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Why the AT&T-DirecTV merger is set to succeed where Comcast failed

DirecTV Tops Profit Estimates as More Customers Sign UpDirecTV Tops Profit Estimates as More Customers Sign Up

A series of stories this week suggest the feds are about to bless a tie-up between phone giant AT&T and satellite-TV provider DirecTV. This would yield a markedly different outcome from another proposed major merger in the telecom sector, between Comcast and Time Warner Cable, that recently went down in flames.

Both deals triggered a regulatory process that stretched over a year, and their stated value – $45 billion for the Time Warner Cable acquisition and $48 billion for DirecTV (DTV)– is about the same. So why did only one succeed?

The answer lies in the seismic shift in the way Americans are getting their entertainment and information: they are turning to high-speed broadband, while also cutting back or even eliminating pay TV services. While traditional pay TV – cable and satellite – is still a colossus, it’s one that is rapid and permanent decline as millions, especially young people, turn to internet-based options instead.

In this context, the antitrust implications of the proposed mergers are very different. In the case of Comcast’s failed bid, the company sought to grab more than half of the country’s booming broadband market, which would not only have increased its monopoly footprint in various cities, but would have given it unprecedented clout over internet content providers. No wonder regulators were skittish.

Contrast that with AT&T’s (T) aspirations. While its acquisition will create the country’s biggest pay-TV provider (AT&T is also in the television business through its Uverse service), that new footprint comes in a declining industry. That is likely why sources are saying the Justice Department won’t sue to stop the merger.

That doesn’t mean the AT&T deal will go off without a hitch. According to John Bergmeyer, an attorney with Public Knowledge, the deal is problematic since it will eliminate a pay-TV competitor in rural areas. There’s also the question of whether AT&T will be tempted to create special data plans for its mobile phone subscribers based on access to DirecTV video – plans that could violate FCC’s open internet rules that forbid prioritizing some types of online content over others.

But these concerns are likely to be addressed through the FCC’s “public interest” standards, which the agency can impose as part of an approval process, and are less imposing than a Justice Department antitrust review.

“I think they’re likely to impose some conditions on the open internet and video competition,” predicts Bergmeyer.