AT&T (NYSE:T) has completed its purchase of DirecTV after receiving approval from the Federal Communications Commission.
The $48.5 billion deal makes the company the largest provider of subscription television service in the United States. The new, larger AT&T will serve more than 26 million customers in the U.S. and more than 191 million customers in Latin America, including Mexico and the Caribbean. AT&T also has more than 132 million wireless subscribers and connections in the U.S. and Mexico, and nearly 16 million subscribers to its high-speed Internet service.
The FCC has allowed AT&T to become a massive entity, but the agency did not approve the deal without conditions. The new cable and phone giant pledged to use its heft to expand the places where it offers broadband Internet access, and the FCC has made the deal conditional on it delivering.
What is the FCC requiring?
While the FCC approved the deal, it did so with clear reservations about allowing one company to control so much of the market. In an attempt to mitigate that issue, the agency issued some very specific conditions, which it detailed in the press release announcing the deal:
As part of the merger, AT&T-DIRECTV will be required to expand its deployment of high-speed, fiber optic broadband Internet access service to 12.5 million customer locations as well as to E-rate eligible schools and libraries. In addition, AT&T-DIRECTV is prohibited from using discriminatory practices to disadvantage online video distribution services and will submit its Internet interconnection agreements for Commission review. Finally, AT&T-DIRECTV will offer broadband services to low-income consumers at discounted rates.
The approval requires the above rollout to happen within four years, and the FCC spelled out a number of other specific changes AT&T must make. They include:
- Within its wireline footprint, the company will offer 1Gbps service to any eligible school or library requesting E-rate services, pursuant to applicable rules, within the company's all-fiber footprint.
- Within AT&T's 21-state wireline footprint, it will offer discounted fixed broadband service to low-income households that qualify for the government's Supplemental Nutrition Assistance Program. In locations where it's available, service with speeds of at least 10Mbps will be offered for $10 per month. Elsewhere, 5Mbps service will be offered for $10 per month or, in some locations, 3Mbps service will be offered for $5 per month.
- AT&T's retail terms and conditions for its fixed broadband Internet services will not favor its own online video programming services.
- AT&T will appoint a Company Compliance Officer to develop and implement a plan to ensure compliance with these merger conditions. Also, the company will engage an independent, third-party compliance officer to evaluate the plan and its implementation, and submit periodic reports to the FCC.
These conditions seem like a lot, but in reality, the network expansion is not much bigger than what AT&T had proposed, and the low-cost service to low-income households has been a very common FCC condition.
What this means for consumers
AT&T eagerly agreed to the FCC's conditions. These stipulations offer consumers a little bit of protection, but in reality, once the deal has closed, the FCC loses much of its leverage.
The company will likely meet these requirements because most of them are what the company had planned to do anyway. In reality, though, AT&T has failed to deliver on promises to the FCC to increase service to underserved areas before, which I wrote about here (though the company denies the charges).
In due time, there will be very little to hold AT&T to these conditions, and the FCC knows that. The commission arguable could've aimed for stricter conditions, and didn't. That's good news for AT&T investors, but it could be bad for consumers.
Daniel Kline has no position in any stocks mentioned. He has not ruled out running for president. The Motley Fool has no position in any of the stocks mentioned. 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.