Media mega-mergers under the microscope

Megamergers are heading back to Congress with lawmakers set to probe AT&T’s $49 billion bid to buy DirecTV, the second mammoth media deal to come under scrutiny this year.

The hearing comes with many lawmakers expressing growing skepticism about the trend toward consolidation following earlier hearings this year on the proposed Comcast and Time Warner Cable deal.

That sentiment could boil over on Tuesday, when the AT&T and DirecTV executives come to Washington for a set of double-header hearings in the House and Senate.

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“On the one hand you’ve got to look at each of these mergers on their own individual merit but you can’t ignore the broader landscape,” said John Bergmayer, senior staff attorney at the consumer interest group Public Knowledge.

“Yes, you have to just look at the facts of this one but you also have to bear in mind an ever more concentrated communications market,” added Bergmayer, who has been critical of the deal and is slated to testify in the House on Tuesday morning.

Both AT&T and DirecTV say they are missing a crucial component in the suite of services that their subscribers are looking for.

DirecTV offers television but no Internet or phone service. AT&T offers phone and Internet but its U-verse television offerings have just a fraction of the subscribers of its major competitors like Comcast.

AT&T has argued that the deal would let it offer video service on TV, Internet and mobile devices, which consumers are starting to demand. That would put it on an equal footing with companies like Comcast and Time Warner Cable, which offer both Internet and TV service.

“This transaction will unite two companies with uniquely complementary assets to create a strong, national competitor that delivers consumers an unparalleled combination of broadband, video, and wireless services,” the company said in a filing with the Federal Communications Commission (FCC) this month.

The companies’ current problems are only being made worse with the planned merger of Comcast and Time Warner Cable, they claimed, along with the rise of Web-based movie and TV services like Netflix and Hulu.

"This merger occurs against the backdrop of fundamental shifts in the ways consumers obtain broadband and video services," AT&T claimed, making it more important than ever for one company to offer a full range of options to subscribers.

Aside from the need to not be left behind, the company has also argued that the merger would be good for the public.

The deal would allow AT&T to save enough money to build out infrastructure to bring Internet service to 15 million new households within four years, it claimed, many of which are in rural areas.

Additionally, the firm is promising to abide by the FCC’s old rules on net neutrality, which mandated that Internet service providers treat all Web traffic equally.  Those rules were tossed out by a federal appeals court this year, but if its merger is approved, AT&T promised to voluntarily stick to those rules for three years.

But all that may not be enough to soothe critics’ fears.

After AT&T announced its bid to buy DirecTV earlier this year, many Democrats voiced their concern that the deal could hit their constituents in the pocketbook and further the trend of media consolidation.

Senate Judiciary Chairman Patrick Leahy (D-Vt.) said at the time that he was “concerned” that the market "is trending even further toward one that favors big companies over consumers.”

Sen. Al Franken (D-Minn.), one of the most vocal critics of the merger trend, added that the country is seeing “a major transformation of the telecom industry—and it’s going in exactly the wrong direction.

“We’re moving toward an industry with fewer competitors—where corporations are getting bigger and bigger and gaining more and more control over the distribution of information,” he added.

Consumers may agree with them.

A poll by Consumer Reports found that just 12 percent of the country said that the megamergers are good for the economy.

One major concern is that the merger would eliminate competition in the approximately 25 percent of the country where DirecTV and AT&T’s U-Verse compete for TV subscribers, an issue that could pose antitrust problems.

Ultimately, the decision is up to regulators at the FCC and Justice Department, but Tuesday’s hearings will likely provide the highest profile public debate over the merits of the proposal.

If past hearings are any guide, it could be a long day for AT&T and DirecTV executives.

“I think it’s important for regulators and policymakers to take a very close look at all these deals,” said Delara Derakhshani, the policy counsel for Consumers Union, the advocacy arm of Consumer Reports, and a critic of the string of recent mergers.

“There is a trend of consolidation, one that we’re concerned about and one that consumers are concerned about.”