[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
__________
U.S. GOVERNMENT PRINTING OFFICE
88-435 PDF WASHINGTON : 2014
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
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
----------
Material Submitted for the Hearing Record
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]