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How the AT&T-DIRECTV merger affects consumers

May 20, 2014 at 6:45 PM EDT
AT&T, the second largest wireless provider in the nation, announced its purchase of satellite television giant DIRECTV for nearly $50 billion. The companies said the takeover will allow for more bundling of mobile, TV and Internet plans, and they will serve a combined 26 million video users. Matt Wood of Free Press and Jim Nail of Forrester Research join Gwen Ifill to discuss the move.
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GWEN IFILL: The media, telecom and mobile landscape is going through enormous change right now, and this week’s announcement of another mega-merger, and the prospect of even more consolidation, shook up those industries again.

AT&T, America’s second largest wireless provider, announced Sunday it’s agreed to buy satellite television giant DirecTV for nearly $50 billion in cash and stock. The companies said the takeover will allow for more bundling of mobile, TV, and Internet plans.

Executives from both sides spoke during a conference call yesterday.

AT&T CEO Randall Stephenson:

RANDALL STEPHENSON, Chairman & CEO, AT&T: It gives us the opportunity to lead the way and to redefine the video entertainment business for a mobile and high-speed world. That includes delivering content to consumers across multiple screens, mobile devices, TVs, laptops, the backseat displays of connected cars, and even airplanes.

GWEN IFILL: The deal will give AT&T and DirecTV a combined 26 million video users in the U.S. AT&T already serves 116 million mobile customers. The purchase comes amid broad questions about the future of television and online video.

In February, Comcast unveiled plans to buy Time Warner Cable for more than $45 billion, a deal that would serve more than 30 million cable subscribers and nearly as many broadband users. Some lawmakers said such consolidation only hurts consumers.

Minnesota Democrat Al Franken has questioned the AT&T deal and last month the proposed Comcast purchase.

SEN. AL FRANKEN, D, Minn.: We are here to question whether this deal is good for competition, whether it’s in the public interest. I’m against this deal because I believe it doesn’t meet either test. I believe this deal will result in fewer choices, higher prices, and even worse service for my constituents.

GWEN IFILL: But Comcast executive vice president David Cohen defended his proposed merger.

DAVID COHEN, Executive Vice President, Comcast: While this transaction will make us bigger, that’s a good thing, not a problem. Most of our real competitors are national and global and larger than us.

GWEN IFILL: The AT&T-DirecTV merger could face similar scrutiny. It could be finalized within a year.

So, what do these deals mean for consumers? And why are corporate giants spending tens of billions to try to get even bigger?

For that, we turn to two people who know this field well.

Matt Wood is the policy director for free press, a nonpartisan organization advocating for media and technology policies. And Jim Nail is an analyst at Forrester Research. They focus on consumer and business data in changing marketplaces.

Starting with you, Matt Wood, what is the appeal of a deal like this for something as — a company as big as AT&T?

MATT WOOD, PoliFree Press: Well, I think they see the appeal as a quick boost to their bottom line and as Wall Street rewarding them for these kinds of merges.

We think it’s actually kind of wasteful spending, that if AT&T would invest this money in providing broadband for more of its existing customers and even expanding broadband offerings, that would be money better spent.

But this deal is actually more like $70 billion once you factor in the debt that AT&T would take on. And for that amount of money, they could basically wire half of the country with fiber. Instead, they are looking for the quick fix and the hit to their bottom line that they get from mergers and the rewards they get to their stock price.

JUDY WOODRUFF: Jim Forrester, does it make sense for AT&T, for a company like a company like AT&T — Jim Nail. I’m sorry. You work for Forrester Research. Your name is Jim Nail.

Is it — does it make sense for AT&T to be spending its money this way?

JIM NAIL, Forrester Research: It absolutely does.

This gives a few kind of future both to AT&T and to DirecTV by expanding these services and giving AT&T the cash flow to do the kind of expansion that we were just talking about.

GWEN IFILL: When we talk about these kinds of mergers, Jim Nail, we mention that there have been a lot of them lately. Why?

JIM NAIL: Well, we have actually got a tale of two different stories going on here.

Time Warner-Comcast is a classic combination of two similar companies who are seeking efficiencies and economies of scale and, therefore, higher margins as their market flows. DirecTV and AT&T are actually a different story. It’s actually being driven by a fundamental change in consumer behavior, where consumers expect to get the content, the programming, the data they want anywhere they want, on any device they want.

This is something that satellite can never deliver. And so satellite has to get together with a different kind of provider so that they can satisfy their customers in the future, or, you know, they’re out of business.

GWEN IFILL: Matt Wood, are customers commanding this kind of wireless technology? Does it make sense, therefore, for a company like AT&T to put its money there?

MATT WOOD: Yes, I think Jim and I would agree that this makes some sense for AT&T. The question is, does it make sense for consumers?

People are definitely demanding this kind of connectivity, but the question is, are they demanding that a single company offer it to them, or are people perfectly capable of making these bundles on their own? That’s the genius of the Internet. People can go get content from different sources and look at it on different screens.

And for AT&T to say, hey, we’re going to take out one of those competitive options, take away this video competitor to AT&T’s existing video services, and the only benefit they can name is now everything will come to you through an AT&T connection, we just don’t see it. We see higher prices and problems for consumers even if this benefits AT&T shareholders today and tomorrow.

GWEN IFILL: Do consumers benefit from increased innovation as a result of these kinds of combinations?

MATT WOOD: You know, nobody really thinks of the phone company or the cable company as the most innovative.

The innovation tends to happen on the edges, and that’s as it should be. These companies provide a valuable service, giving us the connections we need to receive those kinds of innovations and more and more for people to make them on their own, but to say that AT&T is going to be more innovative because of this, I think, is not really looking at their century-long track record of being a carrier in the middle that enables innovation, doesn’t really do much of it themselves.

We need them to provide that pathway for the rest of us.

GWEN IFILL: Jim Nail, how much of this has to do with the changing competitive landscape involving streaming services like Amazon, and Netflix, and Yahoo! and you name it that makes companies like AT&T make different decisions?

JIM NAIL: Yes, well, I think that’s the real core of the kind of innovation and change that we’re looking at here, because a lot of the analysis is looking at this through the lens of providing television services.

And so, in that sense, it makes sense to preserve DirecTV as a television distributor vs. Comcast, vs. all the other companies. But what’s really going on here is a change to broadband Internet being that fundamental platform through which all these other services are provided.

When you look at it that way, consumers have tons of choices. There’s lots of competition on the Internet to distribute television content, as you said, Netflix, Amazon, Hulu, YouTube, on and on. That’s where the innovation will take place.

And what I hope the regulators will see in this is, it’s not just about preserving choice in television, but it’s stimulating innovation and expansion of broadband which will be a foundation then on top of which all of these other companies will innovate, bring new services and bring new competition for the benefit of consumers.

GWEN IFILL: Matt Wood, are we headed kind of inevitably down the path of consolidation, just a couple of companies controlling all access?

MATT WOOD: Well, I think that’s the way we’re headed if the Department of Justice and the FCC don’t step in and block these two mega-mergers. They still have a chance to do that.

I think Jim’s last point is right that these companies provide a pathway to innovation and to competition, but that’s the key difference between them. When AT&T says, we compete today with Netflix or with Google or with Amazon, none of those companies can reach their customers unless AT&T remains a platform for that company.

So AT&T has in a lot of ways control over their competitors. And when they say, we’re a content company, too, that’s true up to a point, but AT&T is also the carrier that we need to even reach those other companies in the first place.

GWEN IFILL: Jim Nail, how much of a problem is it for consumers in a situation like this if they seem to have fewer choices, fewer companies to rely on to provide that content? Is that ever-shrinking environment really helping?

JIM NAIL: Well, let’s look at the fact that, right now, we have monopoly in many areas around broadband access.

Most people can only buy broadband from their cable provider. So we’re in a monopoly world right now. This actually increases choice by giving AT&T the ability to expand their broadband network and be in more areas in competition with Comcast and/or Time Warner and others in the future.

GWEN IFILL: Do you think that this is going to be approved by the Justice Department? Open question?

MATT WOOD: I think there’s a chance. I think, though, that we have a good case to make that this is not actually in consumers’ benefit and that AT&T could exactly what Jim is talking about, expand their broadband network, without first taking out a competitor.

GWEN IFILL: Matt Wood, Jim Nail, thank you both very much.

MATT WOOD: Thank you.