FCC Issues AT&T/DirecTV Order Detailing Its Analysis, Conditions

The FCC found the AT&T/DirecTV combo would increase competition for bundled video and broadband service, stimulating lower prices for consumers. Over the long haul, the FCC expects the new business model to drive AT&T broadband investment, stoking competition and expanding consumer access and choice. "The transaction offers the opportunity for more competition, directly benefiting consumers, thus advancing the public interest,” FCC Chairman Tom Wheeler said in a statement. “That new competition will challenge some of the nation’s biggest cable companies, including Comcast, Time Warner Cable, Charter, and Cox, as well as Google Fiber.”

But the FCC said the transaction also could cause competitive harms that would need to be remedied with conditions. Contrary to AT&T/DirecTV claims, the commission said the deal reduces AT&T’s incentive in the short term to deploy higher-speed broadband for fear of “cannibalizing” DirecTV video revenue. The agency thus required AT&T to deploy high-capacity fiber-to-the-premises (FTTP) connections to 12.5 million customer locations “to capture all of AT&T’s pre-transaction planned deployment, its projected deployment absent the transaction, and the deployment that the record suggests is profitable as a result of the transaction.” In areas where it’s deploying FTTP, AT&T is also required to provide gigabit-speed service to schools and libraries eligible for E-rate discounts, estimated by the FCC to number 6,000 institutions.

The FCC said the DirecTV acquisition could tempt AT&T to use its broadband network to favor its own video offerings over competing online video content or services. The commission prohibited AT&T from discriminating against online video competition in its fixed broadband usage-based restrictions or terms. The FCC said AT&T wouldn't be prevented from offering discounts for bundled services.

Also as expected, the FCC order requires AT&T to file Internet interconnection agreements, offer discounted broadband service to low-income consumers and adhere to a compliance and reporting program. The commission is requiring that AT&T do outreach to low-income consumers, including through $15 million in public service announcements, and it didn't include language allowing AT&T to double the discounted broadband prices (of $5 or $10 per month, depending on the speeds) after one year, as the telco proposed recently.

Addressing Potential 'Competitive Harm'

Wheeler said the conditions were “targeted and merger specific,” addressing the “threat of competitive harm.” But Commissioner Mike O’Rielly, echoing some of the concerns of Commissioner Ajit Pai, who released his statement Monday, said the conditions “were unrelated to the transaction at hand, outside the scope of our proper role, and harmful to consumers.” For example, he said the affordable broadband condition would likely lead to price increases for most AT&T customers who would subsidize low-income customers. Although he didn’t support the conditions, O’Rielly said he voted to “approve in part and concur in part” (unlike Pai, who partially dissented) because AT&T and DirecTV accepted the conditions and “they don’t appear to cause direct harm to other market participants.”

Commissioner Jessica Rosenworcel said the complexities of independent programmers seeking carriage on traditional pay-TV platforms came up repeatedly in the proceeding. She called the program-carriage issue “ripe for examination” in another FCC forum. Commissioner Mignon Clyburn, in her statement released on Friday, urged Wheeler to initiate a program-carriage proceeding and jump-start a program-access proceeding to level the playing field for small pay-TV providers looking to carry certain programming. (Small cable companies complained DirecTV is withholding a regional sports network.)

In requiring AT&T to build FTTP to 12.5 million customer locations, the FCC spelled out various details, including that no more than 2.9 million of the locations be upgrades for customers already receiving speeds of at least 45 Mbps using “fiber-to-the-node” systems. It also set annual deployment milestones for AT&T as it rolls out FTTP service: to reach 1.6 million customer locations by year-end 2015, 2.6 million by year-end 2016, 5 million by year-end 2017 and 8.3 million by year-end 2018. Also, no more than 1.5 million greenfield locations can be counted toward the 12.5 million target, and AT&T can’t use new USF support to deploy the fiber or count the 12.5 million in meeting USF deployment duties.

Wheeler again hailed the condition as dramatically boosting AT&T’s fiber plans, but O’Rielly lamented that the FCC went “to great pains to discount the potential benefits of a fixed wireless broadband buildout to 13 million homes in largely rural areas,” including many lacking any terrestrial broadband service, while forcing AT&T to “sink billions of dollars into large, competitive markets at the demand of government, not market forces.” He said he was skeptical such “reprioritization of metropolitan over rural areas really is in the public interest when so many people continue to go completely unserved.”

The FCC will require AT&T next month to file its significant IP interconnection agreements. The commission mandated an “Independent Measurement Expert” to work with AT&T to develop detailed metrics -- on “latency” (data delivery delays), packet losses and interconnection point utilization -- to help regulators monitor its interconnection performance through regular reports (no more often than monthly).

Wheeler said the FCC adopted compliance conditions to address concerns about industry adherence with past merger conditions. The order subjected AT&T to semi-annual reporting requirements on its compliance with conditions. AT&T will be required to designate an internal compliance officer, and an “Independent Compliance Officer” will monitor AT&T adherence to the conditions and submit compliance reports to the FCC within 60 days of the company’s required reports. The independent officers will be proposed by AT&T, which will be required to pay for their expenses, but the FCC’s Office of General Counsel will have final say.

Public Knowledge said the FCC didn’t adopt all the conditions it should have, but the group is hopeful the conditions it did adopt, with proper enforcement, will benefit the public interest. Its statement also commended Clyburn for pushing for low-cost connectivity and for seeking an inquiry into programming issues. TechFreedom had issued a release accusing the FCC of “regulation by extortion” with its conditions, including on interconnection. “If anyone doubted that the FCC was trying to impose rate regulation on the Internet, it’s time to wake up and smell the tariffs,” TechFreedom President Berin Szoka said.