AT&T (NYSE:T) has made the idea that it will use merger-related financial savings to bring broadband service to more homes in its coverage area a key part of its case for regulatory approval of the company's planned $48.5 billion acquisition of DIRECTV (NYSE:DTV.DL).
That sounds nice. Who would oppose more people having access to high-speed Internet service?
The only problem is that AT&T has said this before and not delivered. "Nearly a decade ago, AT&T promised 100% broadband coverage throughout its entire territory if it was allowed to buy BellSouth," Ars Technica reported, "yet today offers little or no service to millions of people in the 22 states where it operates wireline facilities."
Two opponents of the AT&T/DIRECTV deal point out the company's failure to deliver on its promise of expanded broadband coverage in a petition to the Federal Communications Commission. The document, filed by New Networks Institute telecom analyst Bruce Kushnick and Tom Allibone of telecom customer advocacy group Teletruth, calls for the FCC to pause the purchase and investigate AT&T for perjury.
What the petition charges
In the document filed with the FCC, New Networks Institute and Teletruth lay out a number of instances in which they believe AT&T failed to deliver on promises to provide broadband coverage. The petition notes that the "AT&T-BellSouth merger required the newly combined companies to have completed deployment to 100% of their territories in 22 states with broadband capability of at least 200 Kbps in one direction by December 31st, 2007."
That's not quick by today's standard, but it was the FCC's standard for high-speed Internet at the time.
The petition adds that in February 2008, "AT&T filed with the FCC, signing a document (under penalty of perjury) that it had fulfilled this obligation and all other obligations that were part of the merger agreement."
New Networks Institute and Teletruth believe the company did not meet its obligation, which would make the 2008 comments perjury, the petition contends. The two organizations provided numerous statements from AT&T itself that show the company acknowledging less than 100% coverage.
"We find that AT&T could not have had 100% coverage in 2007," the petition states. "As of 2014, AT&T and DirecTV specifically claim that at least 25% of the AT&T's 22 state territories did not have broadband available or in another statement that 15 million mostly rural areas do not have broadband."
What AT&T is saying
AT&T has not commented on this specific petition, but has addressed these charges in the past. The company argued in an October 2014 filing with the FCC that it has met its obligations under the old 200 kbps broadband standard.
"The fact that technology continued to advance and the FCC has subsequently changed the definition of what constitutes 'broadband' services is irrelevant," the company wrote, as reported by ARS Technica. "AT&T met its commitment and will likewise meet the commitments it has made in this transaction."
What's the truth?
AT&T says it has fully met its obligations. New Networks Institute and Teletruth completely disagree and say the company is guilty of perjury.
The truth is probably a little of both. AT&T might think it has done what it promised when many qualifications are considered, but it appears likely the intent of its promises has not been met. Whether the company committed perjury (or should even be charged with it) is for the FCC to decide, but so is whether AT&T should be trusted going forward.
This petition at least makes it seem believable that AT&T's promises aimed at winning federal approval might not be worth much once the deal is approved. AT&T made two promises in its 2014 FCC filing about how its acquisition of DIRECTV would benefit consumers:
First, they will put even greater downward pressure on video and broadband prices, generating net consumer welfare benefits in the range of $940 million to $1.44 billion annually. Second, combined with the addition of DIRECTV's profitable video product outside of AT&T's current video footprint, these cost savings will fundamentally improve the economics of AT&T's broadband investments in urban and rural communities alike.
Basically, AT&T promised a lower cost for consumers due to added competition (though it does not promise to lower its prices). It also clearly said the cost savings from the deal would make it more feasible for the company to invest in underserved communities.
If the FCC is going to approve this deal -- as it appears ready to do -- it should not accept AT&T's word at face value. Instead, the agency should mandate that the company hold, if not lower, prices and dictate that it live up to its 100% broadband promise, indexing that offer to potentially changing standards for a period of time.
It's a case of "trust, but verify" in which AT&T might need a little help from Uncle Sam to make sure it does what it says rather than just repeatedly saying it.
Daniel Kline owns shares of Apple. He has mixed feelings about chewing gum. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.