These comments are filed in response to the Commission's request for comments concerning the agency's review of the transfer of control of licenses in connection with the proposed acquisition of DIRECTV by AT&T Inc. These comments do not endorse or oppose the proposed merger. Rather, their purpose is to set out baseline principles by which the Commission should evaluate this as well as other mergers and to provide a summary analysis of AT&T/DIRECTV in light of those principles.
Mergers and acquisitions are competitive entrepreneurial activities. In free market economies, mergers are acts of calculated risk-taking by entities seeking to generate efficiencies and improve their competitive standing. Bureaucratic decisionmaking risks unnecessary displacement of marketplace business judgments by competitors possessing critical knowledge about market opportunities and consumer preferences. Commission-imposed regulatory conditions that freeze specific pricing options, programming content or lineup decisions, offerings of various features and functions, or other business judgments into place limit marketplace freedom to innovate in new products and services.
In light of those considerations, the Commission's substitution of its judgment for that of market actors can be justified only if there are specifically identified harms demonstrated by compelling evidence. The Commission must target narrowly any remedies designed to address such harms. Demanding clear evidence of harm safeguards against market competitors seeking to opportunistically manipulate or unduly influence the merger review process.
The presence of competitive choices in the broadband marketplace, including cross-platform facilities-based alternatives, makes it all the more essential that any Commission intervention be based on a compelling evidentiary showing that competition will somehow fail to protect consumers.
The dynamism that characterizes the advanced telecommunications and information services marketplace - that is, the market for digital, IP-enabled, cross-platform services such as wireline and wireless broadband Internet access services as well as multichannel video program distributor (MVPD) services - must inform the Commission's analysis of AT&T/DIRECTV's likely competitive effects.
The market's dynamism can be seen easily by contrasting the video consumer experience of two decades ago with today's experience. The typical video consumer experience in the early 1990s included a lone cable operator supplying limited lineup of one-way analog cable channels. The video consumer experience today is characterized by ongoing transition to digital, rapid expansion of high-definition video - with ultra-HD on the horizon, digital video recorder (DVR) options, video-on-demand functions, as well as TV-Everywhere and other mobility capabilities.
Following competitive entry in the video services market by DBS providers and so-called "telco" MVPDs, consumers now have choices among MVPDs. Data cited in the Fifteenth Video Competition Report (2013) indicates that at year's end 2011, 98.6% of subscribers had access to at least three MVPDs and 35.3% of subscribers had access to at least four MVPDs.
Broadband Internet access services are another case in point. The small number of consumers with Internet access in 1994 relied principally on 14 kbps or 28 kbps dial-up modems. But according to NTIA's report U.S. Broadband Availability: June 2010- June 2012 (May, 2013), by 2012, almost 93% of Americans had access to advertised wireline broadband download speeds of at least 6 Mbps, 91% had access at 10 Mbps, and 78% had access at 25 Mbps. The broadband revolution has enabled breakthroughs in Internet delivery of video content by online video distributors (OVDs) and other distribution outlets. Subscription services include HuluPlus, Amazon Prime, and Netflix. A la carte video content options are available through iTunes, Amazon.com, Google's Play store, and more. Widely available "smart TVs" and a growing number of devices are capable of downloading video content directly from the Internet.
Further, wireless services have seen radical technological innovation and rapid consumer adoption since the early 1990s. Wireless voice subscribers numbered just 13 million in June 1993 but exceeded 322 million in June 2011. And by the end of 2008 subscriptions to wireless broadband services - that had emerged only a handful of years earlier - reached 26 million. According to the Sixteenth Wireless Competition Report (2013), as of October 2012, approximately 99.5% of the U.S. population lived in areas with coverage by at least one mobile broadband provider. As of October 2012, 97.8% of the population was served by 2 or more wireless broadband providers, 91.6% by 3 or more, and 82% by 4 or more wireless broadband providers. Significantly, next-generation wireless network upgrades continue to increase speeds and capacity of wireless networks, making wireless an increasingly viable competitive alternative - indeed, in many instances a potential substitute for - wireline broadband. For most major wireless broadband providers, average LTE speeds range between 30 and 40 MBps, enabling a wide range of video viewing functionalities.
A forward-looking analysis that takes stock of these dynamic conditions in the advanced telecommunications market indicates that an AT&T/DIRECTV combination presents potential benefits to consumers. Importantly, the proposed merger likely will result in significant expansion of consumer choice for bundled broadband and MVPD-related services. Consumers located outside of U-Verse's geographic footprint would be able to purchase DIRECTV's video services bundled with broadband Internet access. That is, consumers would have another genuine bundled service alternative to bundled services offered by cable operators. Likely competitive effects of that additional choice include increased pressure on market rivals to keep prices lower and/or to enhance the value of existing offerings.
The cross-platform rivalry of digital, IP-enabled services that has emerged over the last two decades - due to DBS entry into the video market, cable operator entry into the voice services and broadband market, telephone company entry into the video and broadband markets, and wireless entry into the voice, video, and broadband markets - has made the bundling of services a critical competitive front in the market. "Double play" or "triple play" packages have attracted large numbers of consumers of voice, video, and data services. As the Commission recognized in the CenturyLink/Qwest Order (2011), "an increased ability to provide voice, data, and video packages is likely to make the merged company a stronger company overall, and a stronger competitor in the multichannel video service market." The AT&T/DIRECTV merger will likely enhance competition in this respect.
AT&T/DIRECTV will also potentially result in lower prices and increased value options for consumers of MVPD services or bundled MVPD and broadband Internet services on account of video programming cost savings produced by the combination. Video programming content is perhaps the most significant cost of doing business for MVPDs. The increased scale of the combined entity will likely be better positioned to negotiate rights to video programming content at discounted rates or for increased content choices.
In addition, AT&T/DIRECTV likely will accelerate investment and deployment in next-generation broadband services. Bundled services offer providers greater return on investment potential - through increased per-subscriber revenues - than stand-alone MVPD or broadband services. AT&T and DIRECTV indicate that the merger will make it feasible to expand fiber-to-the-premises wireline broadband investment and deployment to 2 million additional households and deployment wireless broadband infrastructure to 13 million additional households.
Finally, AT&T/DIRECTV will potentially benefit consumers through the combined entity's enhanced ability to innovate, including its pursuit of a seamless cross-platform consumer interface for viewing video content, accessing data, and using other functionalities. The combined entity will enable an integrated offering for current and future DBS subscribers and DBS-bundled subscribers that relies on AT&T's broadband infrastructure to provide two-way interactive functions, including on-demand video selections, and complementary Internet-delivered video options. AT&T/ DIRECTV will likewise have the potential to provide innovative new forms of video services through the integration of satellite and wireless technological capabilities and service offerings.
Importantly, AT&T/DIRECTV does not appear to pose any overt risk of harm to consumers. Careful economic analysis is necessary for confirmation. But at the outset it should be recognized this is primarily a non-horizontal merger of complementary services. That is, in AT&T's non-U-Verse territories, the merger involves the integration of AT&T's wireline and wireless networks with DIRECTV's multichannel video services. No consumer of wireline or wireless broadband Internet services would lose a choice of providers as a result of the proposed merger.
The proposed merger is a horizontal integration only with respect to MVPD services and only then in certain territories - where consumers currently have access to both U-Verse and DIRECTV video services. Such integrations only pose market power and anticompetitive conduct concerns where the market in question is or will become concentrated or offers consumers limited choices. The potential harm to consumer welfare resulting from horizontal integrations is also significantly diminished where the market is characterized by rapidly changing technologies, service offerings, and consumer habits. Potential harm is also offset to the extent of potential public benefits resulting from horizontal integrations.
As for market power, the Fifteenth Video Competition Report, at the end of 2011, listed DIRECTV and AT&T as the second and eighth largest MVPDs, respectively. The combined entity's post-merger share will remain below a 30% nationwide market share for MVPD subscribers. The D.C. Circuit has twice struck down, as arbitrary and capricious, Commission-imposed 30% nationwide MVPD subscribership caps.
Vertical integration aspects of AT&T/ DIRECTV are minor. Those aspects are extremely unlikely to harm consumer welfare. DIRECTV, for instance, only has ownership interests in three regional sports networks (RSNs) and the Game Show Network. Those networks are a miniscule fraction of the market for video programming content. FCC program access regulations exist to mitigate even the remotest concerns about foreclosure related to the proposed merger. In any event, the Commission precedents recognize that the economic efficiencies that result from vertical integration typically benefit consumers.
Finally, there is little reason to suspect that AT&T/DIRECTV would pose any realistic threat of creating a buyer-side market problem as a wholesale buyer of video programming. Monopsony is a rare scenario in which the distributer or retailer is the only outlet for wholesale goods. Here, the post-merger existence of other MVPDs providing direct competition includes cable MVPDs, another nationwide DBS provider (DISH), other telco MVPDs (Verizon, CenturyLink, Frontier), and nascent broadband service providers (Google Fiber). The existence of an increasing number of Internet-based alternatives for delivery of video programming by OVDs and other Internet outlets makes monopsony power concerns less likely still.
Whatever ultimate decision the Commission reaches in its review of the proposed AT&T/DIRECTV merger, its analysis should adhere to rigorous economic analysis. The proposed merger's potential effects on consumer welfare should remain the focus of the Commission's review.
