Why Isn’t America Freaking Out About AT&T/DirecTV Merger — And Should We Be?

While pretty much everyone is scrutinizing the pending mega-merger between Comcast and Time Warner Cable, not much attention is being paid to the possible marriage of the country’s second-largest wireless and pay-TV companies. And that leaves us with two big questions: What, if anything, makes these two mergers so different? And should we be more worried about a unified AT&T and DirecTV than we are?

Their arguments for merging

For the two companies, the benefits of a union are obvious.

AT&T began life as a telephone company and in many ways, that’s where its business still lies. They do DSL, fiber, and mobile connections. Although AT&T does provide TV services to U-verse subscribers, that’s not their biggest business by a long shot.

DirecTV, on the other hand, is the second largest pay-TV provider in the country, outranked only by our old friend Comcast. But in an era when more and more cord-cutters want to keep their broadband and stream their TV, instead of channel-surfing live, the future of their business starts to look dim. The company does not provide broadband connections of their own. Instead, they partner with providers — AT&T high among them — to frankenstein together double- and triple-play bundles.

So for DirecTV, the chance to be partnered with a company that does provide broadband service to their customers, like AT&T, can keep them in business longer. And for AT&T, the chance to get a giant cash infusion from over 20 million DirecTV subscribers gives them a cushion of money and time they can use in order to build out or improve more actual high-speed broadband networks.

Those are the basic premises behind the two companies’ arguments to regulators about why they should be allowed to merge. And underlying them is one bigger argument: that this is the only way either of these companies can continue to complete in a world where Comcast has bought Time Warner Cable and can dominate most of the country. Their filings with the FCC argued as much, saying that their merger was in the public interest because it would:

  • Keep DirecTV competitive against cable companies,
  • Make AT&T bigger (and therefore more competitive against cable companies),
  • Create more bundle packages for consumers, and
  • Increase and improve broadband connections.

In the wake of FCC chairman Tom Wheeler’s recent remarks about the dismal state of broadband competition and the FCC’s goals to improve it, that last point may weigh the most heavily in AT&T’s favor. They claim that buying DirecTV will provide them with the ability and incentive to create broadband infrastructure improvements (and compete with Comcast). AT&T also promises to bring a new kind of wireless high-speed connection to 13 million rural customers, to add 2 million residential fiber connections, and to adhere to the now-vacated 2010 Open Internet Rule (net neutrality).

The companies’ main argument, then, is about competition: a post-merger Comcast will be such a juggernaut that the only way to compete against it reasonably is to let these two companies become one.

It’s not an unconvincing argument. Since the two companies already offer different kinds of services (this is not a marriage of two phone or two satellite companies), and since they already partner together to create bundles for consumers, it doesn’t seem out of the question to let them become one company, and challenge the dangerously large behemoth of a merged Comcast/TWC together.

But of course, that’s not all there is.

The things they aren’t saying

That Comcast merger that AT&T says they need to compete against? It hasn’t happened yet. And it will be months before any of us learn what the ultimate outcome of that transaction is going to be.

The case for letting AT&T and DirecTV merge cannot solely rest on the premise that everyone needs to beef up and get bigger just to fight the one biggest giant in the room. It needs to be a good idea on its own merits. And while AT&T and DirecTV merging wouldn’t much reduce competition in the marketplace, there are still some things to be concerned about.

1.) The companies have zero plan to cut customers any slack.
AT&T CEO Randall Stephenson testified before the Senate in June that the merger would result in significant cost savings. That is, significant cost savings for them. When asked if customers were likely to see any of those benefits passed along in their bills, Stephenson hedged and weaseled and ended up admitting that no, they have no plans to pass along cost savings to consumers.

2.) AT&T wants to be able to compete against Comcast, but they don’t want anyone else to.
AT&T is really keen on blocking public entities, like cities and counties, from building or expanding broadband networks. They hate it. They sponsor and lobby for state-level laws that block municipal broadband projects, and have succeeded in several states. The FCC is thinking about perhaps overriding those laws, and of course AT&T is opposed.

But their argument to the FCC about why they’re opposed is a doozy: AT&T says that municipal broadband should be blocked anywhere that AT&T or other companies might consent to wire in the future, even if they refuse to provide or improve service in the present.

3.) Those TV and internet bundles could gobble up your cell phone, too.
The residential, wired internet market is basically not competitive at all. But consumers still do have choice when it comes to cell phones. The mobile market, with four nationwide carriers and a number of smaller ones, is actually doing reasonably well at competing for consumers not only with network availability but also on price and service options.

AT&T has said, though, that they would intend to offer not only satellite TV, landline, and home broadband bundles, but also to bring their wireless offerings into the mix. That mixing of home and mobile offerings would certainly change the landscape of the cell phone industry and mobile data, but not all in positive ways for consumers.

4.) Never underestimate how much money there is in live sports.
DirecTV’s NFL Sunday Ticket is a major tentpole of the merger plan. It is so crucial to AT&T’s plans that if DirecTV and the NFL don’t renew the contract, AT&T has the contractual right to say “too bad, so sad” and walk away from the merger entirely. Technically speaking, consumers who physically can’t get DirecTV can sign up for an online-only version, but in practice that doesn’t actually work for very many people.

AT&T not only wants to snap up that juicy football action, but also plans to take the NFL to their mobile customers. Combined with weak net neutrality rules (which could let AT&T make the mobile data “not count” for AT&T customers), and the planned bundling of mobile and home service, AT&T could find themselves with a very large advantage over some of the most popular and lucrative content in the country.

5.) Media and network consolidation are starting to snowball out of control.
Back when AT&T and DirecTV announced their plan, our colleagues at Consumers Union warned of the cascading dominoes of media mergers, saying, “These could be the start of a wave of mergers that should put federal regulators on high alert. AT&T’s takeover of DirecTV is just the latest attempt at consolidation in a marketplace where consumers are already saddled with lousy service and price hikes.”

Industry consolidation has been positively rampant over the past decades. Starting a new competitor in the TV/broadband field is essentially impossible, and the competitors that are still out there keep merging and buying each other out. Back in February the Wall Street Journal pointed out that 42 different cable companies from twenty years ago have become just four companies of today — possibly even three if Comcast and TWC get to merge.

We already face a dearth of competition and a field that has such a high bar of entry that no new players can jump in. Letting what few companies are left continue to consolidate, until barely any titans are left standing, is probably not the best solution to that problem.

Why people aren’t talking

Everyone’s still talking their heads off about the Comcast merger (including us), but AT&T and DirecTV aren’t exactly a popular topic of conversation even though there are some reasons to be wary of their union. So what gives?

Mostly, it boils down to the fact that resources are limited. And that doesn’t just mean the time, money, and bandwidth that advocacy groups, researchers, and the news media have to use. That means the amount of energy a consumer has available in her life to give, too. There are only so many things any one of us can care deeply about at one time while still carrying on with our lives.

So energy — from those advocates, researchers, and media — ends up focused where it’s more important. And while the merger of AT&T and DirecTV may or may not work out well for consumers, the Comcast/TWC merger almost certainly will be completely terrible for everyone except Comcast and the politicians to whose campaigns they donate.

Of course, just because this merger isn’t generating Comcast or Net Neutrality levels of attention doesn’t mean nobody’s got their eye on it. The FCC has received over 13,500 comments and filings about the AT&T and DirecTV transaction. That’s not at all an insignificant amount of feedback.

However, even a significant number of those 13,500 comments (at least among the several dozen we’ve randomly checked) seem not to care that much about the actual merger of these two companies. Like the bulk of the Comcast/TWC merger comments, most are concerned with keeping RFD-TV, a rural-focused cable network, on the air regardless of what company is the one moving the signals. Indeed, RFD, which has been urging their viewers to write in, estimates that 90% of the comments filed so far are from fans of their network.

Of the remainder, our unscientific analysis finds that most are simply one-line pleas to preserve net neutrality, or railing against large corporations in general.

Now what?

The FCC is still in the first round of the public comment period on this merger until September 16. After that, it’s anyone’s guess how the rest of the transaction approval process plays out.

If the only merger condition the public is asking the FCC to impose is that one particular rural channel stay available on DirecTV, AT&T will count themselves lucky. That’s probably one of the easiest merger conditions of all time to adhere to.

But although the union of AT&T and DirecTV wouldn’t immediately effect half the country in the same way the combining of Comcast and TWC would, these are still two very large companies and the impact of their merger could be both deep and wide-reaching. It’s not just TV, or just broadband, or just mobile. It’s everything about the media and broadband landscape we’re building for decades yet to come. And the FCC at least should take a long, careful look at what they want that landscape to be before they wave this one through.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.