(Updates with Senator Al Franken comment in 11th paragraph.)
May 23 (Bloomberg) -- AT&T Inc.’s deal for satellite-TV provider DirecTV is a boon for Comcast Corp. as the biggest U.S. cable company tries to win antitrust approval to take over Time Warner Cable Inc.
By acquiring DirecTV, AT&T will get the scale to compete more effectively against a combined Comcast-Time Warner Cable, making that transaction appear less threatening to regulators, said Herbert Hovenkamp, a law professor at the University of Iowa.
“This merger will improve Comcast’s chances,” Hovenkamp said. “What you want to do in a merger case is show that there are other competitors out there and as a result any opportunity to behave anticompetitively is going to be disciplined by this other competitor.”
With DirecTV, Dallas-based AT&T will be able to combine services it can sell to customers, including mobile phone, Internet and television, Hovenkamp said. The antitrust review of the two deals will look at the “cluster market” for the bundle of services the companies sell, he said.
“The players who are going to come out ahead are the ones that can make these technologies piggy-back on each other or blend in together, and that’s what AT&T is attempting to do,” Hovenkamp said.
Comcast’s $45 billion takeover of Time Warner Cable, announced in February, and AT&T’s May 18 deal to buy DirecTV for $48.5 billion are part of a wave of merger activity in the telecommunications industry. Companies are looking to get bigger to keep pace with surging broadband growth that requires faster Internet speeds and new methods of transmitting video on all devices.
Comcast has been trying to reassure regulators and lawmakers that even after it buys Time Warner Cable, there will be robust competition from companies such as AT&T, Netflix Inc. and Google Inc. The transaction, now under review by the Federal Communications Commission and the Justice Department’s antitrust division, has drawn scrutiny from lawmakers in Washington and criticism from public interest groups and companies including Netflix, which says the deal would give Comcast more “anticompetitive leverage” to charge for access to its customers.
Gina Talamona, a Justice Department spokeswoman, declined to comment on the review of the Comcast-Time Warner merger.
Some in Congress have expressed concern over both deals.
“Can anyone here today piece together the effects of a Comcast-Time Warner merger and an AT&T-DirecTV merger on consumers and a free and open Internet?” Representative Anna Eshoo of California, the top Democrat on the House communications subcommittee that oversees the FCC, said at a May 20 hearing. “These are massive decisions and massive pieces that are moving forward.”
Senator Al Franken, who opposes the Comcast-Time Warner Cable merger, said in an interview on Bloomberg Television yesterday that he’s concerned the AT&T purchase of DirecTV marks further consolidation in the industry.
“The result, I believe, will be less innovation, less choice for consumers, higher costs for consumers and worse service,” said Franken, a Minnesota Democrat.
The AT&T-DirecTV deal may backfire on Comcast, said Jeffrey Jacobovitz, a lawyer at Arnall Golden Gregory LLP. Antitrust regulators may become more concerned about concentration in the market rather than see the AT&T-DirecTV deal as setting up a strong competitor to Comcast, he said.
“The government has to decide if they want to have few players in the market or more players,” Jacobovitz said.
Comcast, based in Philadelphia, says that combining with Time Warner Cable will benefit consumers by spurring advancements in Internet and video technologies. Competition from Verizon Communications Inc., Dish Network Corp. and Amazon.com Inc. is also providing more choice for consumers for video services, it says.
“In the evolving video marketplace in which these companies have thrived, there is no reason why a cable company should be limited in evolving as well,” Comcast and Time Warner Cable said in a filing with the FCC. “Added scale will make that innovation go faster and that investment go farther.”
The question for antitrust regulators reviewing the Comcast-Time Warner Cable deal is how much competition from other providers really matters, said Amanda Wait, an antitrust lawyer at Hunton & Williams LLP in Washington. With AT&T combining with DirecTV, Comcast gains a stronger argument that the competition is real, she said.
“Instead of being David versus Goliath, it’s more like Goliath versus Goliath,” Wait said about the two companies. “Comcast will say we’re not going to be able to raise prices. We have to compete with AT&T and AT&T is going to be huge.”
--With assistance from Todd Shields and Elizabeth Wasserman in Washington.