transaction that results in the elimination of a competitor should be scrutinized.”

Noting that the Committee plays an important role in the merger review process by asking questions that matter to consumers, Leahy observed “there is little doubt that the Department of Justice and the Federal Communications Commission have their hands full this summer reviewing two major telecommunications transactions. I nonetheless expect that each will conduct a thorough and meaningful review.”

The Committee heard from six witnesses, representing the media industry, a labor organization, and the academic community. The witnesses included Christopher Keyser, President of the Writers Guild of America West; Matthew F. Wood, Policy Director of the Free Press; Larry Downes, Project Director of Georgetown University Center for Business and Public Policy; and Ross J. Lieberman, Senior Vice-President of Government Affairs at the American Cable Association. Randall L. Stephenson, President and Chief Executive Officer of AT&T, and Michael D. White, Chairman and Chief Executive Officer of DirecTV, also testified at the hearing.

Stephenson testimony. Stephenson, President and Chief Executive Officer of AT&T, defended the merger as meeting consumer demand and providing consumers with desired video and Internet broadband services. “The merged company will be perfectly poised to give consumers what they want,” he said. By combining complementary services and generating cost savings and operational synergies, the merger allows AT&T to price its services more competitively and provide a higher quality customer experience, according to Stephenson. This transaction is unlike most mergers, since it primarily combines complementary products and capabilities, as AT&T and DirecTV do not compete at all in the majority of the country, he added.

White testimony. White, Chairman and Chief Executive Officer of DirecTV, testified that the merger was a combination of complementary assets and products and would create a company that would offer new services at a better value to consumers. He stated that DirecTV must adapt to continue to compete in the new, Internet-driven economy by providing an integrated bundle of services, optimizing DirecTV’s own video service, and managing content cost services. Having had limited success on its own or through contracts with separate companies, a merged DirecTV will be able to combine its video assets with AT&T’s broadband and wireless assets to better serve customers, White added.

Downes testimony. Larry Downes, Project Director of Georgetown University Center for Business and Public Policy, noted positive side effects of the merger.

“In the broader context of the industry’s on-going digital transformation, the proposed transaction makes sound strategic sense,” Downes said. “Competition will be enhanced, not harmed, and consumers will have more, not fewer choices, both now and, assuming the integration of the two companies goes smoothly, in the future.”

A video of yesterday’s hearing is available here on the subcommittee’s website.

MainStory: TopStory Antitrust

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