FCC set to approve AT&T's purchase of DirecTV

July 21, 2015 4:05 PM PT

The Federal Communications Commission is poised to approve AT&T’s purchase of satellite service DirecTV, a $49-billion deal that would transform the phone giant into the nation’s largest pay-television operator.

FCC Chairman Tom Wheeler on Tuesday recommended that the deal be approved, and shared with his commission colleagues a proposed order that would grant the AT&T-DirecTV combination with conditions. Meanwhile, the Justice Department said it would not attempt to block the merger because it did not appear to be anti-competitive.

The next step is for the other FCC commissioners to review the proposed order, then vote. Wheeler, one of three Democrats on the five-member panel, appears to have enough support among the commissioners for the deal to clear that final hurdle. Approval could come within a matter of days.

Wheeler sought to position the proposed agreement with AT&T as a win for customers. The combined company would have 1.5 million pay-TV customers in the Los Angeles region, with DirecTV contributing more than 1.2 million.

“The proposed order outlines a number of conditions that will directly benefit consumers by bringing more competition to the broadband marketplace,” Wheeler said in a statement.

The FCC’s blessing would bring to a close a yearlong review process.

AT&T’s planned acquisition of DirecTV was unveiled 14 months ago as a way for two competing television services to thrive in the digital age. But the review dragged on as the FCC dealt with other meaty issues and a more controversial combination — Comcast’s proposed takeover of Time Warner Cable — which ultimately was withdrawn in the face of fierce resistance from government regulators.

“After an extensive investigation, we concluded that the combination of AT&T’s land-based Internet and video business with DirecTV’s satellite-based video business does not pose a significant risk to competition,” Assistant Atty. Gen. Bill Baer of the Justice Department’s antitrust division said in a statement.

AT&T welcomed the Justice Department’s conclusion.

“We are pleased the Department of Justice has completed its review of our acquisition of DirecTV,” an AT&T spokesman said in a statement. “We look forward to gaining the approval of the Federal Communications Commission so we can quickly begin providing consumers with the benefits of this combination.”

Consumer rights advocates had lobbied the FCC to deny the deal. One group said the proposed conditions did not seem to go far enough.

“The deal will reduce the number of pay-TV competitors from four to three for nearly a quarter of the country,” said Matt Wood, policy director for Free Press. “AT&T is also the nation’s second-largest home Internet access provider, and it now has new power and incentives to thwart online video competition.”

The company will be based in Dallas, where AT&T maintains its headquarters. The move would leave the Los Angeles region with one fewer Fortune 500 company after El Segundo-based DirecTV is absorbed into the telecommunications behemoth.

AT&T, however, has said that DirecTV’s operations would continue to be managed locally. About 3,000 DirecTV employees work at its headquarters and broadcast centers in Long Beach and Marina del Rey. AT&T said when the deal was first announced that DirecTV would continue to be offered as a stand-alone service for at least three years after the merger closed.

AT&T, which traces its origins to the invention of the telephone more than 130 years ago by Alexander Graham Bell, pursued DirecTV as a way to remain competitive in the digital age. The combination was also motivated, in part, by a recognition that consumers increasingly are getting news and entertainment on smartphones and other devices.

With its array of offerings — including wireless phone, landline phone, high-speed U-Verse Internet and TV service —- AT&T hopes to gain a competitive advantage in the converging field of TV and phone service.

The FCC’s Wheeler said the proposed order would prevent AT&T from discriminating against fast-growing Internet streaming services that compete with its own bundle of TV channels. The company also would not be allowed to have different rules for high-speed Internet data caps in a way that would give their own video product an advantage over that of a competitor.

“Importantly, we will require an independent officer to help ensure compliance with these and other proposed conditions,” Wheeler said. “These strong measures will protect consumers, expand high-speed broadband availability, and increase competition.”

During the last few weeks, AT&T’s lawyers and FCC officials have been discussing what commitments the company would accept to facilitate the deal’s approval. One promise that the FCC had been seeking was a pledge to make high-speed Internet service available in more communities.

If the deal goes through, Wheeler said that 12.5 million customer locations would have access to a competitive high-speed fiber connection because AT&T would pledge to reach more homes with its network.

“This additional build-out … increases the entire nation’s residential fiber build by more than 40%,” he said.

DirecTV faced challenges in the long term even though it ranked as the second-largest pay-TV provider in the U.S. with 20 million customers.

Although the company remained popular with customers with such programming as NFL Sunday Ticket, it did not have the ability to offer customers a discounted package of telephone, Internet and TV service. That’s because DirecTV relies on satellites to transmit programming and does not have a network of fiber-optic lines into people’s homes.

Meanwhile, AT&T had been spending heavily to operate and grow its U-Verse TV service, which has more than 6 million subscribers in the U.S.

But it faced its own share of obstacles, including the high costs of programming and building out the network to compete against entrenched pay-TV companies.

The merger, which is expected to be finalized in the next few weeks, would transform AT&T into a television juggernaut that is less reliant on its wireless phone business, which has been subject to price wars among the leading providers.

It would also give AT&T greater reach into Latin America, where DirecTV has a significant presence with ownership interests in satellite TV companies that serve Argentina, Venezuela, Mexico, Brazil and other countries.

AT&T has said that it expects $2.5 billion in annual savings within three years of the merger’s completion.

Twitter: @JimPuzzanghera; @MegJamesLAT

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