Good morning Chairman Bachus, Ranking Member Johnson, and members of the Subcommittee. Thank you for the opportunity to participate in today's hearing. My name is John Bergmayer, and I work for Public Knowledge, a non-profit public interest organization that seeks to ensure that the public benefits from a media marketplace that is open, competitive and affordable. Today, I will argue that AT&T's proposed purchase of
AT&T may think it has chosen an opportune time to try to acquire
AT&T is one of the nation's leading telecommunications companies. It has millions of mobile and wireline telephone customers, broadband subscribers, and pay TV viewers.
AT&T has failed to make its case that this merger would not harm competition. The proposed merger would remove a pay TV competitor from many local TV markets--a direct competitive harm. Yet it offers only to do some limited price-matching for three years to ameliorate this. Temporary, limited relief such as this cannot overcome the harm to consumers.
AT&T has also failed to make its case that this merger will benefit the public interest. It makes several public interest promises that are much weaker than they first appear--and its record of following through on past public interest commitments gives good reason to be skeptical even of the limited claims it makes.
AT&T claims that cost savings on content will give it the incentive to upgrade its wireline network at a slightly faster pace. But it does not provide enough information for policymakers to fully distinguish between its existing upgrade plans from any new investment. Past experience with AT&T shows that it has a habit of "promising" its existing business plans as merger commitments. Without specific, verifiable commitments that go well beyond what AT&T has offered thus far, it would be impossible for policymakers to verify later whether AT&T was living up to its promises. AT&T claims that these cost savings will allow it to become more competitive with cable--but it does not commit to actually lowering its prices or improving its service in any specific, verifiable ways.
AT&T also claims that buying
AT&T has simply failed to meet its burden. The burden is on AT&T to show that this merger would not harm competition. It has not done so. The burden is also on AT&T to show that this merger would have specific public interest benefits. It has not done that either. Instead, the evidence shows that this merger would hamper competition in many markets, further the digital divide, and exacerbate harmful industry trends. Based on this record, the deal must be blocked.
The Merger Would Result in a Significant Loss of
AT&T, a pay TV company, wants to remove
In a transaction where it seeks to buy a standalone pay TV service, AT&T argues that pay TV as a standalone product is decreasingly significant. n5 But the millions of DISH,
Antitrust regulators must base their analyses on the here and now. They do not simply write off real competitive harms to a real market based on one company's prediction that that market will one day go away or shrink in importance relative to some other market. As the
By reducing the number of pay TV competitors in each market where AT&T currently offers video service, this proposed merger would reduce consumer choice and violate the law. As
To ameliorate this, AT&T is merely proposing only to offer, "for three years," "standalone
This is straightforward. AT&T proposes to remove a video competitor from many local markets. This would cause real harms, and AT&T has articulated no offsetting benefits. Based on this record, antitrust authorities must block this deal.
AT&T Has Not Shown That Any Public Interest Benefits Would Flow from This Transaction.
AT&T states that it plans to "use the merger synergies to expand its plans to build and enhance high-speed broadband service to 15 million customer locations." n12 In a number of places, it touts an even higher number, stating that "[w]ith this expansion, AT&T's high-speed fixed broadband networks will cover 70 million customer locations." n13 It requires some careful reading to figure out exactly what AT&T is promising.
The 70 million figure is not new. In fact, AT&T has already promised more. In its 2012 press release touting "Project VIP," AT&T promised to provide wireline broadband service to 57 million customer locations, and wireless broadband to 19 million additional customer locations. n14 That's a plan to serve 76 million customer locations with a broadband product--6 million more than the number it is promising to serve after this deal. n15 A commitment to serve 70 million customers with broadband cannot count as a merger-specific public interest benefit when AT&T already plans to serve 76 million.
The 15 million figure, meanwhile, primarily refers only to marginal upgrades and not new build-out. 13 million of the 15 million are accounted for by AT&T's plan to offer customers fixed wireless service--what it is now calling WLL, or wireless local loop. n16 While AT&T claims that offering WLL requires "upfront investments," n17 it never quantifies what these are. Given that WLL is merely a specialized kind of LTE service, any additional investment to offer it in markets that already have LTE is likely to be minimal. AT&T will already have made the necessary investments in towers, electronics, and other necessary infrastructure. As an AT&T executive confirmed, "this new fixed WLL technology will make use of wireless spectrum and AT&T's LTE network infrastructure." n18 AT&T's claim that 85% of WLL customer locations "are expected to be outside of AT&T's wireline footprint" n19 must be viewed in this light: If these locations are in territory that AT&T already covers with mobile LTE service, then any additional investments are likely to be marginal. Even if these marginal upgrades were considered to be a public interest benefit, their small scale is not enough to counteract the harms stemming from the loss of competition.
For the 15% of projected WLL customers that are within AT&T's wireline footprint, this is nothing new. AT&T has planned to discontinue wireline service and offer wireless service to many of its rural customers for some time. n20 It has every incentive to do this already, since fixed LTE is cheaper to deploy and maintain than copper or fiber. n21 But more fundamentally, it is difficult to see a transition from wireline service to wireless service as a benefit at all, much less a merger-specific benefit. Wireless service is less reliable than wireline service, has usage caps that limit what users can do with it, n22 and lacks many of the features that many customers (especially small businesses) depend on. n23 Finally, if any of the customers that AT&T plans to make WLL available to that it says currently have no terrestrial broadband n24 are within AT&T's wireline footprint, policymakers should ask whatever became of AT&T's 2006 commitment to serve 100% of the population in its footprint with broadband (wired and wireless). n25 Why have these customers gone without AT&T broadband for so long, and why should we think that promises in this merger will turn out any different than past unmet merger promises?
The remaining 2 million of AT&T's 15 million number likewise does not consist of new buildout, but instead references fiber-to-the-premises upgrades to AT&T's existing network. These upgrades are for the most part already in planning n26 (and are therefore not merger-specific). While AT&T claims these 2 million customer locations go beyond its current plans for fiber-to-the-premises ("FTTP") upgrades n27, there is no baseline for comparison, since AT&T's current FTTP plans are not public. Further, this plan's timeframe is uncertain: AT&T has "committed" to completing these upgrades in 4 years n28--but if FTTP upgrades are already underway, does this 4-year commitment apply to the final 2 million beyond its existing plans (meaning that within 4 years, AT&T's entire FTTP rollout will be substantially complete) or only to the next 2 million upgrades? AT&T does not say. AT&T also states that "[of] these additional customer locations, [its] current assessment is that most have access only to AT&T's [DSL] or no AT&T wireline broadband Internet offering at all." n29 Again, without firm numbers it is impossible to weigh the public interest benefit, if any, of these claims. And there are further questions: Do any of these customer locations that have no AT&T broadband service currently have AT&T wired telephone service? Are they areas unserved by any form of wired communications technology at all? Or are they new, "greenfield" development--where one would expect AT&T to deploy FTTP technology instead of fiber-to-the-node or copper? The only network upgrades that policymakers can even consider in weighing this transaction are those that would not have happened but for this transaction. AT&T has not provided enough data to begin to address these questions. The data that are available tend to show that AT&T's promised network upgrades are already underway, and are unrelated to this proposed merger.
In any case, which version of AT&T's FTTP commitments should policymakers put stock in: the sworn declarations of AT&T executives, or the not-quite-accurate paraphrase of these statements in AT&T's
AT&T's promises in this merger proceeding should be put in the context of its previous build-out/upgrade promises from past proceedings. In 2006, pursuant to its merger with BellSouth, AT&T committed to providing broadband to 100% of the residences in its wireline footprint. n32 This commitment included a promise to provide wireline broadband to 85% of the residences, with other residences offered some form of wireless service (a precursor to its current wireless local loop ("WLL") promises). n33 Yet by 2012, promises of future broadband buildout were still on the table, as AT&T again promised to finally provide wired broadband to 75% of the "customer locations" (residences plus businesses) in its footprint. n34 AT&T's shifting terms of reference (residences, population, customer locations) can make it difficult to pin down to what extent it has even attempted to comply with its past promises, but recent documents n35 confirm longstanding customer reports n36 that there are areas within AT&T's service territory where it offers no broadband service at all, wireless or wireline, contrary to its 2006 commitment.
Again and again, AT&T makes the same arguments and the same promises when it wants to acquire a competitor. n37 Yet no merger ever seems to be quite enough for it to achieve its goals, leaving AT&T ample headroom to re-promise and re-commit to the same goals the next time around. In the T-Mobile proceeding in 2011, Consumer Watchdog made this very clear with a letter highlighting the similarities between what AT&T was claiming in that transaction to what it promised in the
AT&T also has a history of claiming that mergers are necessary for investments even when its own behavior proves otherwise. In 2011, AT&T committed to cover 250 million Americans with LTE by the end of 2013, "as a result" of the AT&T/T-Mobile transaction. n39 Of course, regulators rightly blocked that merger. Yet by the end of 2013, AT&T covered 270 million Americans with LTE. n40 A clear example of AT&T not only meeting, but exceeding, a past build-out commitment nevertheless shows that AT&T's claims must be taken with a grain of salt. While AT&T said at the time that the T-Mobile transaction was a necessary prerequisite to this investment its own actions prove that this was not the case. This is another reason for policymakers to be skeptical of any claims AT&T makes today.
The balance of AT&T's public interest argument is similarly thin. It is not promising any new kinds of services--just new bundles. Instead of promising lower prices for consumers, AT&T talks about cost savings for itself. It is agreeing to abide by net neutrality rules which largely exempt wireless. In short, AT&T has not provided the compelling public interest justification it needs if it is to be allowed to purchase
If This Transaction Goes Forward, There Would Be Public Interest Harms That Go beyond Loss of Competition in the Pay TV Market.
Because AT&T and
Second-class service for rural America
"Universal service" is the concept that all Americans should have access to adequate communications facilities, and that they should be able to use them to access whatever information and speak to whoever they wish. n41 It is not a telephone-specific concept--its origins come from the postal service, and policymakers increasingly apply universal service concepts to broadband. AT&T should be familiar with the concept. While the goal of universal service pre-dates AT&T,
Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas. n43
AT&T's plan to shift its rural wireline customer base to WLL flies in the face of this standard. To be sure, our communications policies should be technology-neutral. When analyzing whether service is "comparable" between urban and rural areas, policymakers should look to objective metrics such as bandwidth, throughput, latency, and reliability. The problem with WLL is not that it is wireless, but that it falls short under these objective and neutral metrics. While AT&T claims that WLL will be "comparable, and typically superior, to the best wireline services available in the areas in which the fixed WLL solution will be deployed," n44 this is not the standard its service should be held to. Rural service should be comparable to that offered in urban areas. WLL is hardly comparable to AT&T's fiber-to-the-node and fiber-to-the-premises products, and even falls short of DSL (and TDM telephony) in several ways as well. Even basic copper line service can outperform WLL--by working with a wider variety of third-party equipment, for example, and by having an independent power supply. n45
Neither are the rates comparable, With WLL, you pay more for what you get, and have to abide by a rate plan with usage caps. n46 Policymakers should be wary of any deal that furthers the urban/rural digital divide and enables AT&T to consign rural Americans with second-class service. While policymakers should welcome new competition, including from fixed wireless services, this does not mean that rural Americans should only have access to less-capable technology.
Discriminatory treatment of video traffic
Prior to this transaction, AT&T had plans to enter the online video market, n47 and AT&T expects that this deal would "propel the development of new [online video] products." n48 AT&T would likely be able to use
AT&T has not shown that any public interest benefits would overcome the competitive, public interest, and other harms that would flow from this merger. On this record, it must be blocked.
n1 Description of Transaction, Public Interest Showing, & Related Demonstrations, Public Interest Statement, MB Docket No. 14-90, 66 (2014) [hereinafter Public Interest Statement].
n2 Public Interest Statement at 3.
n3 Some analysts dispute AT&T's cost-savings claims, and there is little reason to think that customers who buy one wire, one box cable bundles will necessarily find AT&T's promised bundles--which may require a satellite dish as well as a fixed LTE antenna to be installed on the customers premises--more appealing than purchasing standalone services.
n4 15 U.S.C. [Sec.] 18 (2014).
n5 Public Interest Statement at 68.
n6 AT&T, U-verse Update: 1Q14, https://www.att.com/Common/about_us/pdf/uverse_update.pdf (last visited
n9 Public Interest Statement at 81.
n10 Public Interest Statement at 55.
n11 See 47 U.S.C. [Sec.] 310(d) (2014);
n12 AT&T, AT&T to Acquire DIRECTV, AT&T Newsroom (
n13 Public Interest Statement at 39.
n14 AT&T, AT&T to Invest
n15 Project VIP.
n16 Public Interest Statement at 44; Declaration of
n17 Stankey Declaration at [Para.] 40.
n18 Stankey Declaration at [Para.] 48.
n19 Stankey Declaration at [Para.] 54.
n21 The Difference Engine: Scrap the copper, The Economist (
n22 WLL "will have a usage allowance that will readily satisfy most customers' needs." Public Interest Statement at 43.
n23 Public Knowledge, Protecting Businesses and Consumers in the Phone Network Transition (
n24 AT&T claims that about 2.6 million of the customer locations it will make WLL available to "have no access to terrestrial broadband services today." Public Interest Statement at 44. It bases this on NTIA data. Stankey Declaration at 23. It is unclear if AT&T means to say that it will expand WLL to areas that currently have no LTE service (LTE meets AT&T's and the NTIA's definition of terrestrial broadband) or whether, as seems more likely, that AT&T means to say that it will expand WLL to areas that have no access to terrestrial fixed broadband today.
n25 FCC Approves Merger of
n26 AT&T is expanding its "U-Verse with GigaPower" service, which it launched in
n27 Public Interest Statement at 41.
n28 Public Interest Statement at 41.
n29 Stankey Declaration at [Para.] 46.
n30 Stankey Declaration at [Para.] 44 (emphasis added).
n31 Stankey Declaration at [Para.] 44 (emphasis added).
n32 BellSouth Merger Press Release.
n33 BellSouth Merger Press Release.
n34 Project VIP.
n35 AT&T Proposal for Wire Center Trials, GN Docket No. 13-5, GN Docket No. 12-353, at 8 fn 9 (
n38 Consumer Watchdog, Re: AT&T and Deutsch Telekom AG Application Seeking FCC Consent to the Transfer of Control of the Licenses and Authorizations Held by T-Mobile Acquisition of
n40 AT&T, More Than 270 Million People Now Covered by the Nation's Most Reliable 4G LTE Network (
n43 47 U.S.C. [Sec.] 254 (2014) (emphasis added).
n44 Stankey Declaration at U 48.
n45 Preserving Public Safety and Network Reliability in the IP Transition: Before the Subcomm. on Communications, Technology, and the Internet of the S. Comm. on Commerce, Science, and Transportation, 113th Cong. (2014) (Testimony of
n46 Public Interest Statement at 43.
n47 See Press Release, AT&T,
n48 Public Interest Statement at 29.
n49 John Bergmayer, AT&T Will Eventually Do the Minimum Users Expect, Public Knowledge (
Read this original document at: http://judiciary.house.gov/?a=Files.Serve&File_id=FBF5AABF-D9A5-45D4-8EF7-98506911859F
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