AT&T and DirecTV defend deal on Capitol Hill

The top executives of AT&T and DirecTV spent Tuesday on Capitol Hill making the case for their proposed $48.5-billion deal that will combine the telecommunications giant with the satellite broadcaster to create a video and broadband behemoth.

In appearances before the House Subcommittee on Regulatory Reform, Commercial and Antitrust Law and the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, AT&T Chief Executive Randall Stephenson and DirecTV Chief Executive Michael White said consumers would benefit from the combination.

Announced last month, the AT&T-DirecTV deal came just three months after cable television giant Comcast struck a deal to purchase Time Warner Cable for more than $40 billion. Both deals are awaiting approval from the Federal Communications Commission and the Justice Department.

AT&T and DirecTV say they need to combine to be able to offer consumers both broadband and video the way cable companies do. By getting bigger, AT&T will also have more leverage in negotiating distribution agreements with programmers. AT&T currently has 5.7 million video subscribers, while DirecTV has more than 20 million.

“We’ll be able to offer new services to customers at a better value,” White said at the Senate panel hearing.

AT&T’s Stephenson said that by acquiring DirecTV, “AT&T will be a more effective competitor to cable.” Stephenson also said buying DirecTV will allow AT&T to speed up rolling out high speed broadband to rural America.

“Being able to offer DirecTV’s video product on a nationwide basis gives us the confidence to expand and enhance our high-speed broadband service to at least 15 million customer locations across 48 states, mostly in under-served rural areas, within four years after deal close,” Stephenson testified.

Stephenson emphasized the savings that the two companies would realize by teaming up. He said cost savings would be $1.6 billion annually by year three after closing and that the bulk of those savings would come from programming expenses.

But some lawmakers were skeptical that consumers would end up enjoying any of those savings.

“If I’m an ordinary customer, I’m rolling my eyes,” said Sen. Richard Blumenthal (D-Conn.)

Blumenthal pressed Stephenson on whether he could commit to passing on savings to the consumer. Stephenson said no and that “at the best we will see a rate of reduction of risking costs.” Blumenthal replied: “A lot of consumers would find that answer unsatisfying.”

Chris Keyser, president of the Writers Guild of America West and a veteran television producer, also testified at the Senate hearing. Keyser warned in his testimony that if the AT&T-DirecTV and Comcast-Time Warner Cable deals were approved, the resulting two companies would have “unprecedented power as content gatekeepers.”

Keyser noted that much of the entertainment industry is already consolidated and that the trend is bad for the creative community.

“The market power possessed by these media conglomerates allows them to capture a majority of the economic value created by television production to the detriment of actual content creators,” Keyser said.

AT&T and Comcast’s deals have led Wall Street analysts to speculate that major programmers such as Viacom, CBS, Scripps Networks, Time Warner and 21st Century Fox will also seek to get bigger through mergers and acquisitions. Such a scenario is already taking place among local TV station owners, where the majority of TV stations in the country’s biggest cities are owned by a handful of companies.

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