AT&T’s Randall Stephenson and DirecTV’s Michael White faced some of the toughest questions they’ve encountered yet about their companies’ planned $49B merger in two congressional hearings today. They repeated their view that the deal would lower costs. But Sen. Richard Blumenthal (D-Conn.) pressed them to add whether consumers would see a direct benefit in lowered rates. “Dollar for dollar? No, I can not commit to that,” White said. Stephenson also declined to be specific. “One would have to believe in the market and market pressures,” he said adding that “prices are changing constantly.” The senator was unimpressed. “I have this sense that we are watching a re-run here….A lot of consumers would find that unsatisfying.”
Sen. Al Franken (D-Minn.) had more luck pinning the AT&T CEO down to promote, as well as offer, a competitive stand-alone broadband service. In a 2006 deal to buy Bell South “you hid the [promised] plan deep in the terms and conditions in your web page…it sounds like a broken promise,” Franken said. Would AT&T promise this time to make the service clear and visible to consumers? “Yes, I will,” Stephenson said. “I will make you without equivocation that commitment.” The exec was less certain when asked whether AT&T had paid lobbyists to support state laws that bar local governments from creating their own broadband services, an option that Franken believes communities should be free to make. Stephenson says he doesn’t know whether AT&T lobbied against municipal broadband. He added, though, that he opposes it when a private company also provides service. That “feels inconsistent with what a free market solution would look like… We shouldn’t be required to compete with government taxpayer money.”
Writers Guild of America, West President Christopher Keyer vigorously opposed the deal. It it were approved, along with Comcast’s bid for Time Warner Cable, then two companies “will control more than half of the nation’s [pay TV] subscribers and half of the wired Internet access market. The resulting companies would have unprecedented power as content gatekeepers.” A new wave of mergermania would result in “inevitable tacit collusion on price, choice and service. These mergers cannot be managed with conditions that may be ineffective, insufficient or simply ignored.”
But Stephenson says that a merger makes sense for AT&T because its U-verse video service has been a financial dud — mostly due to the high prices that TV networks charge. “Today, 60 cents of every video dollar we earn goes straight to programmers, before we spend a penny to market our service, install a set top box, send a bill or answer a customer’s call. As a result, our video product is, on its own, unprofitable….Video is the vehicle by which we sell and market broadband.” Indeed, more than 97% of his video customers also buy another AT&T product.
And White says DirecTV needs a deal because it can’t offer a competitive broadband service, something his customers want — often to also watch online services such as Netflix and Hulu. “Our cable rivals can offer innovative features and services such as remote digital video recorders and video on depend programming stored in the cloud.” Efforts to co-market services with telco broadband providers haven’t worked because they require customers to deal with two companies, and the partners need to price the services so each makes a profit.