The Federal Communications Commission said Friday it has approved AT&T's (T) $49 billion acquisition of DirecTV (DTV), removing the companies' biggest hurdle in their desire to merge and create one of the largest U.S. pay-TV providers.
The FCC's approval was largely expected. On Tuesday, FCC Chairman Tom Wheeler confirmed he circulated to his fellow FCC commissioners the agency's proposed order approving the acquisition, with AT&T and DirecTV having to agree to some conditions.
Even before Wheeler's recommendation, analysts had bet on the merger being approved as AT&T U-Verse's TV service -- with about 6 million customers -- is a relatively small player in the TV market. And DirecTV doesn't directly offer Internet packages, making their merger more complementary than the proposed Comcast-Time Warner Cable merger that was quashed by regulators earlier this year.
AT&T, the nation's second largest wireless carrier that also provides pay-TV, broadband Internet and phone services, pursued DirecTV to expand its TV business nationally and to enhance its buying power versus TV networks that are demanding higher fees for their programs. DirecTV's satellite TV service is available nationally and has about 20 million customers. Once the merger is complete, AT&T would serve about 26 million TV customers.
The Department of Justice's antitrust division, which must also approve the merger, also said Tuesday it will not block the deal and closed its investigation.
As a condition of the FCC's approval, AT&T will have to expand its "competitive high-speed fiber connection" to 12.5 million customer locations. It would increase "the entire nation's residential fiber build by more than 40%," Wheeler said Tuesday.
AT&T's U-Verse is currently offered in some markets in 22 states, and the merger removes a TV competitor in those markets. Requiring AT&T to boost Internet connections is "a pathway for increased competition" from video streaming companies in these affected markets, the FCC said.
AT&T also must offer the expanded broadband "gigabit services" to schools and libraries that receive federal subsidy for telecom services, the FCC said.
Since AT&T is "the only major (Internet service provider) that applies 'data caps' across the board to all of its fixed broadband customers," the company also is required to subject its own video streaming service and content to its monthly data caps. The premise of the condition is that customers, when given a choice, would theoretically opt for a video streaming option that is not subject to a cap. "This merger increases the incentive of AT&T-DirecTV to use strategies that limit consumers' access to online video distribution services in order to favor its own video services," the FCC said.
AT&T also will be required to submit to the FCC all agreements AT&T has with its "interconnection" partners, which are the middlemen companies that help deliver data from content owners to AT&T's network. Consumer activists have called for more transparency regarding their practices to avoid deliberate slowing of data transmission and discrimination against content providers.
AT&T has also agreed to report regularly to the FCC on its network performance and hire compliance officers to ensure all merger conditions are met, the FCC said.
Because not all consumers can afford bundled packages, the FCC also mandated AT&T to make available "an affordable, low-price standalone broadband service" to low-income consumers.
John Bergmayer, an attorney at consumer technology advocacy group Public Knowledge, said the conditions weren't enough to address the fundamental telecommunications problem facing many Americans -- the lack of Internet and TV-video service competition in many local markets.
"No one should imagine that this has solved the underlying problem of our lack of competition," he said in a statement. "While we hope the proposed merger conditions are effective and enforced, they appear to show the limits of what certain types of merger conditions can do."
