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Consumers Will Win in Combined AT&T-DirecTV

AT&T agreed Sunday to purchase DirecTV for $67 billion in cash, stock, and acquired debt. If federal regulators approve the deal, the combined firm will serve nearly 26 million U.S. television subscribers—a figure dwarfed only by Comcast and Time Warner Cable, who also await the federal government’s permission to consummate their proposed merger.

Should the FCC and the Department of Justice—both of which will likely review the AT&T-DirecTV deal—approve the sale? Yes, as far as consumers are concerned. The combined firm will be better positioned to bargain for lower programming costs, which in recent years have been the major driver of rising pay-television subscription fees. Together, AT&T and DirecTV should also be able to offer a superior bundled product to the tens of millions of Americans passed by AT&T’s legacy DSL network, which offers voice and broadband but not television.

What about concentration in the television market? Consider that DirecTV launched in June 1994, less than two decades ago. In the twenty years since, satellite and telephone companies have mounted a vigorous assault on cable television, resulting in a fragmented video marketplace. As such, even a combined AT&T-DirecTV will account for just one-quarter of U.S. television subscribers. At the same time, satellite television provider DISH Network will remain available to nearly all U.S. households. Nearly 20 million U.S. homes are passed by Verizon’s all-fiber optic FiOS service. And most Americans are served by one or more cable television companies—including not only Comcast and Time Warner Cable, but also Charter, Cox, Cablevision, Mediacom, and many others.

On the other hand, in a small minority of markets currently served by two satellite providers, a cable company, and AT&T’s U-verse video service, the merger will leave some households with three television choices, instead of the four they currently enjoy. But these consumers will benefit from a more competitive AT&T that is capable of delivering a superior bundle of television, voice, and broadband service.