Spotlight turns to AT&T-DirecTV deal

The AT&T-DirecTV merger proposal has largely avoided intense examination.

Just three months after Comcast announced its $45 billion takeover of Time Warner Cable last year, its rival AT&T announced a $48 billion takeover of DirecTV.

Both deals were poised to create new industry behemoths and transform the country’s media landscape. But while the Comcast transaction set off widespread public outcry and ultimately collapsed last month under regulatory scrutiny, the AT&T-DirecTV merger proposal has largely avoided intense examination.

Until now.

The spotlight has turned to AT&T’s deal for DirecTV, which, if approved, would unite the telecom giant with the satellite company to create the country’s largest television distributor. With about 26 million subscribers, it would surpass Comcast.

Last week, a filing with the Federal Communications Commission revealed that Netflix was urging regulators to reject the AT&T-DirecTV transaction as it is currently proposed. The company argued that a combined AT&T and DirecTV would have the ability and incentive to use its heft to harm online video distributors like Netflix to protect its core TV business.

In recent meetings with the FCC, Netflix said that AT&T already had degraded customers’ access to Netflix. It also raised concerns about the potential that AT&T would emerge as the country’s largest Internet service provider after its projected investments in broadband, according to a Netflix filing.

“Such market power creates new incentives and abilities to harm entities that AT&T perceives as competitive threats, and will exacerbate the anti-competitive behavior in which AT&T has already engaged,” Netflix said in the filing.

AT&T is now far from the leader in broadband service. It counts 16.1 million subscribers to its Internet service, and DirecTV has none. Comcast, by contrast, is the country’s largest broadband provider, with more than 22 million high-speed Internet customers.

A Netflix spokeswoman later said in a statement that the company did not oppose the deal outright but rather was participating in the government review and urging regulators to consider “appropriate remedies.”

Netflix is among a handful of critics that raised concerns about the AT&T deal to federal regulators after the failed Comcast-Time Warner Cable deal, which it also had vocally opposed. Others include the American Cable Association, a trade group, and the Writers Guild of America West.

A spokesman for AT&T declined to comment.

Federal regulators are poring through more than 7.5 million pages of documents, hundreds of white papers and testimony by company executives to evaluate whether the AT&T-DirecTV deal will harm competition or serve the public interest. AT&T and DirecTV have both said they are confident the deal will close by the end of June.

“We feel very, very strongly that there are both significant consumer and competitive benefits to our transaction,” Michael D. White, chief executive of DirecTV, said Tuesday in an earnings call.

He added that the companies were expected to begin discussions with regulators in the next several weeks over conditions that could be placed on the deal.

The Justice Department and the FCC declined to comment.

Antitrust experts and industry executives said that, unlike with the Comcast deal, they did not expect regulators to raise significant concerns about the AT&T transaction.

That is primarily because the deal does not include two of the major issues in the Comcast-Time Warner Cable proposal. First, a combined AT&T-Direct TV would not control a majority of the country’s high-speed broadband customers. Second, neither company owns an entertainment group, as Comcast does with NBCUniversal.

In addition, while a combined AT&T-DirecTV might eliminate one option for television service in some regions, it could use its heft to create a stronger competitor in the pay television market. AT&T has also promised to expand broadband service to more rural areas.

“This is not going to be Comcast-Time Warner Cable Round 2,” said Amanda L. Wait, a former Federal Trade Commission lawyer who now is a partner at Hunton & Williams. “It was actually pretty smart of them to time the deal the way they did. If AT&T-DirecTV would have been announced first, people would have been more upset about it. But with the Comcast deal, it didn’t look as bad.”

Executives from both companies have pitched the deal as an opportunity to usher in a new era of on-demand, on-the-go entertainment, in which people will be able to easily watch television programming across a variety of screens. Combined, the company would also offer customers new bundles that would package video, broadband and mobile service.

If approved, AT&T would overtake Comcast as the country’s largest television distributor. That shift would give AT&T more sway in negotiations with television networks, not only over price but also over the ability to distribute programs to mobile devices. Those terms could affect agreements more broadly across the industry.

To date, television distributors have been limited in what programming they make available for mobile viewing because of agreements with TV networks. Because of its roots in the wireless business, AT&T is likely to negotiate for more of those mobile rights.

Still, some analysts questioned the logic of the deal, underscoring its focus on the traditional television business that has faced challenges in the face of the proliferation of streaming options.