Cogent, Dish, Netflix Concerned About AT&T/DirecTV's Effect on Online Video

AT&T's proposed buy of DirecTV will have anticompetitive effects on online video and local broadcasting and the FCC should impose conditions on any deal approval, said Comptel, Dish, NAB and Netflix in reply comments posted online through Thursday in docket 14-90. Though network BabyFirst and broadcasting and direct broadcast satellite company Hubbard Broadcasting filed reply comments supporting the deal, most replies focused on alleged public interest harms. If combined with DirecTV, “AT&T would have a direct and powerful incentive to favor its combined entity’s video offerings to protect its $48 billion investment -- either by foreclosing OVDs [online video distributors] from access to those customers, or at least by seeking anti-competitive rents from them,” Netflix said.

Many of the comments focused on possible anticompetitive effects of the deal on the online video market. “The combined AT&T/DIRECTV will have a greater incentive to degrade Dish’s online video offerings because it will have access to programming and the means of delivery -- the broadband pipe in the U-verse footprint,” Dish said. AT&T would be able to degrade competing online video products by “manipulating traffic” before it gets to the end user, and by imposing data caps on competing services that could influence consumers to use AT&T's U-verse product, Dish said. AT&T's motivation to engage in anticompetitive practices has increased since the deal with DirecTV was announced, Cogent said in its comments. AT&T's recent bundling agreement with Amazon Prime and a joint venture with the Chernin Group to launch “its own suite of online video services” give AT&T “added incentives to degrade certain Internet traffic,” Cogent said.

The replies contain several proposed merger conditions to mitigate the deal's effect on online video. The new company should be required to make AT&T's U-verse broadband access service available to third parties on “a wholesale basis” to the market under their own brand names, Dish said. That would remove AT&T's incentive for anticompetitive behavior, Dish said. Cogent said the commission should impose transparency requirements on AT&T and force it to disclose its “interconnection management” practices. The FCC should require the new company to upgrade its ports and cross-connections to augment capacity if any interconnection point between AT&T/DirecTV and another network with whom it interconnects reaches 70 percent capacity, Cogent said.

Any conditions on the approval of the AT&T/DirecTV deal should still apply after AT&T has completed the transition to IP, Comptel said. The commission should ensure the new company's obligations “are not affected by conversion from TDM to IP-based transmission technology or from copper to fiber,” Comptel said. A deal approval is likely to increase programming costs for its members, Comptel said. “The dollars saved by the merged companies are likely to be passed on by the programmers in the form of higher prices to MVPDs [multichannel video programming distributors] with much smaller subscriber scale,” Comptel said.

Though AT&T has said the deal will lead to more broadband investment, the Writer's Guild of America, West, expressed skepticism. “AT&T will have the same incentives to invest in broadband regardless of whether this transaction is approved,” WGAW said. “Applicants expound the virtues of bundled service and their ability to lower operating costs through their enhanced scale as a distributor. However, these benefits will substantially flow to the merged entity and not to consumers,” WGAW said. Public Knowledge said the FCC should require AT&T to commit to “concrete and verifiable benchmarks” for broadband buildout. If the applicants can't promise hard numbers, such buildout shouldn't be considered in support of the deal, Public Knowledge said.

The FCC should condition approval of the deal on DirecTV carrying broadcast signals on a local-to-local basis in all markets, NAB said. “The merger will create an entity with outsized national reach, a greater share of many local and regional markets and gatekeeper control over access to even more subscribers,” NAB said.

Approving the deal would allow the combined company to “position itself for the future by combining DBS, internet and wireless assets in a way that it can differentiate itself in the marketplace and compete effectively with cable television and streaming services," Hubbard said. AT&T and DirecTV have “demonstrated a strong commitment to ensuring consumer access to diverse programming” by supporting BabyFirst, the child development network said. “The Commission would support consumers by allowing competitors to gather the assets necessary to meet the evolving consumer demands of the 21st Century,” Hubbard said.