Net Neutrality

AT&T-DirecTV Deal Nearing Approval

It looks like AT&T's proposed $48.5 billion deal to buy DirecTV will sail through its regulatory review shortly, unlike Comcast's proposed $45.2 billion deal to buy Time Warner Cable that collapsed after stiff regulatory opposition just over two months ago.

In the latest evidence of this development that was first reported by Bloomberg on Wednesday, U.S. Department of Justice (DoJ) antitrust officials are said to be ready to approve AT&T Inc. (NYSE: T)'s pending acquisition of DirecTV Group Inc. (NYSE: DTV) without any limiting conditions. That would clear the way for the Federal Communications Commission (FCC) to act on the deal as early as next week.

Like the DoJ, the FCC is widely expected to approve the merger, which would turn AT&T into the largest pay-TV provider in the world with more than 26 million satellite TV and telco video subscribers in the US and another 13 million satellite TV subs in Latin America. That's largely because, unlike Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s attempt to buy out Time Warner Cable Inc. (NYSE: TWC), an AT&T-DirecTV union would not give the merged entity much greater control of the critical US broadband market.

Unlike the DoJ, though, the FCC is expected to impose some conditions on AT&T's acquisition of DirecTV. Those conditions could well include written guarantees that the bulked-up AT&T would abide by the Commission's new net neutrality rules and reclassification of Internet service as a more strictly regulated Title II telecom service, both of which just went into effect three weeks ago but are now being challenged in the federal courts. AT&T may also have to agree to some kind of commitments on interconnection fees, which have been the subject of several nasty public brawls between ISPs and major online content providers like Netflix Inc. (Nasdaq: NFLX). (See Interconnection Deals: Parsing the Data.)

The DoJ, FCC, AT&T and DirecTV have all declined comment on the news reports.

Imposing net neutrality and Title II conditions on AT&T would be a big coup for the FCC. AT&T, the second-largest broadband provider in the US after cable giant Comcast, has been one of the major companies leading the legal charge by the telecom, cable and wireless industries against the Title II reclassification. That challenge could end up going all the way up to the US Supreme Court. (See Title II Rules Take Effect.)

But it wouldn't be totally surprising for AT&T to accept such conditions. For the past three years, the telecom has promised to abide by the weaker set of Open Internet rules established by the FCC in 2010 and ultimately struck down by the federal courts. AT&T has also pledged to expand its ambitious rollouts of gigabit service to at least another 2 million homes.

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Sensing that the merger will be approved by regulators, deal opponents and critics are seeking other conditions as well. In the latest case earlier this week, enTouch Systems, a small Houston pay-TV and broadband provider, urged the FCC to restrict the programming license fees that the merged company will be able to charge rival operators for its regional sports networks. enTouch filed the request because of concerns that Root Sports Southwest, a former Comcast regional sports network that's now co-owned by AT&T and DirecTV, will charge exorbitant rates for its programming.

The American Cable Association (ACA) has picked up the torch as well. The ACA, which represents smaller and independent cable operators in Washington, D.C., has been urging the FCC to slap program-access and licensing fees conditions on AT&T if the merger goes through.

"To remain competitive, enTouch Systems requires access to ROOT Sports Southwest on fair-market terms. But the network owned by AT&T and DirecTV is insisting on the payment of fees that are unreasonably and unnecessarily high," ACA President & CEO Matt Polka said in a prepared statement. "The way AT&T-DirecTV's ROOT Sports Southwest is treating this smaller competitor is deplorable, and the Federal Communications Commission needs to protect competition and consumers from the harms of the AT&T-DirecTV merger by adopting conditions that ACA has proposed in numerous filings."

While the AT&T-DirecTV merger review nears the finish line, the regulatory process for Charter Communications Inc. 's twin proposed purchases of Time Warner Cable and Bright House Networks has just begun. In the latest of the opening moves on that front, TWC has filed requests with the FCC to transfer licenses to Charter in six regions around the country while Bright House has filed one such request.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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