Netflix's objection to the proposed AT&T/DirecTV merger drew a response yesterday from AT&T, which said that "economic realities" prevent it from degrading online videos delivered over its Internet service.

AT&T's filing with the Federal Communications Commission is heavily redacted, eliminating details about Netflix's agreement to pay AT&T for a direct network connection, as well as various other AT&T documents. AT&T urged the FCC to reject a merger condition proposed by Netflix, which said AT&T should not be allowed to charge Netflix and other content providers for network connections. But many of the details cited by AT&T in support of its argument were shielded from public view.

AT&T

AT&T

AT&T

"Netflix continues to insist that it will be harmed unless the Commission prohibits AT&T (and only AT&T) from charging content providers that seek to connect to AT&T’s network," AT&T counsel Maureen Jeffreys wrote. "For the reasons articulated in AT&T’s April 21, 2015 submission and emphasized further below, the Commission should reject any such condition, especially when imposed on only one company in a hotly contested broadband marketplace dominated by incumbent cable companies."

Netflix also asked for an industry-wide prohibition on the practice as part of the FCC's net neutrality rules. The FCC declined to impose a strict ban but allowed companies to file complaints about unreasonable payment requests. While Netflix already agreed to pay the major ISPs, the threat of complaints has helped resolve other similar disputes.

Netflix performance on AT&T declined during the months-long money dispute between the companies, but AT&T argued that it cannot degrade online video traffic.

"AT&T could not effectively and persistently degrade any OVD [online video distributors] without degrading all OVDs and degrading any single OVD, much less all OVDs, would risk significant loss of broadband and bundle customers while saving few, if any, video customers," AT&T wrote. "Providing high quality broadband services aimed at attracting and retaining profitable broadband and bundle customers is, and will remain, at the heart of AT&T’s business. The record shows that when AT&T customers drop broadband services, they almost always drop AT&T video and other entertainment services as well. Thus, a degradation strategy would risk losing not only broadband profits, but also associated, and much greater, double and triple-play revenues and profits, which include video profits. Simply put, it makes no economic or business sense for AT&T to pursue the hypothetical OVD degradation strategy put forth by Netflix, either before or after the transaction."

While the FCC forced Comcast to give up on its purchase of Time Warner Cable, it has not said whether it will allow AT&T to buy DirecTV, either with or without conditions.