AT&T Says It’ll Lower Prices With DirecTV. Lawmakers Don’t Buy it.

The telecom giant says it will save billions, but will it pass the savings on to consumers?

 A DirecTV sattelite dish sits on a roof on May 19, 2014 in New York City. AT&T agreed May 18, to buy DirecTV for $48.5 billion.  
National Journal
Brendan Sasso
June 24, 2014, 1:03 p.m.

AT&T claims its planned pur­chase of Dir­ecTV will drive down prices — but law­makers aren’t so sure.

Al­though the com­pany claims the mer­ger would cre­ate “down­ward pres­sure” on prices, it hasn’t made any firm com­mit­ments to ac­tu­ally lower any­one’s bills.

Rep. John Con­yers, the top Demo­crat on the House Ju­di­ciary Com­mit­tee, said dur­ing a Tues­day hear­ing that the $48.5 bil­lion mer­ger “could re­duce con­sumer choice and could have the po­ten­tial to raise prices.”

He also wor­ried that the deal would only spur fur­ther in­dustry con­sol­id­a­tion as oth­er com­pan­ies try to keep up, fur­ther re­strict­ing the avail­able choices for con­sumers.

“Will few­er com­pet­it­ors mean high­er prices and lower qual­ity ser­vice?” Sen. Amy Klobuchar, the chair­wo­man of the Sen­ate Ju­di­ciary’s An­ti­trust Sub­com­mit­tee, asked dur­ing her pan­el’s hear­ing later in the day. “Will AT&T ac­tu­ally pass the cost sav­ings “¦ on to con­sumers?”

AT&T CEO Ran­dall Steph­en­son test­i­fied that the mer­ger would cre­ate “cost sav­ings” and “syn­er­gies” that would al­low the com­pany to price its ser­vices “more com­pet­it­ively.” That in turn would pres­sure cable gi­ants like Com­cast to lower their prices, Steph­en­son said.

The the­ory is that by gain­ing Dir­ecTV’s 38 mil­lion TV sub­scribers, AT&T would be able to drive a harder bar­gain with the en­ter­tain­ment com­pan­ies that own TV chan­nels. AT&T’s own TV ser­vice, U-Verse, isn’t even prof­it­able now be­cause of high pro­gram­ming costs, Steph­en­son said.

The mer­ger would also cre­ate oth­er ef­fi­cien­cies such as al­low­ing a single tech­ni­cian to in­stall TV and In­ter­net ser­vice in one trip, he ex­plained.

All told, AT&T ex­pects to save $1.6 bil­lion every year from the deal.

Sen. Richard Blu­menth­al, a Con­necti­c­ut Demo­crat, pressed Steph­en­son to prom­ise that those sav­ings would be passed on to con­sumers.

But the AT&T ex­ec­ut­ive dodged, say­ing it’s hard to com­mit be­cause the out­come de­pends on ne­go­ti­ations with pro­gram­ming com­pan­ies. The TV in­dustry is com­pet­it­ive and com­pan­ies will of­fer bet­ter prices if they can, he said.

Steph­en­son also ac­know­ledged that he doesn’t ac­tu­ally ex­pect the mer­ger to lower any­one’s bills. In­stead, the com­pany is ar­guing that the mer­ger will prob­ably re­duce the rate that TV bills are rising.

“I think a lot of con­sumers would find that an­swer un­sat­is­fy­ing,” Blu­menth­al re­spon­ded.

Al­though the “down­ward pres­sure” on pro­gram­ming costs could mean less pain­ful TV bills, it has the en­ter­tain­ment in­dustry wor­ried.

Chris Key­ser, pres­id­ent of the Writers Guild of Amer­ica West, ar­gued that lower pay­ments will mean worse TV shows. “Re­duce those fees through the out­sized power of mono­poly — and the res­ult is less cre­ativ­ity, less product, less in­nov­a­tion,” he said.

The Justice De­part­ment and the Fed­er­al Com­mu­nic­a­tions Com­mis­sion are cur­rently re­view­ing the deal.

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