FCC approves AT&T's acquisition of DirecTV

Roger Yu | USA TODAY

AT&T (T) completed its $49 billion acquisition of DirecTV (DTV) Friday after the Federal Communications Commission granted its approval, removing the companies' biggest hurdle in their desire to create the largest U.S. pay-TV provider.

AT&T, the nation's second largest wireless carrier that also provides pay-TV, Internet and phone services under the U-Verse brand, pursued DirecTV to expand its TV business nationally and enhance its negotiating power versus broadcast and cable networks that are demanding higher fees for their programs. DirecTV, whose satellite-based TV service is available nationally and has the exclusive rights to NFL Sunday Ticket, also enables AT&T to offer more bundled packages for their product options. For example, AT&T could offer rural market customers a package of wireless smartphone subscription, satellite TV, and Internet access delivered via wireless network. With the merger complete, AT&T now serves about 26 million TV customers.

The FCC's approval was expected and ends a review process that began when AT&T announced the deal in May, 2014. On Tuesday, FCC Chairman Tom Wheeler confirmed he circulated to his fellow FCC commissioners the agency's proposed order approving the acquisition, with AT&T and DirecTV agreeing to some conditions.

AT&T is "now a fundamentally different company with a diversified set of capabilities and businesses," said AT&T CEO Randall Stephenson in a statement.

Even before Wheeler's recommendation, analysts had bet on the merger being approved as AT&T U-Verse's TV service -- with about 6 million customers -- is a small player in the TV market compared to other national cable providers. The relatively smooth approval process is in direct contrast with Comcast, whose bid to buy Time Warner Cable for $45 billion was quashed by regulators earlier this year.

While the two transactions were often compared, AT&T’s deal for DirecTV was different. Had Comcast bought TWC, the merged entity would have controlled more than half of the broadband Internet market. AT&T sought to mark the distinction, noting that DirecTV doesn't directly offer Internet.

Current customers of AT&T and DirecTV "will continue to receive their same services, channel lineups, and customer care," AT&T said. "Customer account information, online access and billing arrangements remain the same."

As a condition of the FCC's approval, AT&T agreed to expand its fiber Internet connection to 12.5 million customers within four years.

AT&T's U-Verse is currently offered in some markets in 21 states, and the merger removes a TV competitor in those areas. Requiring AT&T to boost Internet connections is "a pathway for increased competition" from video streaming companies in these affected markets, the FCC said.

AT&T will also offer the expanded broadband "gigabit services" to schools and libraries that receive federal subsidy for telecom services, the FCC said.

Since AT&T is "the only major (Internet service provider) that applies data caps" to its broadband customers," the company is required to refrain from favoring its own video streaming service by not subjecting it to monthly data caps. The premise of the condition is that customers, when given a choice, would theoretically prefer a video streaming option that is not subject to a cap. AT&T is working on its own video streaming service.

Because not all consumers can afford bundled packages, the FCC mandated AT&T to make available "an affordable, low-price standalone broadband service" to low-income consumers.

AT&T will have to submit to the FCC all agreements AT&T has with its "interconnection" partners, which are the middlemen companies that deliver data from content owners to AT&T's network. Consumer activists have called for more transparency regarding their practices to avoid deliberate slowing of data transmission and discrimination against content providers.

AT&T also agreed to report regularly to the FCC on its network performance and hire compliance officers.

John Bergmayer, an attorney at consumer technology advocacy group Public Knowledge, said the conditions weren't enough to address the fundamental telecommunications problem facing many Americans -- the lack of Internet and TV-video service competition in many markets.

“No one should imagine that this has solved the underlying problem of our lack of competition,” he said in a statement. “While we hope the proposed merger conditions are effective and enforced, they appear to show the limits of what certain types of merger conditions can do.”

AT&T said John Stankey will be CEO of AT&T Entertainment & Internet Services, which will run DirecTV and AT&T Home Solutions operations. DirecTV's Chairman and CEO Mike White will retire.