    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

                      PROPOSED MERGER OF AT&T AND DIRECTV

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                               REGULATORY REFORM,
                          COMMERCIAL AND ANTITRUST LAW

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 JUNE 24, 2014

                                   __________

                               Serial No. 113-95

                                   __________

             Printed for the use of the Committee on the Judiciary

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Available via the World Wide Web: http://judiciary.house.gov
                                   __________

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                           COMMITTEE ON THE JUDICIARY

                       BOB GOODLATTE, Virginia, Chairman
    F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
        Wisconsin                        JERROLD NADLER, New York
    HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT,
    LAMAR SMITH, Texas                       Virginia
    STEVE CHABOT, Ohio                   ZOE LOFGREN, California
    SPENCER BACHUS, Alabama              SHEILA JACKSON LEE, Texas
    DARRELL E. ISSA, California          STEVE COHEN, Tennessee
    J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
    STEVE KING, Iowa                       Georgia
    TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
    LOUIE GOHMERT, Texas                 JUDY CHU, California
    JIM JORDAN, Ohio                     TED DEUTCH, Florida
    TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
    JASON CHAFFETZ, Utah                 KAREN BASS, California
    TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
    TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
    RAUL LABRADOR, Idaho                 JOE GARCIA, Florida
    BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
    GEORGE HOLDING, North Carolina       DAVID N. CICILLINE, Rhode Island
    DOUG COLLINS, Georgia
    RON DeSANTIS, Florida
    JASON T. SMITH, Missouri
    [Vacant]

               Shelley Husband, Chief of Staff & General Counsel
            Perry Apelbaum, Minority Staff Director & Chief Counsel
                                     ------

        Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                       SPENCER BACHUS, Alabama, Chairman

                     BLAKE FARENTHOLD, Texas, Vice-Chairman

    DARRELL E. ISSA, California          HENRY C. ``HANK'' JOHNSON, Jr.,
    TOM MARINO, Pennsylvania               Georgia
    GEORGE HOLDING, North Carolina       SUZAN DelBENE, Washington
    DOUG COLLINS, Georgia                JOE GARCIA, Florida
    JASON T. SMITH, Missouri             HAKEEM JEFFRIES, New York
                                         DAVID N. CICILLINE, Rhode Island

                          Daniel Flores, Chief Counsel

                                C O N T E N T S

                                  ----------

                                 JUNE 24, 2014

                                                                       Page

                               OPENING STATEMENTS

    The Honorable Spencer Bachus, a Representative in Congress from
      the State of Alabama, and Chairman, Subcommittee on Regulatory
      Reform, Commercial and Antitrust Law...........................     1
    The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
      Congress from the State of Tennessee, and Ranking Member,
      Subcommittee on Regulatory Reform, Commercial and Antitrust Law     2
    The Honorable Bob Goodlatte, a Representative in Congress from
      the State of Virginia, and Chairman, Committee on the Judiciary     3
    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, and Ranking Member, Committee on
      the Judiciary..................................................     4

                                   WITNESSES

    Michael White, President, Chairman and CEO, DIRECTV
      Oral Testimony.................................................     8
      Prepared Statement.............................................    10
    Randall Stephenson, Chairman, CEO and President, AT&T Inc.
      Oral Testimony.................................................    20
      Prepared Statement.............................................    22
    Ross J. Lieberman, Senior Vice President of Government Affairs,
      American Cable Association
      Oral Testimony.................................................    30
      Prepared Statement.............................................    32
    John Bergmayer, Senior Staff Attorney, Public Knowledge
      Oral Testimony.................................................    44
      Prepared Statement.............................................    46

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Prepared Statement of the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan, and
      Ranking Member, Committee on the Judiciary.....................     5
    Material submitted by the Honorable Henry C. ``Hank'' Johnson,
      Jr., a Representative in Congress from the State of Tennessee,
      and Ranking Member, Subcommittee on Regulatory Reform,
      Commercial and Antitrust Law...................................    58

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Response to Questions for the Record from Michael White,
      President, Chairman and CEO, DIRECTV...........................    88
    Response to Questions for the Record from Randall Stephenson,
      Chairman, CEO and President, AT&T Inc..........................    90
    Response to Questions for the Record from Ross J. Lieberman,
      Senior Vice President of Government Affairs, American Cable
      Association....................................................    93
    Response to Questions for the Record from John Bergmayer, Senior
      Staff Attorney, Public Knowledge...............................    99

                      PROPOSED MERGER OF AT&T AND DIRECTV

                                  ----------

                             TUESDAY, JUNE 24, 2014

                           House of Representatives,

                      Subcommittee on Regulatory Reform,
                          Commercial and Antitrust Law

                          Committee on the Judiciary,

                                Washington, DC.

        The Subcommittee met, pursuant to call, at 10:31 a.m., in
    room 2141, Rayburn Office Building, the Honorable Spencer
    Bachus (Chairman of the Subcommittee) presiding.
        Present: Representatives Bachus, Goodlatte, Farenthold,
    Issa, Holding, Collins, Smith of Missouri, Johnson, Conyers,
    Garcia, Jeffries, and Cicilline.
        Staff present: (Majority) Anthony Grossi, Counsel; Austin
    Carson, Legislative Assistant to Mr. Farenthold; Jon Nabavi,
    Legislative Director to Mr. Holding; Jennifer Lackey,
    Legislative Director to Mr. Collins; Justin Sok, Legislative
    Assistant to Mr. Smith of Missouri; Ashley Lewis, Clerk;
    (Minority) James Park, Counsel; Slade Bond, Counsel; and
    Rosalind Jackson, Professional Staff.
        Mr. Bachus. Good morning. The Subcommittee on Regulatory
    Reform, Commercial and Antitrust Law hearing will come to
    order.
        Without objection, the Chair is authorized to declare a
    recess of the Committee at any time.
        I recognize myself for my opening statement.
        We are here today to examine the proposed merger between
    AT&T and DIRECTV. As I reminded our witnesses during the recent
    Comcast/Time Warner merger hearing, today's proceeding will not
    determine whether the proposed merger will be approved. Rather,
    this hearing provides an open forum to discuss the potential
    implications of the merger and allow publicly elected
    representatives an opportunity to pose questions to the leaders
    of the respective companies and hear a variety of viewpoints on
    the proposed transaction. The record created by today's hearing
    will assist the Committee in its ongoing oversight of the
    antitrust enforcement agencies and our Nation's antitrust laws.
        The proposed merger of AT&T and DIRECTV comes at a time
    when the structure of the telecommunications industry could be
    or is undergoing a rapid transformation in a relatively short
    period. The proposed merger between Comcast and Time Warner has
    already been announced, of course, and there have been reports
    of other potential mergers and acquisitions. The business of
    telecommunications increasingly requires significant investment
    to construct and update essential infrastructure and to provide
    innovative products and services to consumers. Merged companies
    may be able to achieve economies of scale and have better
    ability to access the large amounts of capital needed to build
    out systems.
        However, consolidation in an industry also raises issues of
    market power and the possibility for abuse of a firm's dominant
    competitive position. These are all issues that are appropriate
    for consideration in a hearing like this.
        For the most part, the companies before us today engage in
    very different businesses. AT&T is primarily a provider of
    voice and Internet services, while DIRECTV is almost
    exclusively a video service provider. AT&T recently has begun
    offering a video service referred to as U-verse, which is a
    competitor to DIRECTV in certain parts of the country. In
    addition to its video service, DIRECTV owns and manages a few
    regional sports networks in the Pittsburgh, Denver, and Seattle
    areas.
        Today's hearing will examine, among other things, how the
    proposed merger may impact the future of U-verse and its
    ability to provide video and Internet services to consumers
    following the proposed merger and the potential for vertical
    integration issues related to DIRECTV's ownership of certain
    sports networks.
        AT&T and Direct have submitted a public interest statement
    to the Federal Communications Commission arguing that this
    merger will allow the combined company to offer a bundled
    product that would enhance consumer choice by increasing
    competition in the market for bundled products and services. In
    addition, they contend that the cost savings resulting from the
    merger would allow additional resources to be deployed to
    expanding broadband access particularly in rural communities.
        Again, we have the chairman and CEO of both AT&T and
    DIRECTV with us today to answer any questions arising from the
    public interest filing.
        With that, I look forward to the testimony of our panel of
    esteemed witnesses on these and other issues related to the
    proposed merger.
        I now turn my Ranking Member, Mr. Johnson, for his opening
    statement.
        Mr. Johnson. Thank you, Mr. Chairman.
        Today's hearing concerns the proposed merger of AT&T, a
    global telecommunications company with approximately 11 million
    broadband subscribers, 5.6 million video subscribers, and
    246,700 employees, with DIRECTV the Nation's second largest
    video provider serving approximately 50 million customers.
        The core question at the heart of this merger is whether
    creating an integrated bundle of AT&T's broadband services and
    infrastructure with DIRECTV's popular video programming would
    serve the public interest without substantially lessening
    competition.
        According to a survey conducted by Consumer Reports last
    year, consumers are overwhelmingly one-stop shoppers who prefer
    to bundle phone, video, and broadband Internet into one
    package. Not only does bundling multiple services often save
    many consumers money at a time of increasing cable costs, but
    it also avoids the problems associated with multiple
    installation visits, service calls, and phone calls to resolve
    disputes.
        As a new entrant in the video marketplace with only 5.6
    million subscribers, there is little to suggest AT&T offers
    serious direct competition with DIRECTV's video services.
    Instead, the bulk of the evidence demonstrates that each
    company primarily serves different markets with different
    services.
        Although the proposed merger represents a concerning trend
    toward industry consolidation, there is ample evidence that
    this transaction would create considerable public interest
    benefits. AT&T argues that the improved bundle and cost savings
    generated by the merger will, quote, fundamentally and
    permanently improve the economics of AT&T's investment in
    broadband. End quote.
        Specifically, AT&T plans to deploy its fiber network to 2
    million homes with speeds up to 1 gigabyte per second and
    deploy high-speed broadband Internet over a fixed wireless
    local loop to 13 million homes in largely rural areas with
    average speeds between 15 and 20 megabits per second. For
    millions of homes, this Internet service will be the fastest
    ever improving high-speed access for millions while indirectly
    benefiting other competitors by bringing these homes online.
        As a strong advocate of digital inclusion, I commend this
    commitment to close the digital divide by bringing us
    measurably closer to the universal adoption of affordable high-
    speed Internet. It is critical that people of color remain
    competitive in the Internet economy which starts with a fast
    and affordable Internet connection.
        Additionally, this merger would benefit the public by
    expanding AT&T's industry-leading standards for labor and
    corporate diversity to DIRECTV's employees and suppliers. Given
    the television industry's infamous reputation for opposing
    organized labor, this merger would have transformational
    benefit for thousands of employees in this industry, giving
    labor a strong foothold in the industry.
        I urge the Federal Communications Commission and the
    Department of Justice to view this merger in light of these
    public benefits and to strongly hold the merged company to
    these commitments.
        Lastly, as it eyes more than several dozen cities for
    deployment of its ultra-fast fiber network, I call on AT&T to
    deploy this advanced service in Atlanta, Georgia, which
    encompasses much of the district that I represent. Atlanta is
    swiftly becoming an innovation economy driven to create tinker
    and improve products and design. Deploying an all-fiber network
    in Atlanta would benefit many existing local startups, as well
    as untold entrepreneurs, app developers, and other innovators
    still emerging. As a former county commissioner who understands
    the power of big ideas, I stand ready to work with both AT&T
    and local government to make this happen.
        I thank the Chair for holding this important oversight
    hearing, and I look forward to today's testimony.
        And with that, I will yield back.
        Mr. Bachus. Thank you very much, Mr. Johnson.
        At this time, I recognize the Chairman of the full
    Committee, Mr. Goodlatte of Virginia.
        Mr. Goodlatte. Thank you, Mr. Chairman.
        Robert Bork famously said the only legitimate goal of
    antitrust is the maximization of consumer welfare.
        Depending on the actions of the antitrust enforcement
    agencies and the Federal Communications Commission, the
    telecommunications industry may experience significant change
    over the next year. As the Committee and the relevant
    government agencies examine the potential issues associated
    with the multiple proposed telecommunications mergers, we
    should be mindful that assuring the best interests of consumers
    is the ultimate goal. It has been demonstrated repeatedly that
    a free and competitive marketplace yields lower prices, greater
    innovation, increased investment, and better services. We
    should strive to ensure that proposed transactions result in
    enhanced competitive marketplaces so that the attendant
    benefits continue to run to consumers.
        Today's hearing allows a public forum to discuss the
    potential competitive impact of the proposed merger between
    AT&T and DIRECTV. The leaders of both companies are before us
    today to explain how the proposed transaction will increase
    competition for the benefit of consumers. We also have
    witnesses who will raise potential concerns about the merger.
    Through a fair and objective inquiry by the Committee, a record
    will be produced that will provide an important measure of
    transparency and thoughtfulness to the review of this proposed
    merger.
        I look forward to hearing from today's witnesses regarding
    their views on the proposed merger of AT&T and DIRECTV.
        Thank you, Mr. Chairman. I yield back.
        Mr. Bachus. And I thank you.
        At this time, I recognize the Ranking Member and former
    Chairman of our Committee, the gentleman from Michigan, Mr.
    Conyers.
        Mr. Conyers. Top of the morning, Mr. Chairman and my
    colleagues and our witnesses and our visitors that are here
    covering this potential transaction.
        Now, last month in May, we had a hearing that covered Time
    Warner and Comcast, and now this month, we are looking at
    DIRECTV and AT&T. And maybe even next month, depending on what
    happens in the intervening time, we may be looking at Sprint
    and T-Mobile. Question: where does this end?
        I am looking at a transaction that highlights the concern
    that there may be too much and too rapid a consolidation in
    telecommunications, especially when viewed in the light of a
    flurry of deals either announced or rumored.
        One rationale in favor of the merger is that it would
    create a strong competitor to large cable companies, may in
    fact spur further consolidation in the telecommunications
    industry as part of what might be viewed as a race to the
    bottom.
        The merger proposed may result in reduced competition for
    paid television services in many of our Nation's largest
    markets. The sheer size of a combined AT&T/DIRECTV entity could
    raise content prices for smaller video providers potentially
    driving some of them maybe out of business.
        And finally, there is a need to focus on whether behavioral
    remedies are in practice affected.
        So while neither we nor the competition enforcement
    agencies should prejudge this deal, there are several concerns
    that the witnesses to address, as well as the feelings that I
    have already expressed. That is the fact that we are concerned
    that there may be too much and too rapid consolidation in the
    telecommunications industry, and while I fully appreciate the
    goal of antitrust law is to protect competition and not
    competitors per se, this ongoing wave of consolidation will,
    without question, result in fewer firms and may harm consumers
    by limiting choices and also raising prices. After all, it is
    the very threat of losing business in the face of high prices
    or low quality products and services that drive competitive
    business practices.
        Now, one rationale in favor of the merger is that it would
    create a stronger competitor to large cable companies. Now,
    that may, in fact, spur further consolidation in the
    telecommunications industry. I do not doubt that the merged
    entity that is under consideration could be large enough to
    effectively compete against large cable companies, but what is
    to stop competitors from using the same argument to justify
    even further consolidation?
        So I will be looking and listening to make sure that we are
    not moving in the wrong direction. And I wanted to put my
    feelings out in front of you so that any of you can feel free
    to give me any consolation that you want about the concerns
    that I have.
        And I will put the rest of my statement in the record and
    thank the Chairman.
        [The prepared statement of Mr. Conyers follows:]
    Prepared Statement of the Honorable John Conyers, Jr., a Representative
     in Congress from the State of Michigan, and Ranking Member, Committee
                                on the Judiciary
        Today, we consider the proposed merger of AT&T, the Nation's
    second-largest seller of high-speed Internet and wireless telephone
    services, with DirecTV, the Nation's second-largest paid television
    provider.
        While neither we nor the competition enforcement agencies should
    pre-judge this deal, there are several concerns that I want the
    witnesses to address today.
        To begin with, this transaction raises the concern that there may
    be too much and too rapid consolidation in the telecommunications
    industry, especially when viewed in the light of other recently
    announced or rumored deals.
        I fear that the trend toward greater consolidation in this industry
    may ultimately benefit large corporations and their shareholders at the
    expense of consumers.
        While I fully appreciate that the goal of antitrust law is to
    protect competition and not competitors per se, this ongoing wave of
    consolidation will, without question, result in fewer firms and may
    harm consumers by limiting choices and raising prices.
        After all, it is the very threat of losing business in the face of
    high prices or low quality products and services that drives
    competitive business practices.
        The preeminent purpose of antitrust law is to protect consumers by
    ensuring that no one firm achieves market power such that it no longer
    risks losing business because it can force consumers to pay higher
    prices or accept lower quality goods and services in the absence of a
    competitive marketplace.
        I hope that the Justice Department and the Federal Communications
    Commission will carefully consider the overall impact of industry
    consolidation as they review the merits of this particular transaction.
        One rationale in favor of the merger--that it would create a
    stronger competitor to large cable companies--may, in fact, spur
    further consolidation in the telecommunications industry.
        I do not doubt that the merged AT&T-DirecTV entity could be large
    enough to effectively compete against large cable companies, but what
    is to stop competitors from using the same argument to justify further
    consolidation?
        After all, cable companies could point to the merged AT&T-DirecTV
    to justify further consolidation among themselves, which, in turn,
    could justify further consolidation by competitors to cable companies.
        As a result, we could have a ``race to the bottom'' whereby large
    companies seek more and more mergers and acquisitions in response to
    mergers and acquisitions by other companies, ultimately leaving fewer
    choices for all consumers.
        Turning to the specifics of the proposed transaction, I am
    concerned about the loss of a competitor for paid television services
    in many of the largest markets.
        As a national satellite-television provider, DirecTV is a
    competitor to AT&T's U-Verse video service in the 22 states where U-
    Verse is offered.
        And, U-Verse currently competes with DirecTV in 10 of the 20
    largest metropolitan markets for paid television.
        The loss of a paid television competitor in those markets where
    AT&T and DirecTV directly compete with each other would reduce consumer
    choice and could have the potential to raise prices.
        Although AT&T has committed to continuing to offer DirecTV as a
    standalone option for three years after the acquisition, there are no
    guarantees that consumers will continue to have a such an option after
    that time.
        The burden remains on AT&T to show that this merger will not harm
    consumers.
        We should also consider whether smaller video providers, in the
    aftermath of the sheer size of a combined AT&T-DirecTV, could face
    increased content prices, potentially driving some of them out of
    business.
        In addition to being a video distributor, DirecTV is a video
    programmer that owns three regional sports networks and has interests
    in some national networks.
        Small competing video distributors fear that the size of a combined
    AT&T-DirecTV--as both a seller and a buyer of programming--could harm
    smaller competitors in two ways.
        First, a vertically integrated AT&T-DirecTV could discriminate
    against rival distributors by withholding or charging higher prices for
    its own programming.
        Second, such a combined entity would be a large enough distributor
    to command discounts from other programmers, potentially forcing
    smaller distributors to pay higher prices for content to make up the
    difference.
        Finally, we must consider whether imposing behavioral remedies
    would, in practice, be effective.
        As a condition for approval of the Comcast-NBC Universal
    transaction, the FCC and the Justice Department required Comcast-NBCU
    to take affirmative steps to foster competition--including voluntary
    compliance with net neutrality protections--as well as steps to benefit
    the public interest.
        AT&T has indicated that it will voluntarily commit to similar types
    of commitments to its proposed acquisition of DirecTV.
        Some observers, however, are concerned that the behavioral remedies
    imposed in the Comcast-NBC transaction were ineffective and difficult
    to enforce.
        Accordingly, we should consider whether such commitments should be
    strengthened and made more enforceable to better protect the public
    interest in this case.
        I look forward to having a fruitful discussion of these issues so
    that all stakeholders, particularly consumers and the enforcement
    agencies, are better informed about this significant transaction.
                                   __________

        Mr. Bachus. I thank you, Mr. Conyers.
        At this time, I would like to introduce our witnesses. We
    have a very esteemed and qualified panel of witnesses. We start
    by introducing Mr. Mike White, who is President, Chairman, and
    CEO--that pretty much covers everything, does it not--of
    DIRECTV, one of the world's leading providers of digital
    television entertainment services with more than 20 million
    customers in the United States and more than 15 million
    customers in Latin America. I am not sure that we realized that
    there are that many customers also in Latin America. Mr. White
    joined DIRECTV in January 2010 and also serves as the chairman
    of the company's board of directors. In addition to his
    position at DIRECTV, Mr. White also serves on Whirlpool
    Corporation's board of directors.
        Before joining DIRECTV, Mr. White was the CEO and vice
    chairman of PepsiCo International from 2003 to 2009. Prior to
    that role, Mr. White served as president and CEO of Frito-Lay's
    Europe, Africa, and Middle East Division. And that was part of
    Pepsi at the time. Did they spin it out at some point? They
    did? He also served as CEO of Snack Ventures Europe, PepsiCo's
    partnership with General Mills International.
        Before joining PepsiCo, Mr. White was the senior vice
    president and general manager for Avon Products. He also has
    worked as a management consultant for Bain and Company and
    Arthur Andersen and Company. Mr. White holds a masters degree
    in international relations from Johns Hopkins University and a
    bachelors degree from Boston College.
        We also have Mr. Lieberman who is a graduate of Johns
    Hopkins.
        Mr. White is also a Ford Foundation fellow at Leningrad
    State University in St. Petersburg, Russia.
        And I say to Mr. White on a personal nature, many of my
    constituents are very loyal customers of Direct.
        Our next witness is--we are glad to have you--Mr. Randall
    Stephenson is Chairman and CEO and President of AT&T. Mr.
    Stephenson--well, let me say this. AT&T is one of the world's
    largest telecommunications companies with nearly $129 billion
    in revenues last year. I note that over the past 6 years, AT&T
    has invested more capital into the United States' economy than
    any other public company and more than $140 billion invested in
    spectrum and wireless operations combined. That is a record to
    be proud of. I commend you for that.
        Prior to becoming CEO, he served as AT&T's Senior Executive
    Vice President and Chief Financial Officer from 2001 to 2004
    and then as the company's Chief Operating Officer from 2004 to
    2007. Mr. Stephenson was appointed to AT&T's board of directors
    in 2005.
        He began his long career in telecommunications in 1982 with
    Southwestern Bell Telephone in Oklahoma. In addition to his
    leadership of AT&T, Mr. Stephenson is chairman of the Business
    Roundtable, an association of chief executive officers of
    leading U.S. companies. He is also a member of the board of
    directors of Emerson Electric, a member of the PGA Tour Policy
    Board, and national executive board member of the Boy Scouts of
    America.
        He received his B.S. in accounting from the University of
    Central Oklahoma and his masters of accountancy from the
    University of Oklahoma.
        We welcome you. I think from that record, you are obviously
    plugged into rural consumers too with your background being in
    Oklahoma.
        Mr. John Bergmayer, we welcome you. He is Senior Staff
    Attorney at Public Knowledge, specializing in
    telecommunications, the Internet, and intellectual property
    issues. He advocates for public interest before courts and
    policymakers and works to make sure that all stakeholders,
    including ordinary citizens, artists, and innovators, have a
    say in shaping emerging digital policies.
        Mr. Bergmayer received his B.A. in English lit from
    Colorado State University and his J.D. from the University of
    Colorado Law School where he was elected to the Order of Coif.
        Our final witness is Mr. Ross Lieberman. Mr. Ross Lieberman
    is the Senior Vice President of Governmental Affairs of the
    American Cable Association, which represents 850 independent
    cable, broadband, and phone operators serving smaller markets
    in rural areas. He manages the formulation and implementation
    of the group's strategic initiatives on Capitol Hill and at
    Federal agencies, including the FCC.
        Prior to joining the American Cable Association, Mr.
    Lieberman handled government relations for EchoStar
    Communications Corporation where he, among other things,
    oversaw EchoStar's filings with the FCC for the 2004 Satellite
    Home Viewer Extension and Reauthorization Act.
        He received his B.A. in political science from Johns
    Hopkins University and his J.D. from American University,
    Washington College of Law.
        We welcome you, Mr. Lieberman.
        Each of the witnesses' written statements will be entered
    into the record in their entirety.
        At this time, we will ask each of our witnesses to
    summarize his testimony in 5 minutes or less. With that, now we
    proceed to hear from our witnesses. Mr. White, you go first. We
    will go from my left to right.

                TESTIMONY OF MICHAEL WHITE, PRESIDENT,
                       CHAIRMAN AND CEO, DIRECTV

        Mr. White. Good morning. Thank you, Chairman Bachus,
    Ranking Member Johnson, and Members of the Subcommittee.
        My name is Mike White, and I am CEO of DIRECTV. Thank you
    for inviting me to testify on AT&T's proposed acquisition of
    DIRECTV.
        For any business to succeed in the long term, it must
    satisfy its customers' needs better than the competition day in
    and day out. This transaction will help DIRECTV and AT&T do
    exactly that. By combining complementary assets and products,
    we will be able to offer new services to customers at a better
    value. We will help consumers watch the video they want when
    they want it where they want it and on the devices of their
    choice. And we will be well positioned to compete long into the
    future.
        I would like to briefly describe DIRECTV's perspective on
    the transaction.
        Historically DIRECTV is a remarkable American success
    story. We have competed aggressively by delivering more high
    definition channels, a clearer picture, more advanced
    equipment, and better customer service than cable. And Congress
    has also had a lot to do with our success, making sure,
    particularly in the early years, that we could acquire the
    programming our subscribers demanded.
        In recent years, however, broadband is changing everything.
    If we want to continue to compete effectively in today's
    Internet-driven economy, we too must adapt.
        First, we must provide an integrated bundle of services
    because consumers are increasingly demanding better bundles of
    both video and broadband. And in fact, broadband is now the
    more important element of the two for many.
        Second, as we think about the future, we must serve those
    customers who want over-the-top video offerings. Young
    subscribers, in particular, want services like YouTube,
    Netflix, and Hulu, and we need a broadband platform if we are
    to meet their need.
        And third, as technology changes, we must continue to
    optimize our own video service. Cable's two-way infrastructure
    lets it offer features such as remote DVR's, video-on-demand
    programming stored in the cloud, and so on. And soon cable will
    offer cloud-based features such as lookback. In fact, cable
    operators are increasingly leveraging the cloud to improve
    their service more quickly and easily. We too will need to do
    all of that if we want to keep up and continue to compete
    successfully.
        And fourth and finally, we will have to continue to
    effectively manage content cost increases. Now, rising content
    costs challenge all video providers. Yet, bundled competitors
    can handle this somewhat better because they earn revenue from
    multiple sources.
        Historically, DIRECTV has attempted to remain competitive
    by offering what we call synthetic bundles in which the video
    and the broadband are provided by separate companies but
    marketed together. Synthetic bundles, however, make frankly for
    a bad customer experience. I hear it from our customers all the
    time. Customers have to talk to two sales representatives, wait
    for two different installers to arrive on two different
    appointments, pay two separate bills, and make two calls every
    time they have a problem.
        Synthetic bundles also tend to be more expensive for
    consumers because each company naturally seeks its own margin
    on its contribution to the bundled service.
        This transaction will help us meet all of those challenges
    head on. It combines DIRECTV's premier video assets with AT&T's
    unique broadband and wireless assets. It will mean better
    bundles, more Internet, particularly in rural areas. It means
    better video. It means lower content costs because of the
    additional value we can offer programmers, and it means more
    and better broadband to 15 million new locations predominantly
    in rural areas. And it will mean more innovation particularly
    combining our expertise in video with AT&T's expertise and
    capabilities in wireless.
        If you put it all together, you get a transaction that lets
    us better serve our customers, unlocks incremental job growth
    opportunities, and sustains our long-term competitiveness, a
    transaction, in other words, that opens up a new world of
    possibilities for DIRECTV subscribers.
        Thank you for inviting me to speak today, and I very much
    look forward to your questions.
        [The prepared statement of Mr. White follows:]

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                                   __________
        Mr. Bachus. Thank you.
        Mr. Stephenson, we welcome you.

              TESTIMONY OF RANDALL STEPHENSON, CHAIRMAN,
                      CEO AND PRESIDENT, AT&T INC.

        Mr. Stephenson. Thank you, Chairman Bachus and Ranking
    Member Johnson, Members of the Committee.
        I am Randall Stephenson, Chairman and CEO of AT&T, and I
    appreciate the opportunity to visit with you about what we
    think are the significant consumer and strategic benefits of
    this transaction.
        This transaction is unlike most mergers because it
    primarily combines companies with complementary products and
    capabilities: DIRECTV's premier pay-TV service and AT&T's
    broadband service. And the rationale for us coming together is
    really simple. It is about meeting consumer demand. Customers
    are looking for bundles that combine pay-TV and broadband
    service because of the greater value and the convenience that
    comes with that. And that is something that they can get from
    the cable providers today. And as Mike said, DIRECTV has the
    premier pay-TV service in the U.S., but it does not have a
    broadband product.
        To effectively compete against cable for broadband
    customers, AT&T markets bundles of services, most importantly,
    broadband and TV, and that is even though our video service is
    not profitable. In fact, fewer than 140,000 of our TV
    customers--that is less than 2 percent--purchase TV service on
    a standalone basis. We do not actively market standalone TV
    service because we do not make money on it. Today 60 cents of
    every video dollar that we earn goes straight to the
    programmers.
        In addition, we can offer video in only a small portion of
    the country, less than a quarter of U.S. households, and we do
    not even cover all of our broadband footprint with video. And
    that is due to technology and economic limitations.
        So as a result, there is no significant competitive overlap
    between AT&T and DIRECTV in the product that consumers are
    overwhelmingly demanding, and that is a broadband/video bundle.
        The consumer benefits of this transaction are significant.
    Being able to offer DIRECTV nationwide is a game-changer in
    terms of the economics for deploying broadband. It will allow
    us to expand and to enhance broadband service to at least 15
    million locations across 48 different States, and those are
    mostly in underserved rural areas. This is in addition to the
    broadband expansion plans that we have already announced, and
    it directly results from the synergies created by the
    transaction. This new broadband commitment includes 13 million
    locations, 85 percent of which are outside our traditional
    wireline footprint.
        We think this is big news for rural America. We estimate
    that nearly 20 percent of these consumers today have no access
    to broadband service and that another 27 percent are hostage to
    only one provider. For many of these 13 million consumers,
    AT&T's service will be the fastest available, and for some, it
    is going to be their first chance for truly high-speed
    broadband.
        The transaction also allows us to expand our 1 gigabit
    service to 2 million additional locations, and all told, we
    will now be able to serve 70 million customer locations with
    broadband.
        This transaction will allow us to price more competitively
    and provide consumers a higher quality experience which will
    result in cable companies pricing more competitively as well
    and that will include all of their products and services.
        Consumers will receive greater convenience with a single
    point of contact, as you heard Mike describe in terms of
    ordering, installation, billing, customer care.
        We will be able to accelerate the deployment of our new
    over-the-top video services that are offered by AT&T as well as
    those offered by Netflix and Amazon and Hulu. We will be able
    to deliver them to any screen, whether it be a mobile phone, a
    computer, a tablet, a car. We are even deploying this
    capability for airplanes now.
        We operate in a competitive environment that is only
    becoming more competitive. The cable companies already dominate
    both broadband and video today, and Google Fiber, Netflix, and
    ever-faster wireless services are really transforming
    competition daily. This transaction gives AT&T the capabilities
    to be a more effective competitor to cable.
        And I want to assure you and I also want to assure our
    customers that we will do all these things while meeting or
    exceeding the FCC's net neutrality standards and exceeding our
    best in class diversity and labor practices to the employees
    and suppliers of the combined company.
        So thank you for the opportunity. I look forward to your
    questions as well.
        [The prepared statement of Mr. Stephenson follows:]

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                                   __________
        Mr. Bachus. Thank you.
        Mr. Bergmayer?

      TESTIMONY OF JOHN BERGMAYER, SENIOR STAFF ATTORNEY, PUBLIC
                               KNOWLEDGE

        Mr. Bergmayer. Good morning, Chairman Bachus, Ranking
    Member Johnson, and Members of the Subcommittee. Thank you for
    the opportunity to participate in today's hearing.
        Today I am going to describe how AT&T's proposed merger
    with DIRECTV could harm the public.
        The legal standard is clear. First, antitrust authorities
    cannot allow this merger to proceed if it may substantially
    reduce competition in any market. Second, the FCC cannot allow
    this merger to proceed unless AT&T can show that it would
    benefit the public. Based on the record so far, AT&T has not
    met its burden.
        Additionally, policymakers should be aware of other
    dangers. As a result of this merger, AT&T may leave rural
    Americans behind by providing them with a wireless product that
    is not of the same quality as what is available in cities.
    Also, AT&T may plan to use the acquisition of DIRECTV to jump
    start an online video service. AT&T must offer any such service
    in a nondiscriminatory way.
        This merger would reduce competition in the pay-TV market.
    AT&T and DIRECTV compete head to head in the pay-TV marketplace
    in more than 60 local TV markets. If AT&T purchases DIRECTV, TV
    viewers in these markets will lose a competitive choice. In
    many of these markets, the level of market concentration would
    exceed the Department of Justice's guidelines. That means
    higher prices and more service for millions of viewers.
    Antitrust law exists to prevent mergers of these kinds.
        AT&T's proposal to fix this does not do enough. It only
    promises to keep DIRECTV prices in markets where it provides U-
    verse TV on par with nationwide DIRECTV prices for 3 years.
    This does not address the structural problems AT&T would cause
    if it removes a competitor from the marketplace.
        AT&T's public interest commitments are less than meets the
    eye. In the first place, AT&T has a spotty record with regard
    to past merger commitments. For example, AT&T now claims that
    there are residences within its wireline footprint that
    currently have no AT&T broadband. Yet, it committed in 2006 to
    serve 100 percent of the residences in its footprint with
    broadband. Why are these people still unserved? And is it good
    policy to allow AT&T to make the same kind of promise this
    time?
        AT&T also has a history of using already planned build-out
    as a merger promise. For instance, AT&T promised a certain
    level of LTE coverage of it was allowed to buy T-Mobile, but
    after that merger was blocked, AT&T's build-out plans did not
    change.
        When you strip away previously announced plans, even AT&T's
    best case for this merger is less than it appears. For the most
    part, AT&T is simply stating that it will upgrade portions of
    its network. That is not much. For instance, adding a new kind
    of home wireless service to an existing wireless coverage area
    is not as significant an investment as an initial wireless
    build-out.
        There are further public interest harms. Our universal
    service laws state that consumers in all regions of the Nation,
    including those in rural areas, should have access to
    telecommunications services that are reasonably comparable to
    those services provided in urban areas. AT&T has not shown that
    its wireless home product is comparable to what it offers in
    urban areas, for example, its U-verse product or DSL.
    Policymakers should be concerned about this seeming shift away
    from the principles of universal service.
        Finally, AT&T plans to create a new online video service.
    AT&T should be free to enter this market, but it cannot take
    advantage of its position as an Internet service provider to
    favor its own services at the expense of competition. While
    AT&T has agreed to abide by the terms of the FCC's 2010 open
    Internet order, those rules provide a lesser degree of
    protection for wireless users.
        Thank you. My written testimony contains a more detailed
    analysis of these points, and I look forward to your questions.
        [The prepared statement of Mr. Bergmayer follows:]

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                                   __________

        Mr. Bachus. Thank you, Mr. Bergmayer.
        Mr. Lieberman?

       TESTIMONY OF ROSS J. LIEBERMAN, SENIOR VICE PRESIDENT OF
             GOVERNMENT AFFAIRS, AMERICAN CABLE ASSOCIATION

        Mr. Lieberman. Thank you.
        An unprecedented wave of consolidation is occurring within
    the video programming and distribution industries that will
    transform the competitive market and consumer experience. This
    is cause for concern. Congress and regulators, therefore, must
    not only review the pending deals. It must also examine and act
    to address the underlying market problems fueling them.
        Focusing on AT&T's deal, it is important to realize DIRECTV
    is not only a nationwide provider of pay-TV service, it is also
    a programmer with interests in three regional sports networks
    and national programming. This gives DIRECTV an economic
    incentive and ability to charge its rivals higher fees for its
    programming, especially its regional sports networks.
        Smaller cable operators are concerned that this deal will
    lead DIRECTV's programmers to hold out for even higher rates.
    With 26 million subscribers, AT&T and DIRECTV combined will
    command better programming deals than DIRECTV would alone. This
    means higher video profits for both DIRECTV and U-verse
    services. Regulators have accepted that as the per video
    subscriber profits of a vertically integrated pay-TV provider
    rise, so does its interest in boosting its rivals' costs for
    its programming. Accordingly, pay-TV providers will feel the
    pinch when negotiating for DIRECTV's programming and their
    customers will pay.
        Regulators should not approve the merger without addressing
    this matter. While DIRECTV remains subject to program access
    rules as an FCC condition from a prior deal, it is no longer
    subject to an arbitration condition. However, re-adopting this
    arbitration condition is not enough. It had design flaws that
    left smaller cable operators under-protected. To shield these
    operators fully, these defects must be eliminated.
        Congress and regulators must also look at the bigger
    picture by reviewing existing rules to ensure that industry-
    wide problems, particularly those driving consolidation, are
    addressed. This will ensure consumers continue to benefit from
    a competitive pay-TV market that includes smaller operators.
    ACA members have long raised alarms about large broadcasters
    and programmers increasing rates and carriage demands and their
    discriminatory pricing practices. The programming costs for a
    smaller provider is significantly higher than for a larger
    provider. The spread, thought to average about 30 percent, puts
    my members at a substantial disadvantage to bigger competitors
    like DIRECTV, DISH Network, and Comcast.
        AT&T's desire to acquire DIRECTV does not surprise smaller
    cable operators. Even though AT&T's subscriber base nearly
    exceeds that of all smaller cable operators combined, its
    motives for buying DIRECTV point to it facing similar market
    problems. Like ACA's members, AT&T also understands its
    competitive standing is likely to worsen if the Comcast/Time
    Warner Cable and Comcast/Charter deals are approved. While AT&T
    can lower its programming costs and better compete by
    purchasing DIRECTV, smaller cable operators cannot because they
    lack AT&T's financial resources and scale. Unable to spend
    their way out of trouble, these video providers will struggle
    increasingly to remain viable.
        Some critics of AT&T's deal raise concerns about the number
    of pay-TV providers decreasing from four to three in U-verse
    territories. In rural areas where three video service providers
    typically exist, programming cost issues have driven some
    smaller cable operators to close systems, leaving consumers
    with only two satellite TV providers.
        Although the slow but steady decrease in competition in
    rural areas has not generated much concern from Washington, it
    should because it is harmful to rural America and often signals
    wider market problems. These trends are not irreversible.
    Congress and regulators can take action to prevent my members
    and their customers from simply being unreasonably
    disadvantaged compared to their larger competitors.
        In conclusion, there are three areas where oversight and
    action would be meaningful.
        First, by examining and addressing programmers'
    discriminatory pricing practices against smaller pay-TV
    providers.
        Second, by modernizing program access rules by updating the
    FCC's definition of a buying group.
        And third, by updating the FCC's outdated regulatory fee
    categories so all pay-TV providers, including DIRECTV and DISH,
    pay their fair share.
        Thank you and I look forward to your questions.
        [The prepared statement of Mr. Lieberman follows:]

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                                   __________

        Mr. Bachus. I thank you, Mr. Lieberman.
        At this time, I will recognize the Chairman of the full
    Committee, Mr. Goodlatte, for 5 minutes for the purpose of
    questioning the witnesses.
        Mr. Goodlatte. Thank you, Mr. Chairman.
        Thank you all for your testimony.
        Mr. Stephenson, I noted you taking some notes during Mr.
    Bergmayer's testimony and maybe Mr. Lieberman's. I do not have
    a lot of time here, but are there one or two points you want to
    make in response to their criticisms of your merger?
        Mr. Stephenson. Yes. Actually it was not a criticism of the
    merger. It was he was citing a blog that a gentleman wrote
    where the blogger stated that we had not fulfilled merger
    conditions associated with the Bell South deal. And I would
    just like to make sure the Committee hears that blog was
    patently inaccurate. The data was false. We fully complied with
    every single condition imposed in that merger. In fact, what
    that merger required was that we provide 100 percent coverage
    of broadband, 85 percent with the fixed line broadband
    services. What one has to remember is at that time----
        Mr. Goodlatte. I have very limited amount of time. So I get
    your response to that point.
        Let me go on to my main----
        Mr. Bachus. We have all been blogged before.
        Mr. Goodlatte. We understand that.
        Let me go on to my main point in my opening statement,
    which is this is all about what happens to the consumer. And
    let me talk about my consumers in my district. In my hometown
    of Roanoke, Virginia, the bundled package that you referred to
    right now is available for Verizon customers with DIRECTV. So I
    and others can get that package that you referred to.
        What will happen to that package that I have or someone
    else might have with Verizon and DIRECTV under this merger?
        Mr. Stephenson. My expectation is nothing should change.
        Mr. Goodlatte. Well, what about AT&T? Do you offer those
    kind of packages right now as well in other parts of the
    country?
        Mr. Stephenson. Yes, we do. Mike referred to those as
    synthetic bundles.
        Mr. Goodlatte. Why is it necessary to acquire DIRECTV to
    continue to have that bundle that you are referring to that we
    already enjoy?
        Mr. Stephenson. If you are okay with it, I would like for
    Mike to address that for doing this in the marketplace and he
    has some very good data.
        Mr. Goodlatte. That would be fine.
        Mr. White. So, Congressman, we measure customer
    satisfaction on everything we do, and when we measure the
    satisfaction of a bundle experience versus someone who is just
    buying DIRECTV solo, it is dramatically poorer. And it is two
    calls on two different days, two different installations, two
    bills.
        Mr. Goodlatte. So how does Verizon solve that problem? Do
    they acquire DISH? Is that what we are talking about here?
    Because I am not sure what I have available to me with AT&T,
    but I know what is available with Verizon. And that does not
    solve the complaint you just outlined there with regard to
    Verizon, although I am not familiar with the complaints. We
    like the service we get.
        Mr. White. Right.
        Mr. Goodlatte. But I am not sure why one of the two
    companies should own DIRECTV and the other should continue to
    have the bundle experience that was referred to.
        Mr. White. The only way for us to get a seamless integrated
    bundle--we have had discussions for many years about trying to
    find a way that would have a better value for customers when
    you have got two separate companies chasing margin as opposed
    to one integrated company that can spread the costs over that
    one install. So for us, every time we sign up a new customer,
    we spend $850. We can probably reduce that by 20 percent with
    one call, one truck roll, build the router into the set-top
    box----
        Mr. Goodlatte. Is that savings going to get on to the
    consumer?
        Mr. White. Yes. We have had an economist study it. The
    bundles would be a better value for consumers. Absolutely.
        Mr. Goodlatte. Since my time is limited, let me ask you
    about another issue related to this. DIRECTV does not provide
    local Harrisonburg, Virginia--this is the northern part of my
    district--ABC. It does not provide that local channel in Page
    County, Virginia, which is right next to Rockingham County
    where Harrisonburg is located, despite being legally able to do
    so. Rather, DIRECTV beams in content from Washington, D.C.,
    which is many hours away from my district.
        Can you explain why DIRECTV has opted to not provide this
    valuable local content to my constituents? And can you commit
    to resolving this situation so that my constituents can receive
    local content rather than Washington, D.C. content?
        Mr. White. Certainly.
        Mr. Goodlatte. Nothing against this place where we work,
    but my folks back home--they live in a different world than
    here and they want to watch that world on TV.
        Mr. White. We have been working on our system for many
    years. We now serve 99.4 percent of American households with
    their local channels. We still have a few gaps and you have
    pointed out one of them.
        Mr. Goodlatte. There are more, though, because I have heard
    from other Members of Congress who have other gaps in other
    parts of the country.
        Mr. White. There are and we are continuing to build out as
    we get satellite capacity. We have got two more satellites
    going up in the next 12 months. For instance, Charlottesville,
    Virginia is on the list for later this year. The others would
    be on the list as well.
        In addition to that, there are orphan counties. We would
    certainly be happy to work with you on coverage of some of the
    orphan counties, provided we do not have to pay retransmission
    fees twice. It kind of comes back to the rules that we have to
    abide by relative to the broadcasters and assuming the spot
    beam that comes from the satellite can reach those rural areas.
        Mr. Goodlatte. Thank you.
        My time has expired, Mr. Chairman. I appreciate it. I yield
    back.
        Mr. Bachus. Thank you.
        At this time I recognize Mr. Johnson, the Ranking Member of
    the Subcommittee.
        Mr. Johnson. Thank you, Mr. Chairman.
        As I noted in my opening statement, this transaction
    presents substantial opportunities for transforming labor
    standards in the telecommunications industry. The
    Communications Workers of America noted in a letter that AT&T
    has the largest full-time union workforce of any company in
    America. And I know everybody does not agree that that is
    something that is worthy, but I think it is very worthwhile.
        And with that, I would ask unanimous consent to make a part
    of the record a letter from the Communications Workers of
    America in support of this merger.
        Mr. Bachus. You are offering something. Right?
        Mr. Johnson. Yes, sir.
        Mr. Bachus. Without objection. I am sorry.
        [The information referred to follows:]

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                                   __________

        Mr. Johnson. Thank you.
        Now, Mr. Stephenson, many of your employees, including
    workers in union positions in my district, enjoy great
    benefits. How would AT&T plan to extend this industry-leading
    respect for the rights of employees to DIRECTV as a result of
    the proposed merger?
        Mr. Stephenson. As you mentioned, Congressman, we have the
    largest full-time union in the United States. We have a long
    history of working with our union members and doing collective
    bargaining. We have always been open to card check neutrality
    and we have always allowed our employees to make that choice as
    to whether they wanted to be represented in collective
    bargaining or not. And so with DIRECTV, you should assume that
    the DIRECTV employees will be offered that same option to
    collectively bargain or not. It will be their choice.
        Mr. Johnson. Thank you.
        Mr. White?
        Mr. White. I agree. We certainly welcome the opportunity. I
    think there is some fabulous talent that AT&T brings, and we
    think DIRECTV has some great talent as well. And I think their
    world-class benefit programs for our employees will be a good
    thing.
        Mr. Johnson. Thank you, sir.
        All right. Mr. Stephenson and Mr. White, I would like to
    ask you both to talk a little bit about the company's
    commitment to diversity, the merged company's commitment to
    diversity in a number of different contexts. I know everyone
    will agree that having a diverse group of individuals as real
    partners both inside and outside of the company is important.
    AT&T's public interest statement pledges that AT&T's diversity
    best practices will be applied to DIRECTV. Such action would be
    laudable given AT&T's history in promoting supplier diversity
    and inclusion.
        Mr. Stephenson, please describe the best practices
    referenced in the public interest statement.
        Mr. Stephenson. Yes, sir. First, I will start with
    employees. We have a strong belief that our employees ought to
    reflect the markets we serve. I frankly do not believe you can
    be successful in the marketplace if you do not have employees,
    executives, all the way up through a board that reflect the
    markets we serve. We think we have a very good track record in
    that regard, again all the way from our board down to our
    frontline employees in the market.
        We also extend, as you pointed out, that commitment and
    that expectation to our supplier community, and in fact, in
    2013 our supplier community, when you look at the total spend
    external to AT&T, over 25 percent of our spend is with diverse
    suppliers. That is in excess of $15 billion in AT&T spend that
    was invested with diverse suppliers.
        I would also suggest that one of the things Mike and I have
    come to realize is that our cultures are very, very compatible.
    We look at DIRECTV. We see very comparable practices, and we
    are actually enthusiastic. This will be a very seamless
    integration in that regard.
        Mr. Johnson. Anything to add, Mr. White?
        Mr. White. Sure. I think from our side 40 percent of our
    workforce are people of color. 43 percent of our new hires were
    people of color. 42 percent of our summer interns were people
    of color. Having spent most of my career in consumer products,
    I passionately believe you cannot understand customers if your
    employee base and your management base and your board--and our
    board does as well--reflects that diversity. So we are proud of
    our commitment to diversity and inclusion at DIRECTV.
        I would say I look forward to leveraging some of the supply
    chain work that I think AT&T has done, which is best in class
    in this area that we will be able to take advantage of.
        Mr. Johnson. All right. Well, that is great to hear.
        And do these best practices for diversity apply to banking
    and finance?
        Mr. Stephenson. Yes, for AT&T. It is through all the
    disciplines, our external spend. I will not represent that it
    is 25 percent across all disciplines. That is something we will
    always work towards, but across all disciplines, we impose
    these diverse supply requirements.
        Mr. Johnson. All right. Thank you.
        And I yield back.
        Mr. Bachus. Thank you.
        My first question is something that concerns Members on
    both sides, and that is how the proposed merger will affect
    Americans' jobs. And let me go further than that and say also
    the prices that constituents pay for both video and Internet.
    In other words, how will customers benefit and will this create
    jobs? And I will start with Mr. Stephenson or Mr. White,
    whichever.
        Mr. Stephenson. Mike made this comment in his opening
    statement. It is about growth. I am very enthusiastic about
    this for a couple of reasons. First of all, as we both stated,
    these are complementary assets. You are not going to have the
    significant overlap of responsibilities like you do in a
    traditional merger because they are not overlapping. In fact,
    in 75 percent of the United States--we do not even compete to
    any degree. So that is going to mitigate a lot of the
    overlapping relationships.
        To the extent that there are overlapping jobs that need to
    be taken care of, I think at AT&T we have a very good track
    record on very elegantly working our way through those using
    attrition and placing people in other assignments. So I will
    stand on our record in terms of what we have accomplished
    there.
        Third, this deal has a lot of investment tied to it.
    Building out 15 million or enhancing 15 million homes with new
    broadband is a significant capital outlay in spite of some of
    the earlier comments. This is significant capital. These are
    hard-hat jobs that will be out deploying this capital. It
    involves fiber to cell sites. It involves putting new antenna
    arrays on top of cell site structures. It involves
    installations in the home. And so there is a lot of capital
    investment tied to this, and in our industry, capital
    investment is synonymous with jobs. And so from a jobs
    standpoint, I feel very good about what this will do.
        Mr. Bachus. Mr. White, do you have anything to add?
        Mr. White. I would only echo what Randall said. I recognize
    the concerns about consolidation. I think of this as more
    complementary combination, taking the best assets of two. And
    oftentimes in a merger of this size, there are significant job
    losses. That is not the case. This is a very different
    transaction. In fact, with the investments that Randall is
    talking about, it is going to create job growth. It is going to
    create significantly better broadband access for rural America,
    and it is a true win-win I think from both sides.
        Mr. Bachus. And I will say this. We are talking about two
    service calls on two different days, substituting that, having
    one. Obviously, customers benefit from that. And that is not
    the kind of job consolidation that I think any are concerned
    about. To have new services offered and capital outlays and new
    jobs created is what we are looking for, not duplication of the
    same job.
        This has been described as a merger between a broadband
    provider and an Internet provider. And I think that is somewhat
    true. I mean a video provider--I am sorry--and a broadband
    provider. Except that U-verse--you do have a video offering at
    AT&T. It is very popular in my area. I want to know whether
    that is going to go forward, whether it is going to slow that
    deployment or increase it, exactly the effect it will have on
    U-verse.
        Mr. Stephenson. Yes, sir. To answer the question directly,
    yes, U-verse will continue and, in fact, we will continue to
    expand our U-verse offering. One of the advantages of this
    transaction I referenced in my opening comments is that
    DIRECTV, because of their content and programmer
    relationships--we feel very good about what it will do to our
    overall content costs, including on the U-verse platform. And
    as I mentioned, we are losing money on the TV platform on U-
    verse. This combination will allow us to take that from a
    money-losing proposition to a profitable operation. And
    therefore, what that does is it allows us to expand U-verse
    because it changes the economics. And so with the change in
    economics, we can expand U-verse. In fact, we have an
    opportunity. We have committed to expanding that platform by an
    additional 2 million homes passed by our U-verse platform with
    a full 1 gigabit per second broadband capability.
        Mr. Bachus. Thank you.
        My final question is this. It came up in the Comcast/Time
    Warner hearing. Many of our rural members were concerned. I
    raised issues related to rural programming and the importance
    to customers in really both rural and urban areas to get that
    rural programming because many of them have connections or
    farms or interest in their rural communities.
        And I will ask you a similar question. Is rural America
    important to AT&T? I know it is to Direct, but what is your
    commitment to carry programming that is important and directed
    at rural America?
        Mr. Stephenson. Yes, sir. Rural America is very important
    to us. We had opportunities in the past to sell off our rural
    assets. We have chosen not to. We have been working diligently
    to try to find a broadband solution for rural America. One of
    the things I am most enthusiastic about with this transaction
    is now when you have a profitable TV product that reaches rural
    America, it changes the economics for rural broadband
    deployment.
        And what this is going to allow us to do is build out a
    rural broadband footprint using new wireless technology. It is
    called fixed wireless local loop. This is one of the more
    exciting technologies I have been a part of in quite some time,
    and we are committing to building out 13 million homes in rural
    America with this technology. They will get 15 to 20 megabit
    per second services. It is adequate for video streaming. It
    will be priced like a landline service, not like a traditional
    wireless service. So we think this transaction gives us the
    opportunity to really do some things exciting for rural
    America.
        Mr. Bachus. Thank you. For rural content.
        At this time, I will recognize the full Committee Chairman,
    Mr. Conyers, for questions.
        Mr. Conyers. Thank you, sir.
        Mr. Bachus. Ranking Member. I am sorry. Former Chairman.
        Mr. Johnson. Well, perhaps the gentleman has that vision
    for the future. [Laughter.]
        Mr. Conyers. You can leave it like that. It is all right.
        I just wanted to ask Mr. Bergmayer to comment about
    anything that he has heard during the questioning period so far
    with our two distinguished witnesses.
        Mr. Bergmayer. Yes, thank you.
        I think when it comes to the investment promises that AT&T
    is making, I would urge the Subcommittee to basically put them
    in context. I think it is important to distinguish upgrades
    from new build-out, and I think a lot of AT&T's numbers consist
    of upgrades, consist of adding a fixed wireless product to an
    existing wireless coverage area. Now, that might be some amount
    of investment, but it is less than an initial build-out. And I
    think it is important to just put it in context in that way and
    also put it into the context of AT&T's existing upgrade plans.
        AT&T already has a fairly ambitious build-out plan. It has
    something called Project VIP which talks about a lot of the new
    build-out and coverage that AT&T plans to do. AT&T has an
    initiative where it wants to upgrade a number of cities to a
    gigabit wired broadband. However, it is not exactly clear the
    scope of AT&T's existing plans. We know that they are ambitious
    based on AT&T's statements, but it is hard to quantify them.
    Therefore, it is difficult to compare any new commitments that
    they may be making today to those existing plans.
        And when it comes to broadband coverage, I will just make
    the point that broadband is an evolving standard. So if we
    expected AT&T to provide a certain level of service in 2006,
    you would hope that they would meet any commitment and then
    continue to upgrade that service as the definition of broadband
    continues to be reworked by the FCC and by policymakers. And
    that is my concern. It is not enough to simply meet a certain
    commitment and then stay there, but we expect a continuing
    level of investment.
        Mr. Conyers. Do you generally agree with those comments?
        Mr. Stephenson. No, sir, I generally do not agree with the
    comments.
        The commitments we have made--I think they are very well
    documented, and we have laid them out in public filings on our
    VIP project that we will build broadband to 57 million homes,
    that we will expand our video footprint by 8 million homes
    passed, and that we will pass 1 million business locations with
    fiber, and that we will pass 300 million people with our mobile
    broadband LTE service. Those are all documented. They are all
    in the public record. They are in our financial filings, and we
    are fulfilling those. The commitments that we have made here,
    the 15 million new or enhanced broadband connections, are all
    on top of that commitment that is already out in the public
    domain. So all of that is incremental.
        And the capital requirements to do that--I mean, just 2
    million households with fiber to the home is a significant
    capital investment. The 13 million fixed wireless local loops--
    that is a massive geography that we are talking about passing,
    and while it may be incremental to some investment that is
    already there, for a company that is investing $21 billion a
    year, it is a significant amount we are taking out of that.
        Mr. Conyers. Okay.
        Well, now, do we have a consensus here, Mr. Bergmayer, of
    his rebuttal? Does that work out with you?
        Mr. Bergmayer. I understand that AT&T has a very ambitious
    build-out plan, but I mean, some of the numbers in question
    that are supposedly in AT&T's public filing somewhere are
    redacted and confidential in the FCC filings. So I have not
    looked at them. So it is difficult for me to see how the
    numbers are simultaneously public and redacted.
        My overall point, however, is to put AT&T's incremental
    promises in context of its existing build-out plan and for the
    Committee to really question how merger-specific these promises
    are or whether, as happened in the T-Mobile merger, AT&T
    already has build-out plans and they are simply restating them
    for the purposes of getting a merger approved.
        Mr. Conyers. Mr. Stephenson, how would allowing this
    transaction to go forward result in putting downward pricing
    pressure on cable products?
        Mr. Stephenson. It is interesting. When you heard Mike
    describe the process by which he sells video services and we
    do, it is kludgey process to try to get to the market with a
    bundled broadband and satellite TV service. You put the two
    together. You have a lot of customer efficiencies that come as
    a result of that. It is cheaper. The customer experience is
    better. And we had an economist study this. It is in our filing
    with the FCC. He did a very detailed econometric model, and he
    said before even the merger synergies, the cost synergies were
    incorporated, this would have not only a downward pricing bias
    on our prices but also the prices of cable companies who will
    have to respond.
        Mr. Conyers. Let me get a response in from Mr. Lieberman
    before we close out.
        Mr. Lieberman. Thank you. I just want to say Mr. Stephenson
    and Mr. White are very polished in talking about the benefits
    that will come through this deal, the commitments that they are
    willing to make. But we have not heard them talk about the
    concerns that the programming, particularly the regional sports
    networks that are owned by DIRECTV, are not subject to any
    arbitration conditions and that they will have an incentive and
    ability to increase the prices for that programming for smaller
    cable operators. If they are going to be making public interest
    commitments, it would be nice to hear them talk about a
    commitment to address that problem as well.
        Mr. Collins [presiding]. Thank you. The distinguished
    Ranking Member's time has expired.
        The Chair now recognizes himself for his questions.
        I want to go back to something that is just off a little of
    my other question--statements to Mr. White. It happened to come
    from my friend from Georgia. But I want to make it clear.
    DIRECTV will not be forced to unionize. Correct?
        Mr. Stephenson. Oh, no, sir. We leave it up to the
    employees to make that decision.
        Mr. Collins. And this will be a request for them to vote to
    join the union, or will there be a required vote for them to go
    to?
        Mr. Stephenson. The union has to go in and solicit and see
    if they can hold a vote.
        Mr. Collins. Good.
        Mr. Lieberman, as you may know, I have previously expressed
    concerns about the impact of the proposed Comcast/Time Warner
    merger on the ability of small businesses in my district to
    advertise on cable television when the Subcommittee held a
    hearing on that merger earlier this year. Could you give me
    your view on this issue in light of the merger before us today
    and especially any difference in the impact of the Comcast/Time
    Warner merger compared to the AT&T/DIRECTV proposed merger?
        Mr. Lieberman. Gladly. ACA is concerned that Comcast/Time
    Warner Cable would be able to exclude MBPD's, their agents and
    advertisers from regional advertising interconnects, while this
    would not be the case with AT&T/DIRECTV which do not control an
    advertising interconnect.
        Mr. Collins. Good.
        I always like to open it up. Mr. White, would you like to
    talk about that?
        Mr. White. Yes. I would just make two comments. On the
    advertising, we are quite a different business model. Most of
    our advertising is national. We are less than 1 percent of the
    advertising. I do not think it affects the market at all. In
    fact, I think it will open up opportunities for small
    businesses to advertise.
        And as it relates to the regional sports networks, we have
    three of them: one in Denver, one in Seattle, and one in
    Pittsburgh. AT&T does not even have a footprint in those three
    States. So it does not have any impact on those regional sports
    networks. And we are subject to the program access requirements
    of the FCC.
        Mr. Collins. I believe that vigorous competition helps
    consumers get a good deal no matter where it may be.
    Competitive markets as this when there is genuine choice for
    consumers in terms of who supplies the good services that they
    demand. In both AT&T and DIRECTV--your written testimony--it
    has been stated that this merger will increase competition. But
    competition is not an end, however. It should be a mechanism by
    which consumers realize actual benefits. I am going to open
    this up to everyone.
        I would like to open this question and say can you say with
    certainty, or at least as is possible in a business world, that
    this merger will or will not directly result in more choice and
    lower cost to consumers both in the short term and the long
    term and to what extent. It is often portrayed in these mergers
    that this is what will happen. The reality is life changes.
    Hearings are over. Spotlights are off, and this does not
    happen. And I would like to hear each of you, as best you can,
    concise as you can, answer that question.
        Mr. White. I will take the pay-TV side and Randall can talk
    to the broadband benefits.
        But from a customer standpoint, we believe in choice. We
    have to. We sell a pure play offering. It is going to be like
    vanilla, chocolate, and strawberry. We will have the pure play.
    We will have a bundle together with the AT&T capability,
    particularly with the 15 million homes they are going to build
    out, which will be a new benefit for consumers.
        In terms of the overall value to consumers, today those
    bundles are not very competitively priced. When you make one
    company, as our modeling shows, you will see a better value
    bundle offering to those customers.
        Mr. Collins. Just a quick question. Let us just say for
    full disclosure for folks like me who have Direct and have AT&T
    for two different services, is that going to become a bundle
    opportunity for us, or are we stuck within the packages that we
    currently have until they are over?
        Mr. White. Congressman, that will be your choice. I mean,
    we believe in choice. The way we have built our business, it is
    up to the customer to decide. So we are going to give that
    choice. As I said, you can choose A, B, or C or you can stay
    where you are.
        Mr. Collins. Mr. Stephenson?
        Mr. Stephenson. There is another facet to this. When you
    ask about consumer benefits, the over-the-top model is evolving
    very, very quickly. We also have 100 million wireless
    subscribers at AT&T who are demanding access to the types of
    content that Mike has on the DIRECTV product. One thing you
    should expect to see us do is begin to integrate those
    offerings and begin to deliver that content seamlessly across
    mobile devices. That is one benefit in accelerating the OTT
    model.
        The second is, in terms of consumer benefits, the 15
    million additional broadband homes passed is a significant
    consumer benefit that would not happen but for this
    transaction. We think that is significant.
        And then obviously the pricing implications. And I will not
    go into the econometric model, but it is really compelling what
    happens to pricing not just with us but across the industry as
    a result of this transaction.
        Mr. Collins. I may have made a Freudian slip and said more
    choice and more cost. That may be just what I have experienced
    in the past.
        I would assume the other two disagree with that. And I will
    have to--because of time, I have to because I do want to go
    back to this issue the Chairman brought up. It is an issue for
    me. It is the orphan county issue. It is not just me. There are
    other Members. Mr. White, I have had conversations with your
    folks. I want to continue to make this. I am going to continue
    to harp on this until we get this fixed both with the
    broadcasters--this is just not an issue that I am going to let
    go of. There are some in the audience. They are going their
    head down. You know, when I get on something, I really do not
    leave it until I get an answer. So at this point, I have
    encouraged that.
        My time has expired. We will go to the gentleman from New
    York, Mr. Jeffries.
        Mr. Jeffries. Thank you, Mr. Chair.
        Let me thank the witnesses for your testimony here today.
        There has been some discussion about the workforce
    transition. I just want to go over some of that ground again.
        Mr. Stephenson, AT&T has the largest unionized workforce in
    the country. Correct?
        Mr. Stephenson. Full-time union.
        Mr. Jeffries. And I commend you for that and for
    demonstrating that you have been able to be an incredibly
    successful company with that workforce composition.
        Now, your employees are represented by the Communications
    Workers of America. Correct?
        Mr. Stephenson. That is correct.
        Mr. Jeffries. Mr. White, what is the percentage of
    unionization of your current workforce at DIRECTV?
        Mr. White. With DIRECTV, we have outsourced partners, but
    specifically as it relates to DIRECTV, in terms of owned
    employees, it is de minimis. It is mostly a non-union
    workforce. Some of our, however, installers in the Northeast
    and elsewhere are union.
        Mr. Jeffries. Have there been efforts to unionize the
    workforce in the past?
        Mr. White. I think we have had a vote in one geography in
    California, yes.
        Mr. Jeffries. And what was the outcome of that result?
        Mr. White. That result was in favor of unionizing, and I
    think we have had some questions from our standpoint that we
    are going through with the commission about challenging that.
    But we are waiting for the ruling from the NLRB I believe.
        Mr. Jeffries. Thank you.
        Now, Mr. Stephenson, in terms of legacy DIRECTV employees,
    I believe you have indicated that they will have an opportunity
    to join CWA. Is that correct?
        Mr. Stephenson. We have a policy of open card check
    neutrality.
        Mr. Jeffries. So the process of facilitating that potential
    transition will be through neutrality in terms of card checks.
        Mr. Stephenson. Yes, we have a long track record in this
    regard. When we bought AT&T Wireless, for example, we opened up
    the workforce to card check. The union came in and held a vote,
    and across many of the locations, they voted to join or to
    become part of the collective bargaining process, some places
    not. But we leave that up to the employees to make that
    decision.
        Mr. Jeffries. Now, you expect the merger to create jobs. I
    believe, both Mr. White and Mr. Stephenson, you testified in
    that regard. Correct?
        Mr. Stephenson. Yes. We actually are enthusiastic about it.
    First and foremost, we are investing to build out 15 million
    additional homes with broadband. Those are hard-hat jobs to go
    build out these capabilities.
        Mr. Jeffries. So both in terms of the ambitious capital
    build-out program and, I gather, as a result of the
    complementary nature of the company--and there does not seem to
    be much disagreement about that--there is an expectation that
    you would create jobs now.
        Mr. Bergmayer, is there reason for you to disagree with
    that assertion?
        Mr. Bergmayer. I think it is usually the case that in
    mergers, there are job redundancies. It is not the focus of my
    concern here. Today I am focused more on the consumer side.
        Mr. Jeffries. Okay.
        Now, Mr. Stephenson, in terms of the potential creation of
    jobs, is there a specific regional distribution that you would
    anticipate would receive any job growth more so than other
    parts of the country?
        Mr. Stephenson. Yes. The places that come to mind first are
    the 2 million homes that we are passing with our gigabit
    technology for really high-speed broadband capability. That
    involves taking fiber all the way to the home, putting
    electronics in the field. That is a very significant build.
    That will be within what I will call our old traditional
    franchise landline territory, so the 22 States where we operate
    today.
        The rural broadband build, which is the wireless
    deployment, will hit 48 States. And so that is going to be a
    fairly broad-based deployment.
        And in our company, jobs align with capital. I mean, they
    are perfectly correlated. As you invest, you hire more people.
    Now, I do not want to mislead. There will be places, to Mr.
    Bergmayer's comment, where there are redundancies in jobs, but
    we do have a very good track record on how to address those
    situations, and we use very extensively attrition. And I feel
    good about our track record in that regard.
        Mr. Jeffries. Now, you do not currently offer video
    services in the New York City market. Is that right?
        Mr. Stephenson. In what market?
        Mr. Jeffries. In the New York City market.
        Mr. Stephenson. We offer wireless services and we offer
    service to large corporate businesses.
        Mr. Jeffries. But not video.
        Mr. Stephenson. Not video. Not today.
        Mr. Jeffries. Now, Mr. White, DIRECTV does offer video in
    the New York City market. Is that right?
        Mr. White. We do.
        Mr. Jeffries. And how do you expect the potentially merged
    entity, AT&T/DIRECTV, to impact the nature of the services that
    would be offered by a combined company?
        Mr. White. Well, I think in urban markets like New York,
    there would not be any change frankly in general from a pay-TV
    standpoint. We will continue to compete hard for customers in
    those geographies. I would say we will have an opportunity to
    bundle with the wireless side. And that is something different
    that we have not done before.
        Mr. Jeffries. So there is no current bundle offered in the
    New York City market.
        Mr. White. We might with Verizon and with slower speed
    Internet service, but not high-speed. FiOS is very competitive
    in New York.
        Mr. Jeffries. Thank you. I yield back.
        Mr. Bachus [presiding]. Thank you, Mr. Jeffries.
        At this time, I recognize the gentleman from Texas, Mr.
    Farenthold for 5 minutes.
        Mr. Farenthold. Thank you, Mr. Chairman.
        Mr. Bachus. He is the Vice-Chairman of the Subcommittee.
        Mr. Farenthold. Thank you.
        I would like to follow up with you, Mr. White, on a
    question that Mr. Collins asked about local broadcasters. And
    as the satellite technology is adopted in homes, how does the
    local car dealer reach that market outside of the local
    broadcast station that you carry? A car dealer or whomever can
    go to a cable company and buy some of the local avails on those
    channels, and with satellite, it does not. I would assume U-
    verse had an ability to buy local adds on cable as well. If you
    did not, you should have.
        Mr. White. Yes, you are absolutely right. U-verse, because
    it is a local product, does have local advertising.
        As far as DIRECTV is concerned, the nature of the
    satellites in the sky is they are kind of national. So our
    advertising business grew up as a national business competing
    with the large media companies who are much larger than we are.
        More recently, we have got a new technology that is
    enabling us to do some targeted advertising. We have done a
    joint venture with DISH for political advertising. This is a
    new technology leveraging the Internet, which is enabling us to
    target homes, and we are hopeful to be able to grow the local
    advertising. But historically I think $70 million of our 600 in
    advertising is local advertising. It is very small.
        Mr. Farenthold. We may actually have a technology that is
    helping local broadcasters and then potentially hurting them.
        I wanted to talk now, Mr. Stephenson, a little bit about
    your fiber build-out. Common sense to me dictates that the
    driving force behind broadband right now is video, and if you
    have got a cheap way to deliver video via satellite as opposed
    to broadband, there is a discouragement in rolling out your
    fiber network. And I read an article in the ``Dallas Morning
    News,'' though, about how you are actually still rolling it out
    because you are competing with Google Fiber.
        So how are we going to see the rollout of fiber affected in
    markets that Google is not entering yet? When is it going to
    filter down to the mid-sized cities and then eventually to the
    smaller towns?
        Mr. Stephenson. That is one of the, I guess, interesting
    things about this transaction, and I have referenced it a
    couple of times now. But our video service, whether it be over
    fiber or over our fiber-to-the-node technology--we lose money
    on the video service because 60 cents of every dollar goes to
    the programmers. Combining with DIRECTV and creating the
    opportunity to make our programming costs look like DIRECTV's
    programming costs makes our fiber-based TV product profitable.
    And once the TV product becomes profitable, it fundamentally
    changes the economics of a fiber build.
        And so when we announced the deal and that we were going to
    expand our fiber-to-the-home footprint by 2 million homes, it
    is because of the economics of a more profitable video product.
    In fact, in your district I think Corpus Christi, 16,000 homes
    will get fiber to the home as a result of this transaction.
    Victoria County, out and around that area, a fairly significant
    number will get fixed wireless local loop broadband coverage
    where they do not have any today. So it just changes the
    economics of a broadband build and actually makes a fiber
    deployment more compelling, not less compelling.
        Mr. Farenthold. All right. So you are willing to tell me
    under oath here that this is not going to slow down your fiber
    deployment.
        Mr. Stephenson. This will what? I am sorry.
        Mr. Farenthold. Not slow down your fiber deployment.
        Mr. Stephenson. This will actually cause us to do more
    fiber deployment.
        Mr. Farenthold. You talk about lowering programming cost
    and the buying power you get with this merger. And I see how
    that is a competitive advantage. What about making space
    available for new television networks? You see a huge growing
    market in Spanish language networks. You see a growing market
    in sports and news for these sort of things. What is going to
    happen with respect to if I, God forbid, do not get reelected
    next year and decide to start Blank TV?
        Mr. White. Well, as you can imagine, Congressman, we get
    requests for new channels all the time. I think right now we
    are considering 50. I do not have satellite capacity for 50,
    but we do have two new satellites going up over the next year.
    So we have a process internally where a couple times a year I
    sit down with all the requests. We already have 152 independent
    channels. We welcome that as an important part of the diversity
    of our offerings. So I would expect with our new satellite
    capacity and with things like the gigabit to the home where you
    can do affordably--you can do video, that we would have more
    diversity of independent channels.
        Mr. Farenthold. Thank you very much.
        I see my time has expired.
        Mr. Bachus. Thank you.
        At this time, Mr. Cicilline is recognized for 5 minutes.
        Mr. Cicilline. Thank you, Mr. Chairman.
        Thank you to the witnesses for being here.
        I would like to start with Mr. Stephenson. Mr. Bergmayer
    has said that AT&T has failed to demonstrate any public
    interest benefits from this transaction, and in large part, he
    argues that the build-out that you are speaking about of 15
    million customers is, in fact, enhancements rather than build-
    outs and may have actually been something that was part of your
    capital investment anyway and is something that is not
    reflected in your public filings and not really specific to
    this merger.
        So could you speak to that, first of all? Can you tell us
    of that 15 million, how many are enhancements for people who
    have existing service, how many are build-outs for new
    customers? Is it in fact something you plan to do anyway and is
    not specific to this merger, not to say it is not a good thing,
    but in evaluating this, could you respond to that?
        Mr. Stephenson. Yes, I will be glad to.
        I went through earlier specifically what commitments we
    have made, and they are in our public financial filings where
    we have committed fiber, where we have committed IP broadband
    to 57 million homes, a million businesses passed with fiber,
    300 million people covered with LTE. All of that is just kind
    of baseline. We made those commitments and we are finishing
    that construction now.
        The 15 million broadband either enhancements or additions
    are all incremental to that. The 15 million is split. And 13
    million is a technology that we are very enthusiastic about. It
    is called fixed wireless local loop, a very interesting name
    for the technology. But what it is is taking advantage of areas
    where we have significant spectrum, and it tends to be rural
    America. In fact, it is almost all rural America where we have
    20 megahertz of spectrum. We are deploying this technology and
    using wireless to deliver 15 to 20 megabit per second service
    to those homes.
        Now, to Mr. Bergmayer's point, yes, we are going to use
    existing cell site infrastructure to put up these capabilities,
    but we are going to go in and put antennas into homes, a lot of
    installation required. That is 13 million.
        There are 2 million homes where it is called ``enhanced,''
    but what we are doing is deploying fiber to the home, literally
    going up, digging up streets, and putting fiber into the home.
    That is a significant incremental commitment to what we have
    already made.
        Mr. Cicilline. Thank you.
        Now, several witnesses, both in their testimony and in the
    written testimony, have raised issues with respect to net
    neutrality. Should part of the remedy to address some of the
    issues that have been raised with the transaction include
    extension of the net neutrality rules to wireless? Should we do
    that as part of this process, or should it be done, I should
    say?
        Mr. Stephenson. We have been very, I believe, constructive
    in the net neutrality debate. The rules that went in in 2010--
    we worked extensively with the FCC to design those rules and
    make sure that they accomplished what the tech industry needed,
    the content people, and all. And we think those rules landed at
    the right place.
        Those rules were very cautious to tread into the wireless
    area because wireless networks are not like fixed line
    networks. We have limited spectrum that this Congress is
    working aggressively to try to deal with. When you have limited
    spectrum and limited capacity, doing things where it constrains
    what you can do to deliver traffic can be very hazardous, if
    you will, to service quality in general. So we felt we ought to
    walk very cautiously and be very, very delicate in how we deal
    with the wireless situation.
        Mr. Cicilline. Thank you.
        Mr. White, could you talk to me a little bit about what
    DIRECTV is either committed to doing or what will be part of
    the terms of this merger agreement to ensure that smaller,
    independent channels will be paid a fair rate, given that
    DIRECTV already is the second largest video distributor and
    will, presumably, only have its market position enhanced as a
    result of this merger? What commitments have you made or what
    terms will be part of this merger agreement that would protect
    that?
        Mr. White. So I do not think we have yet put in anything
    specific to the merger agreement. Clearly, every distributor of
    video right now is struggling with rising content costs, which
    are 60 percent of our costs, and they are growing at far in
    excess of consumer incomes, high single digits, 8 to 10 percent
    a year, which has put tremendous pressure on the business and
    our need to raise consumers' prices. I would say certainly that
    colors how we look at all negotiations with big and small.
        And by the way, we have taken on the big guys. I think we
    have probably been a leader in the industry in battling to try
    and keep costs lower. It is a tough battle. But as it relates
    to independent channels, we have both our public interest
    obligations that we continue to live with. 4 percent of our
    channels would be PIO's. We have, I think, 26 of those. We have
    152 independent channels. In today's world with over-the-top as
    an option as well with broadband, we can put things up as an
    application just like we have done with Pandora and YouTube so
    we can expand even beyond that and would certainly look to if
    consumers want it.
        Mr. Cicilline. Mr. Chairman, if I might just ask the final
    between witnesses if they would submit written answers to this
    question. If there are things that you suggest we could do that
    would allay some of the concerns you both have raised, short of
    an outright opposition to the merger, but actions we could take
    as a Congress that will respond to some of the very important
    issues you raised, if you could answer that in writing, I would
    be grateful.
        And I yield back, Mr. Chairman.
        Mr. Bachus. Thank you, Mr. Cicilline.
        At this time, I recognize Mr. Issa for 5 minutes.
        Mr. Issa. I thank you, Mr. Chairman.
        Gentlemen, as the Chairman next door, I am used to going
    first so all the material is mine. When you get down this far,
    usually most of the good questions have been asked, and this is
    no exception.
        But I just want to run a concept by you because I serve on
    this Committee. I also am a member of the Energy and Commerce
    Committee that often looks at the other side of your issue in
    the FCC.
        So when I say, for example, Comcast/Time Warner/NBC, AT&T/
    DIRECTV, Verizon/Fox, DISH Network/CBS, Spring/T-Mobile/ABC,
    and Google and everyone else, are we looking at a future in
    which in order to be competitive, companies have to find these
    partnerships, these allies, these mergers in order to be able
    to create real viable competitors in this case AT&T/DIRECTV to
    some of those other hypothetical and not-so-hypothetical names
    that I mentioned? Mr. Stephenson, Mr. White?
        Mr. White. Well, certainly for anyone distributing the pay-
    television piece--I will let Randall speak to the broadband
    aspect, but I think there is a story there as well. When 60
    percent of your costs are the content that you distribute--I
    mean, we are just a distributor--and seven companies control 75
    percent of our content costs, so we are already in the world of
    dealing with big-scale providers of content. They are tough
    negotiations, big and small. In our case, we have had our
    battles with big ones on behalf of our customers. So I think as
    a reality to do the kind of investments that we are talking
    about in broadband--and I think Mr. Bergmayer referred to it
    earlier. To me the exciting thing about this is not just the
    commitments we are making today, but the fact of AT&T having a
    profitable video business will support them to continue to
    invest in increasing speeds and broadband, which we know that
    is where the future is going for the long term.
        Mr. Issa. Randall?
        Mr. Stephenson. I do not know where future industry moves
    go and what consolidation transpires. Mike and I--we view this
    as very different. This is not Comcast/Time Warner. This is not
    two cable companies getting together. It is not Sprint/T-
    Mobile----
        Mr. Issa. And you do not have a major content element. Some
    of the other names and hypothetical names I mentioned do have,
    and that is why I asked the question that way.
        Mr. Stephenson. Yes, so you are exactly right because we
    are putting his TV product with our broadband and wireless
    product and creating a unique value proposition in the
    marketplace. But there is not a content play per se in this
    transaction.
        Mr. Issa. Mr. Bergmayer, in your opening statement you were
    very concerned, but I would presume you would have been equally
    or more concerned when major cable companies and content
    providers join. Right?
        Mr. Bergmayer. Yes, sir.
        Mr. Issa. Okay. Mr. Lieberman, the same thing.
        Mr. Lieberman. Yes. There is definitely a concern.
        I just want to say it is not only content providers merging
    with distributors. It is also just distributors getting larger.
    When they get larger, they get more influence over programmers.
    That drives programmers to want to get larger as well. As a
    small provider who does not have the financial resources to get
    larger themselves, they suffer. If we want to have a market
    that is dominated by larger players, where consumers in rural
    areas do not have options, then that may be the market that we
    are going to look at.
        Mr. Issa. And this is the reason I started this way. On
    this side of the Rayburn Office Building, we deal in the
    antitrust question, but antitrust, since the dawn of antitrust
    since Teddy Roosevelt, has been about recognizing that
    companies naturally compete if not for a trust situation that
    gives them an unfair advantage. Do you all agree to that, that
    that is really what antitrust is about, is maintaining the
    opportunity for real competition?
        So now I go back to my basic question which is not just for
    your merger, but in my mind for how this Committee deals with,
    if you will, the promoting of competition. In fact, do we not
    have a problem that if we do not create certain large entities
    that can deliver product and compete to my household to make
    sure that I have multiple choices to my household wherever I
    live, that in fact we will not have competition either for
    delivery of content or, quite frankly, we have a problem with
    delivery of content being at a good value? Is that not true?
        Mr. White. We think it is certainly true. And I think this
    merger creates a greater opportunity for us to combine with
    AT&T's broadband capability. For us, every satellite costs $400
    million. On his wireless business, Randall is spending $10
    billion, $15 billion, $20 billion a year in capital spending.
    It is expensive to rewire America, and that is kind of what we
    are about collectively. And that is how we compete.
        Mr. Issa. Thank you.
        Mr. Chairman, fortunately, Viasat is in my congressional
    district. So the good news is that those launches tend to cost
    a similar amount, although SpaceX is reducing the cost of the
    launch. But those satellites are transmitting so many more
    channels and so much more bandwidth that I am confident that in
    fact competition from space becomes one of the competitions
    that hopefully this Committee will realize needs to be viable
    to maintain an antitrust environment.
        I thank you and yield back.
        Mr. Johnson. Will the gentleman yield?
        Mr. Issa. I yield such time as the Chairman may give me.
        Mr. Bachus. I will yield you 15 seconds. Is that good?
        Mr. Johnson. Yes.
        I just want to make a statement about Government investment
    in infrastructure, the space program, the hundreds of millions
    of dollars that the Federal Government, through taxpayer money,
    spent to prepare to turn that industry over to the private
    sector, of which Mr. Issa is so proud and justifiably I think
    is a tribute to Government spending.
        With that, I will yield back.
        Mr. Bachus. Thank you.
        Mr. Holding, the gentleman from North Carolina, is
    recognized for 5 minutes.
        Mr. Holding. Thank you, Mr. Chairman.
        Of course, the folks that I represent back in North
    Carolina want to know in real terms what it means to them--the
    merger. We have lots of good conversation in this hearing. And
    so I would like for you all to succinctly boil it down and
    answer this question.
        So 3 years from now, what are the top two things that you
    think that my constituents who are your customers will
    appreciate or dislike about this merger? And I will ask Mr.
    Stephenson, Mr. White, and then I will ask Mr. Bergmayer, Mr.
    Lieberman to hit their top two points. So starting with you,
    Mr. White, two things that you think my constituents will
    appreciate about this merger in 3 years' time.
        Mr. White. 15 million more rural Americans will have
    Internet service that do not have high-speed Internet today,
    and I think up to 70 million homes in America out of 115
    million will have a much better bundle offer to compete with
    the cable companies.
        Mr. Holding. Mr. Stephenson?
        Mr. Stephenson. And as that plays itself out, what the
    econometric model will show and we firmly believe is there will
    be downward pricing pressure in this industry as we become a
    more viable competitor, as our programming costs begin to climb
    at a lower rate. We think it is beneficial to consumers from a
    pricing standpoint.
        We think also more broadband is very, very good for the
    over-the-top content distribution models. So more broadband
    will help accelerate the over-the-top models and bring more
    choices for customers on content.
        Mr. Holding. Mr. Lieberman, maybe the top two things that
    they will not appreciate in 3 years.
        Mr. Lieberman. Yes. I think that the rising prices that
    they will see. Their service providers who are not DIRECTV have
    to pay for DIRECTV programming. And I think the number two
    concern that they would have is just the increasing pressures.
    The decreasing competition that smaller providers can provide
    as a result of the increasing consolidation that is happening
    in the marketplace not only due to AT&T/DIRECTV, but also
    Comcast/Time Warner Cable.
        Mr. Holding. Mr. Bergmayer?
        Mr. Bergmayer. If I was a rural resident, I would be
    wondering whether I was resigned to only having wireless
    choices or whether I had some future prospect of getting the
    same sorts of fiber and high-speed broadband options that are
    available to people in more densely populated areas. I agree
    that over-the-top video is a great benefit to consumers, and I
    think what people benefit from is a choice of a variety of
    over-the-top video providers. So I would hope that in the
    future, customers are not driven toward using just one or
    another over-the-top video provider. For example, if AT&T
    operates its own over-the-top video service and it does not
    discriminate in favor of that service and discourage people
    from using competing services, for example, by exempting only
    its own services from data caps but not those of its
    competitors.
        Mr. Holding. Thank you.
        Mr. Chairman, I yield back.
        Mr. Bachus. Thank you, Mr. Holding.
        At this time, I will recognize the gentleman from Missouri,
    Mr. Smith, for 5 minutes.
        Mr. Smith of Missouri. Thank you, Mr. Chairman. Thank you
    for holding this hearing.
        My first question is for Mr. White. Mr. White, the American
    Cable Association states that reductions in programming costs
    that AT&T and DIRECTV may receive as a result of the proposed
    merger, which may lead to higher programming costs for their
    members. How do you respond to that?
        Mr. White. First of all, the reduction in programming costs
    that we have referred to is a reduction in the costs that
    currently AT&T pays. So we did not make any assumptions that
    DIRECTV's costs would go down necessarily, but it is all
    related to the cost of content that AT&T pays today. Our belief
    is that, as we look at that, frankly all of us battle in these
    negotiations every day. The cable operators do as we do as
    distributors. And there is a significant amount of leverage.
    But it is hard for me to see in a world where there are over
    $40 billion of affiliate fees that our billion dollars in
    savings out of the $40 billion would make that much difference
    over time to what they would charge the small operators.
        Mr. Smith of Missouri. So do you think this merger will
    increase the cost of your competitors by any means?
        Mr. White. That has got nothing to do with our thinking on
    it. This was all about getting a capability to service the 75
    percent of customers that leave DIRECTV because they cannot get
    a bundle right now and has nothing to do with that. So I do not
    accept that all.
        Furthermore, I think some of our smaller operators--you got
    to remember in a local market, they are very, very powerful in
    terms of their coverage, and they negotiate very tough. And I
    do not expect them to want to see their prices increase any
    higher than they already are.
        Mr. Smith of Missouri. Thank you.
        Mr. Stephenson, I have a very rural congressional district
    in southeast Missouri, and it is an unserved population. AT&T
    and many other wireline providers, as well as cable operators,
    have made significant investments to reach my constituents,
    many of whom struggle to get dial-up. Can you explain how this
    transaction will result in increased broadband services for
    rural communities like mine?
        Mr. Stephenson. Yes. In fact, I just am looking at a list
    here. In Missouri, the fixed wireless local loop deployment
    that this transaction will accommodate is significant. Again,
    we have a profitable TV product that we now pair with a
    broadband technology, and it makes the economics for deploying
    broadband look really attractive. We are going to use a
    wireless technology which will give 15 to 20 megabits per
    second, build 13 million households in rural America. In
    Missouri, that is 340,000 households we pass with this
    technology. And this is one of the areas we are most
    enthusiastic about. We have been looking at this technology a
    long time, trying to get the economics to work, and it works
    once you put a profitable video product, which DIRECTV brings
    to bear, with this technology. So that is what Missouri should
    see.
        Mr. Smith of Missouri. Thank you.
        You know, representing a very rural congressional district,
    with your statements there, I want to point out that the only
    way that I can get Internet service at my house, which is 13
    miles from Rolla, Missouri, a community of 25,000 people, is
    through wireless or satellite. So that is extremely important
    for rural America.
        Mr. Lieberman, larger sized competitors typically have an
    advantage relative to their small rivals as a result of
    economies of scale. Smaller sized competitors can outperform
    their large rivals on service and product quality. What other
    competitive advantages, aside from size, will the combined
    entity of AT&T and DIRECTV have?
        Mr. Lieberman. Thank you. As you know, consumers do benefit
    from having independent distributors in the market, companies
    like Boycom and NewWave are just important in their
    communities, and these are often in areas where larger players
    do not want to invest and do not want to serve.
        With regard to your question, first and foremost, I cannot
    discount the importance of just being large when you are
    negotiating for programming costs. Even AT&T, DIRECTV have said
    that 60 percent of their costs go to programming. That is to
    deliver their video service. That is the same for smaller
    operators as well.
        I think being large has other advantages of just having
    more financial resources whether or not it is marketing to your
    customers, for instance. These things give great advantages to
    DIRECTV in a lot of their competition with smaller operators.
        Mr. Smith of Missouri. Will the ACA members that are
    present throughout my district be able to compete with the
    combined entity of AT&T and DIRECTV on the basis of better
    service and higher product quality?
        Mr. Lieberman. They will compete. They will do what they
    can to overcome the significant disadvantage that they face in
    paying programming fees that are significantly higher than
    DIRECTV, but that competitive ability is getting more and more
    difficult over time. And if your customers enjoy having a
    competitive choice between two satellite providers and a local
    cable operator, then I think we need to look at the underlying
    rules that are in the market that are driving these
    consolidations to ensure that consumers can continue to benefit
    from that in the future.
        Mr. Smith of Missouri. Thank you, Mr. Chairman.
        Mr. Bachus. Thank you.
        We are going to have a second round for Members who are
    here if they desire it. So, Mr. Smith, if you want a second
    round, you can.
        Mr. Johnson, do you have other follow-up questions? I will
    go and then you if you have any.
        Let me start. Mr. Bergmayer, Mr. Stephenson has already
    mentioned net neutrality and that they were committed to the
    FCC's--some of their guidance. I am not sure what the FCC's
    position on net neutrality is. It seems to me they are backing
    away from what was originally conceived as net neutrality.
        Mr. Bergmayer. As I understand it, AT&T has committed to
    follow the 2010 open Internet order. Those rules are partly
    vacated by the D.C. Circuit, but as part of a merger condition,
    certainly AT&T might promise to abide by those rules even if
    they are no longer in force for some of the industry.
        I think there is a question about the extent of the
    protection they offer to wireless users. For example, while
    they provide less protection for wireless users than for
    wireline broadband users, they do not provide no protection.
    And one of the areas where they offer protection for wireless
    users is for services that the provider itself offers. There
    are some cases where it cannot discriminate against competing
    services. Now, if AT&T does offer a new over-the-top video
    service, those provisions of those rules might kick in where
    previously AT&T did not offer such a video service. So they
    might not. So that is sort of an interesting point with the
    2010 rules.
        Mr. Bachus. I think most Americans and most Members of
    Congress are very concerned. The Internet has sort of been a
    gateway not a gatekeeper. I know as a telephone company, you
    are subject as a common carrier. We have seen reports of fast
    lane, slow lane, and if there is a reason not to have that, it
    is concerning.
        Mr. Bergmayer. Well, Public Knowledge is working at the FCC
    now for strong net neutrality rules that would apply to the
    entire industry not just one company. I mean, I question
    whether it makes a lot of sense to have rules that apply to
    just one company and not others. I would prefer them to be
    industry-wide. I would presume, if we succeed in our effort to
    get rules that are even better than the 2010 rules in place, if
    they go beyond the 2002 rules' level of protection, then AT&T
    would be subject to them. But if they go not as far as the 2010
    rules, we would still hold AT&T to the 2010 rules.
        Mr. Bachus. I know there is some discussion about what is a
    common carrier. I will not get into all of that. But I think it
    is something the Committee ought to look at.
        Mr. Lieberman, discriminatory pricing obviously is a
    concern. We want to preserve the competition we have. And you
    have talked about a differential of 30 percent in your
    testimony. You said the proposed transaction will increase
    DIRECTV affiliate programmers' incentive to charge higher
    prices to AT&T/DIRECTV rivals. And then you say regulators
    should adopt to eliminate the ability of DIRECTV affiliated
    programmers to charge higher prices to AT&T/DIRECTV rivals. I
    think the same thing would apply to Comcast/NBC and, you know,
    obviously others. It would not be just DIRECTV.
        I know there was some arbitration that expired and DIRECTV
    had to submit to arbitration. I think Comcast still does. I
    think you said in your statement that you did not feel like
    that was sufficient. Do you want to comment further on that or
    on discriminatory pricing?
        Mr. Lieberman. Yes. Let me start with, I think, the issue
    that is most directly tied to the AT&T/DIRECTV deal, which is
    DIRECTV's incentive to charge its rivals higher prices for its
    programming, which will get greater as a result of this deal.
    Currently there is not enough protections to avoid that
    problem. I think Mr. White has explained that the program
    access rules are subject to them currently. However, those
    rules themselves are not enough. Even DIRECTV has suggested in
    cases, mergers, where program access rules already exist, that
    there should be heightened protections and has argued for
    arbitration conditions. FCC has asked for that same condition.
        So DIRECTV, as part of a 2008 merger, had arbitration
    conditions opposed to them. Baseball style arbitrations. That
    was based on coming up with a rate that was based on fair
    market value for the programming. That has expired. And we
    believe that a similar condition should be adopted to address
    that harm. However, the one that was previously adopted had
    some flaws. It remained too expensive for smaller operators to
    use. So if you have a remedy that is too expensive for a cable
    operator with 1,000 subscribers to use, you pretty much have no
    remedy. So we need to relook at this type of remedy, put some
    modifications to it to make sure it works for all providers
    that need it.
        Mr. Bachus. Just to eliminate the ability altogether.
        Mr. Lieberman. Excuse me?
        Mr. Bachus. Just to eliminate the ability altogether.
        Mr. Lieberman. Yes. What we should do is eliminate their
    incentive to increase the prices for their rivals more than the
    price that they would charge to non-rivals.
        Mr. Bachus. And I think you all support creation of a fee
    category to include DBS?
        Mr. Lieberman. Yes.
        Mr. Bachus. An also AT&T has. So that will be interesting
    as you go forward there.
        Let me close by saying what some Members of Congress--I
    guess this is the most frequent question I was asked. And I do
    not think anyone has asked this. One of the principal
    components of the proposed AT&T/DIRECTV merger is DIRECTV's
    continuing relationship with the NFL. What can you share with
    us regarding that relationship and your customers' ability to
    continue to get a package which they very much value?
        Mr. White. Well, thank you for the question, Congressman.
    As you can imagine, the NFL content all of our customers are
    very excited about each year when we kick off the new season.
    We have had a longstanding, actually a 20-year relationship
    this year with the NFL. We very much value that relationship.
    Our relationship is excellent. Our current deal--it was a
    multiyear deal--expires at the end of this coming season. So we
    are in active discussions with the NFL about renewing our NFL
    Sunday ticket product, and we are very hopeful and optimistic
    that that will happen. And I am confident, based on the
    discussions, that we will get that done before the end of the
    year.
        Mr. Bachus. Thank you.
        Mr. Johnson will close the hearing with his questions.
        Mr. Johnson. Thank you.
        As part of its merger with NBC Universal, Comcast pledged
    to partner with schools to teach digital literacy and encourage
    adoption among low-income families. Comcast likewise committed
    to offering certain low-income families broadband Internet
    access at affordable rates. And as a result of this program,
    nearly 1.2 million Americans have joined the program, 86
    percent of whom now use the Internet daily, 21,00 which are in
    my home State of Georgia, with just over 17,000 families in the
    City of Atlanta alone.
        Will AT&T commit to a similar program to advance the public
    interest through affordable broadband access and digital
    literacy training?
        Mr. Stephenson. I am not intimately familiar with it,
    Congressman, but I will commit to you we will look at it. I
    think it is probably not only in the communities we serve, but
    probably in our self-interest. We are doing a lot in terms of
    nano degrees trying to help with low-cost education for people
    to get degrees that would equip them to do things in the
    digital world, and we are very, very excited about it. We also
    have made a number of investments to ensure that we can address
    that end of the market and ensure that customers at that end of
    the market are getting really robust broadband capabilities.
        Our experience, in terms of getting good penetration of
    broadband into lower-income communities, is not the access to
    broadband. It is the access to computers. And what is happening
    and is happening at a very quick pace are these devices. These
    are very low-cost computers that are wirelessly connected and
    giving really low cost for people in lower-income communities
    to gain access to the Internet and the digital economy. And so
    we are focused in this. But I will be glad to look at the areas
    you addressed and evaluate it.
        Mr. Johnson. Thank you.
        As part of its rollout of a fiber network in Kansas City,
    Google includes a free monthly service with basic Internet
    service if consumers pay a one-time construction fee to connect
    their home to the network. Does AT&T offer a similar service
    for its fiber networks?
        Mr. Stephenson. Google did some very creative things in
    Kansas City, and I take my hat off to them. They then modified
    their approach and took it to Austin. What they received in
    terms of permitting to build out a fiber network in Austin from
    the municipalities was very interesting. And in fact, as soon
    as they announced it, we told the Austin community if you will
    make the same concessions to us, we will build a fiber network
    as well.
        We launched our fiber network back in November. Google has
    yet to launch theirs in Austin. But it is a good indication of
    competition and the robustness of fiber deployment in these
    communities and different business models that are emerging
    like the one you mentioned in Kansas City, a different one in
    Austin. We have announced one in North Carolina as well.
        Mr. Johnson. What other outreach programs does AT&T offer
    to unconnected homes, specifically those in low-income
    neighborhoods and in rural areas?
        Mr. Stephenson. So what programs?
        Mr. Johnson. Yes. What outreach programs does AT&T offer to
    unconnected homes, specifically those in low-income
    neighborhoods or rural areas?
        Mr. Stephenson. I apologize. I do not know off of the top
    of my head, but we can get that to you.
        Mr. Bachus. You know, they do have AT&T Aspire, which I
    think is a very valuable program. It may not get to all. It
    certainly keeps students from dropping out of school. And that
    is a very large program. And when they do not drop out of
    school, they get a good job and they have the ability to use--
    --
        Mr. Stephenson. We have a multiple hundred million dollar
    commitment to the high school dropout crisis focused
    particularly on Hispanic, African Americans, and Native
    Americans. The dropout crisis was an epidemic, and so we have
    made a major commitment of money to address this; it has moved
    the needle in a lot of areas, and that has continued.
        Mr. Bachus. And was that not $300 million and something?
        Mr. Stephenson. The first one was $200 million. The second
    was $250 million I think.
        Mr. Johnson. That is commendable. But in terms of outreach
    to enable families, low-income and also rural folks, of what
    the opportunities are in terms of what you offer and how it can
    benefit the people. So in terms of just outreach, not so much
    the programming itself, but what do you do in order to make
    people aware of the benefits of Internet connection and the
    other services that you provide?
        Mr. Stephenson. It is a good challenge, and like I said, I
    cannot give you specifics of what we are doing there. If
    nothing, I will let you know and we will take it under
    consideration of what we can do and do better.
        Mr. Johnson. Thank you.
        Mr. Bachus. Of course, Aspire is an outreach program. Our
    biggest program in education is our dropout rate.
        Mr. Johnson. You are to be commended for that.
        Mr. Stephenson. I would say in that regard one of our
    biggest issues as a company is----
        Mr. Bachus. It is a tremendous problem. [Laughter.]
        Mr. Johnson. You all agree?
        Yes, sir?
        Mr. Stephenson. I was just going to say one of our biggest
    issues as a company over the next 6 years is access to what I
    would call computer- and digital-literate employees. We are
    going to need a significant number of them, and we are doing a
    lot of creative things, not the least of which we are fully
    funding for any of our employees who can qualify a masters in
    computer science at Georgia Tech University purely online. It
    has been certified by the Governor and by the Board of Regents
    as a fully accredited degree, and AT&T is committing to pay
    anybody who can qualify and make it into that program. Those
    who cannot qualify to get into it--we are bringing it in house
    and we will do AT&T certifications to begin to build these
    skill sets for people.
        Mr. Johnson. Okay. Well, that is great.
        Digital literacy training. Do you have any programs that
    enable those without that skill to learn about it and take
    advantage of it? Any programs that you might have?
        Mr. Stephenson. So we have a number of digital literacy
    programs. And in fact, the Aspire program that the Chairman
    referenced--we have actually done some things with the Aspire
    program where we have invested in companies who do digital
    literacy training and then do things in schools to develop
    digital curriculum and so forth. So we have made some
    investments in these areas. That continues to be a focus of
    ours. I would be glad to give you a full detailed listing of
    all the efforts that we have going on in that area.
        Mr. Johnson. Okay. That would be great. And I just look
    forward to you all thinking outside of the box and coming up
    with some new attractive ways of making your services available
    to those who cannot afford it or who just simply do not know
    about it. You have already covered the fact that those without
    access--you are going to take care of that. But there is that
    other more softer component of it also.
        Mr. Stephenson. Noted.
        Mr. Johnson. Thank you.
        I yield back.
        Mr. Bachus. I thank the gentleman.
        This concludes today's hearing. I thank all of our
    witnesses for attending and answering the questions. I thought
    you all gave excellent testimony.
        Without objection, all Members will have 5 legislative days
    to submit additional questions for witnesses or additional
    materials for the record.
        This hearing is adjourned, and now you can go over to the
    Senate.
        [Whereupon, at 12:59 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

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                   Material Submitted for the Hearing Record

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