Congress

AT&T Makes the Case for Buying DirecTV With Well-Worn Promises


The time has come for AT&T (T) to explain to Congress why its acquisition of DirecTV (DTV) is good for America. Both the Senate and House are holding hearings today at which AT&T is making this case: The Internet and television markets have changed fundamentally in recent years (absolutely true), and so AT&T and DirecTV need to join forces to stand a chance in this brave new world (absolutely debatable).

This deal doesn’t seem likely to inspire the same opposition as Comcast’s (CMCSA) attempt to purchase Time Warner Cable (TWC) or the ongoing debate over net neutrality, among controversial telecommunications issues to pop up so far this year. At the House hearing on Tuesday, most lawmakers seemed amenable to the DirecTV deal. The only clear opposition during the opening remarks came in the form of a generalized weariness—and wariness—from Representative John Conyers (D-Mich.) over the march of consolidation.

As part of its pitch, AT&T is promising lots of things: improved Internet for rural customers, better service, and lower prices. AT&T has made such claims before, and there’s reason to question the claims it makes when it is trying to convince the federal government to let it buy a company. (Ars Technica examined many of these claims in an article earlier this month.)

Sometimes the company over-promises. When it bought BellSouth at the end of 2006, AT&T said it would offer broadband Internet access (PDF) to every household in its territory within a year. Of those, 85 percent would access the Internet via wireline and the remaining 15 percent would get wireless service. Five years later, AT&T claimed it was “economically unfeasible” to provide wireline access to a quarter of its customer locations. In 2012, AT&T said it would focus on expanding its LTE wireless network as an alternative. Wireless Internet, of course, is more expensive, generally comes with data caps that preclude Netflix (NFLX) binges, and is less reliable than the version that comes through the wires. In today’s House hearing, AT&T Chief Executive Officer Randall Stephenson said claims that AT&T hadn’t met its obligations were “patently false.”

If AT&T can be overly optimistic about some things, at other times it has underestimated its capacities. When it attempted to buy T-Mobile (TMUS) in 2011, AT&T said it needed to make the deal so it could build out its LTE network to reach 294 million people. “This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future,” Stephenson said at the time.

The deal for T-Mobile fell through, costing AT&T billions of dollars in a breakup fee, which T-Mobile then used to build out its own network. That didn’t come as a terrible setback for AT&T though: The company said in January that its LTE network would reach 300 million people by the end of this summer.

Now AT&T says the DirecTV deal will give it a video service it can bundle with its own broadband offerings to compete with cable companies. “The transaction fundamentally improves the business case for expanding AT&T’s broadband infrastructure to millions more Americans,” argues Stephenson in prepared testimony (PDF) for Tuesday’s hearing. He says AT&T will expand high-speed broadband to at least 15 million customers, largely in rural areas, and that it will provide broadband service to 70 million people in all via a combination of wireless and wireline.

Is this so different from AT&T’s pre-merger plans? Two years ago the company launched Project Velocity IP, a major expansion of its broadband network. At the time, the company said it would reach 75 percent of its customers in its service area with wired internet, or 57 million people. An additional 18.2 million customers would get broadband service through LTE wireless service for a total of over 75 million people. The company has said numerous times that the project is moving ahead on schedule. (AT&T didn’t respond to an interview request on Tuesday.)

The record doesn’t reveal a history of hideous failure on AT&T’s part. After all, the company seems to be making progress at building out its network while bringing in billions of dollars in profit each year. It does raise doubts as to whether AT&T needs these deals as much as it says it does.

“Again and again, AT&T makes the same arguments and the same promises when it wants to acquire a competitor,” said John Bergmayer of Public Knowledge, an advocacy group that opposes the merger, at the hearing. “Yet no merger ever seems to be quite enough for it to achieve its goals, leaving AT&T ample headroom to re-promise and re-commit to the same goals the next time around.”

Brustein is a writer for Businessweek.com in New York.

Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • T
    (AT&T Inc)
    • $35.02 USD
    • 0.07
    • 0.2%
  • DTV
    (DIRECTV)
    • $87.21 USD
    • 0.19
    • 0.22%
Market data is delayed at least 15 minutes.

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus