Earlier this month, my colleague Brian Fung suggested that AT&T might buy satellite television provider DirectTV as a way to position itself as a competitor to a merged Comcast and Time-Warner Cable. Yesterday, that scenario seems to have come to pass. As Cecilia Kang reports on our pages, the two companies have apparently hammered out a deal worth some $49 billion in cash and stock.
There are a lot of striking things about the scenario, including AT&T and DirectTV’s continuation of a pledge set by Comcast when it purchased NBC Universal to abide by a higher standard of net neutrality than the one established by the federal government. These big, merged companies appear to want to prove that bigger can still mean benign. What happens after these pledges runs out is anyone’s guess.
But whatever deals are struck, or whatever changes the companies have to make to satisfy federal regulators, maybe the most significant thing about this particular proposed merger is the participants themselves.
In 1982, eight years after the federal government filed an anti-trust lawsuit against AT&T Corporation, the company settled the case by agreeing to break up into eight companies that would perform different kinds of services. The seven (and eventually nine) Regional Bell Operating Companies, also known as the “Baby Bells,” would provide local telephone service, while AT&T would provide long-distance calling services. That division reduced AT&T’s net worth significantly. And assigning different companies different functions was supposed to prevent any one organization from gaining too much power to control the telephone service market.
More than 20 years later, the Baby Bells are all grown up. One of them, Southwestern Bell, actually bought out the company from whence it came in 2005, taking over the name AT&T. It is that company that is now seeking to merge with DirectTV. While AT&T already sells some television service through U-verse, a merger with DirectTV would give AT&T much greater power to offer bundles that include television, phone and broadband service to consumers, much like the ones that Comcast and Time-Warner Cable provide now.
It is absolutely true that the old media consolidation posed risks for consumers. Not having any choice between providers who offer different services, pricing and customer service is absolutely a bad thing.
But the new vision of media consolidation, represented in both the AT&T-DirectTV deal and the Comcast-Time-Warner merger does not necessarily solve that old challenge, and it introduces many new ones. One of the best defenses Comcast has for its proposed marriage to Time-Warner is that it does not actually reduce consumers’ options since each company was already dominant in the separate markets where they operated.
While companies that offer a lot of different services, such as a combined AT&T-DirectTV or a merged Comcast and Time-Warner, may not be able to achieve a choke hold over a single kind of technology like the AT&T Corporation did back in the day, they do create much more complicated webs of pressure points.
A larger Comcast may have the clout to try to push down the fees television networks charge it to carry their content. But will it, given that Comcast has an interest in continuing to collect those sorts of fees from other providers for NBC Universal content? How might AT&T align its DirectTV and U-verse businesses? Could cellphones finally become part of the bundle structure? Federal regulators and the companies themselves will have to sort out these complex and sometimes competing incentives.
Until they do, and until the implications for consumers become clear, these two mergers offer us an important reminder. The new big media companies look different from the monoliths of old, and they operate in more spheres of business. But that does not mean that they do not have a powerful influence on consumers. The new media consolidation just has more wires for us all to get tangled up in.