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AT&T agrees to stricter Net neutrality rules to get its DirecTV deal approved

The Federal Communications Commission is recommending that AT&T's $49 billion bid to buy satellite TV provider DirecTV be approved -- but not without conditions.

To win regulatory approval for its $49 billion bid to buy satellite TV provider DirecTV, AT&T has agreed to stricter Net neutrality rules and a promise to expand its fiber-optic-based broadband network to more customers.

CNET/Marguerite Reardon

Federal Communications Commission Chairman Tom Wheeler said Tuesday that he is recommending that his four fellow commissioners approve AT&T's bid to purchase DirecTV. But to win his approval AT&T has had to agree to several conditions, which include not only expanding the current deployment of its gigabit broadband network, but also agreeing to stricter Net neutrality requirements.

Many believed the deal, which was announced more than a year ago, would get approval even though the FCC and the Department of Justice shot down Comcast's hopes to buy fellow cable operator Time Warner Cable for $45 billion. But the big question had been what, if any, conditions the FCC would put on the deal. AT&T's agreement to adhere to stricter Net neutrality obligations is a big win for the FCC. AT&T has been one of the strongest opponents to the agency's controversial new rules, which were passed in February.

Net neutrality is the concept that all traffic on the Internet be treated equally, and the FCC's new rules bar broadband providers from blocking or slowing down service. AT&T has said it believes in the basic principles of Net neutrality but opposes the legal basis the FCC has taken to justify its rules. It has filed a lawsuit against the FCC in federal court.

The proposal must still be voted on and approved by all five commissioners. Details of the conditions have not been released. But in a statement, Wheeler said that "the conditions will build on the Open Internet Order already in effect." Specifically, AT&T has agreed to prevent discrimination against online video competition by agreeing not to "exclude affiliated video services and content from data caps on its fixed broadband connections." In other words, if AT&T imposes a data cap, it's not allowed to exclude its own content from these caps while other services are counted in the cap.

To ensure that AT&T is not discriminating against other services like Netflix, which offer similar streaming video service over broadband networks, the company has agreed to submit to the FCC all "completed interconnection agreements." These agreements are commercial arrangements between companies that exchange Internet traffic. Netflix has complained publicly that other broadband providers, such as Comcast and Verizon, have forced it to pay fees to deliver its streaming video service to consumers. In the current Net neutrality order, the FCC for the first time said it would examine these deals on a case-by-case basis if complaints are filed.

The FCC will also 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."

AT&T also agreed to increase the number of potential customers for its gigabit broadband service to 12.5 million customers. This is about 10 times the size of AT&T's current gigabit fiber deployment. According to Wheeler this will increase consumers' access to high-speed fiber-optic broadband networks by 40 percent and will triple the number of metropolitan areas that will be able to access AT&T's service.

It comes as little surprise that AT&T would agree to offering its GigaPower high-speed broadband service to more customers. The company said in a public filing earlier this month that it would commit to expanding the service to 9 million more homes than it had previously planned, bringing the total homes served to 11.7 million.

What AT&T plans to do with DirecTV

A combined AT&T and DirecTV would create a powerhouse for services in the home. It would let AT&T pair its nationwide wireless service with DirecTV's nationwide satellite TV service. AT&T's U-verse TV service is offered only regionally, naturally limiting the number of customers it can have. The combination of services could also make AT&T a formidable competitor in the video market, especially as these services are accessed on more mobile devices.

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The acquisition comes as AT&T looks for ways to diversify its business amid tough competition from wireless competitors in the US as well as cable operators in the broadband and paid-TV markets. The company has gone on a buying spree over the past year as it tries to expand its business into new markets and across borders. Earlier this year it completed the $2.5 billion acquisition of Mexican wireless provider Iusacell and the $1.88 billion acquisition of mobile operator Nextel Mexico.

The Department of Justice, which examines potential antitrust concerns, is also expected to approve of the deal. It finished its review of the transaction last month, according to news reports. The FCC approval of the merger is the final regulatory hurdle before the deal can officially close.

Though the FCC has scrutinized other deals in the communications and media sector, it's been expected that the merger will be approved by regulators. Earlier this year, the FCC and DOJ put the kibosh on another major media merger, between the two largest cable operators, Comcast and Time Warner Cable. In 2011, the agencies also stopped AT&T from acquiring its wireless rival T-Mobile. But since the DirecTV deal was announced, many in the industry have expected it to be approved.