Three days after FCC Chairman Tom Wheeler confirmed the circulation of a draft order recommending clearance of AT&T’s proposed $49 billion acquisition of direct broadcast satellite service provider DirecTV, the FCC voted last Friday to approve the transaction with conditions.  In the words of an agency press release, those stipulations “address potential harms presented by the combination” while also ensuring “that the benefits of the merger will be realized.”  Upon completing the deal late last Friday, AT&T heralded the newly-combined entity as “the largest pay TV provider in the U.S. and the world” with 26 million U.S. subscribers plus an additional 19 million customers throughout Latin America, Mexico and the Caribbean. 

While the FCC determined that a grant of the proposed transaction would serve the public interest, the agency adopted a list of targeted conditions that will remain in effect for four years.  As reported earlier, these conditions include AT&T’s commitment to (1) deploy high-speed fiber-to-the-premises (FTTP) services to 12.5 million customer locations nationwide; 2) submit copies of its completed interconnection agreements to the FCC along with regular reports on network performance; (3) offer DSL broadband services at monthly rates of $5-$10 to low-income customerswho satisfy certain eligibility criteria; and (4) refrain from “imposing discriminatory usage-based allowances or other discriminatory retail terms and conditions on its broadband Internet services.” The FCC is also requiring AT&T to retain both an internal company compliance officer and an independent, external compliance officer “that will report and monitor, respectively, the combined entity’s compliance with all conditions of the merger.”

Explaining its rationale for the conditions, the FCC noted that the requirements on FTTP deployment are intended to remedy the loss of a video competitor in markets where AT&T and DirecTV had competed against each other prior to the merger.  The FTTP deployment condition also provides “a pathway for increased competition from services that rely on broadband Internet to deliver video.”  Moreover, the FCC ruled that the transaction increases the incentive of the merged entity “to use strategies that limit consumers’ access to online video distribution services in order to favor its own services.”  FCC Commissioner Mignon Clyburn asserted that conditional approval of the merger “makes great strides” in expanding universal access to affordable broadband.  FCC Commissioner Ajit Pai, however, issued a partial dissent against the FCC’s decision to attach “17 pages of conditions” to a transaction in which the “benefits clearly outweigh any harms.”  Emphasizing that the Justice Department declined to ask for any conditions after concluding its “extensive investigation” into the deal, Pai argued:  “the Commission should have done the same.”  Although FCC Commissioner Michael O’Rielly voiced similar concerns regarding the need to impose conditions, he concurred in part, as these conditions in his view “don’t appear to cause direct harm to other market participants.”  Declaring that the merger “is all about giving customers more choices for great video entertainment integrated with mobile and high-speed Internet service,” AT&T CEO Randall Stephenson told reporters:  “we’re now a fundamentally different company with a diversified set of capabilities and businesses that set us apart from the competition.”