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AT&T makes case for $48.5 billion merger with DirecTV

In statement to FCC, firm says without deal neither company can compete against rival cable giants.

CNET/Marguerite Reardon

The only way for AT&T or DirecTV to compete with cable giants Comcast and Time Warner Cable is for the two companies to merge. At least that's what AT&T and DirecTV have said in a public interest statement they filed with the Federal Communications Commission today.

The $48.5 billion proposed merger between telecom giant AT&T and satellite TV provider DirecTV, announced last month, is facing criticism from consumer advocates. They say another large merger in the communications market will harm consumers by reducing competition, which could result in higher prices and fewer choices. But AT&T and DirecTV argue that the only way consumers will have any competition in the market is if the two companies are allowed to combine forces to take on the cable giants, which have also proposed their own massive merger. AT&T also argues that a merger with DirecTV could lead to lower prices for consumers.

AT&T makes two main points in its argument for regulatory approval. The first is that DirecTV can't compete on its own without AT&T, because the satellite TV provider lacks the ability to offer a broadband service. And without broadband, it can't offer a "bundle" of services, which it claims is the preferred way consumers want to buy TV, phone, and Internet service. With AT&T, it could offer such a bundle, which would be a huge benefit for the company's mostly rural customers.

The second argument is that AT&T, which does offer the same TV, phone, and broadband bundle that cable offers, is only able to offer these services in 22 states. Because this is a smaller territory than its cable competitors, AT&T claims, it has to pay higher prices for video content. By purchasing DirecTV, it will be able to offer TV service nationwide, which will increase its scale and allow it to negotiate cheaper content pricing.

"The rationale for this transaction is simply stated," the companies said in the filing. "Through this combination, the companies will marry complementary assets to achieve what they could not achieve separately or through a contractual arrangement: a compelling bundle of video and broadband services."

AT&T also argued that if regulators approve the pending $45. 2 billion merger between Comcast and Time Warner Cable, it would be at an even greater disadvantage than it is today.

The company said in its statement that if it can get better rates on video content, it can pass those savings onto consumers, who would then pay less for a bundle of services that includes not only TV, home phone service, and broadband, but also wireless service. The company argues as well that the competition it will bring to the market with lower prices will also put pressure on cable companies to reduce their prices.

The public interest statement filed with the FCC is required as part of the regulatory review process. The document essentially gets the informal 180-day shot-clock started on the FCC's consideration of the merger. The FCC is primarily tasked with determining whether the merger is in the public interest. The companies must also win approval from the Department of Justice, which will chiefly examine antitrust concerns. Consumer advocates are likely to focus their arguments on the fact that AT&T and DirecTV compete for video customers in certain markets.

ATT Executive Summary - Public Interest Statement - 6-11-14