It’s hard to blame consumers if their initial reaction to the proposed $48.5-billion merger of AT&T and DirecTV is to reach for their wallets and hold on tight. Mergers usually leave the public with fewer choices and lead to higher prices.
What makes this merger of vital importance to consumers is the near universal demand for the companies’ services. Turned off by airline mergers and rising fares? In a pinch, there are still road and rail alternatives. But these days almost everyone buys service from a telecom company, unless they’re completely off the grid, which is both unlikely and impractical — or go back to rabbit ears.
And lately, mergers are all the rage in the telecom world. The business of providing pay TV, Internet connections and phone service is coming down to a handful of industry giants.
The Comcast-Time Warner deal, worth $45 billion, was announced three months ago. In that agreement, which is awaiting government approval, both partners made much of the fact that although they are both cable systems, each serves different geographical areas, with little overlap. Thus, they argued, a merger would not amount to decreased competition for individual consumers.
The proposed consolidation between AT&T, the No. 2 seller of high-speed Internet service, and DirecTV, the largest satellite video provider, is a different deal. They compete head-to-head for TV viewers in 10 of the 20 largest metropolitan markets.
To the claim that this would reduce choices for the affected consumers, executives at both firms argue that there are benefits for both sides. AT&T’s wireless customers, for example, would be able to tap into DirecTV video on their smartphones. And DirecTV customers would get better broadband, wireless and national bundle services.
To sweeten the offer for regulators and members of Congress, AT&T promised to expand its broadband service to 15 million new customer locations in rural parts of its service areas, as well as offering stand-alone broadband for three years to those who choose to go without bundled services — “over the top,” or OTT, in telecom jargon.
We particularly like the latter promise. These are undeniable benefits for some consumers, for a limited time in some instances. But there are significant concerns, as well, in the rapidly changing telecom world from all of these proposed combinations.
If the Comcast-Time Warner merger is approved and AT&T/DirecTV’s is not, that would leave one behemoth in the telecom world standing alone, with an ability to overwhelm its competitors while hapless consumers watch impotently from the sidelines. If that merger is approved, then finding an equally robust competitor would only make sense.
Green-lighting both, however, would provide an incentive for all the other players to get into the act. That includes Sprint and T-Mobile, Charter, Verizon and the Dish Network, among others. It’s hard to see how consumers benefit as individual companies morph into telecom giants. Consider, as well, that much of the innovation in the telecom world, which began with the break-up of old Bell System more than 30 years ago, has been driven by competition.
For regulators, that should be the bottom line. The promised benefits have to be weighed against the obvious risk to consumers. Doing so, they may well conclude that it’s time to hit the pause button on merger mania.