Source: https://www.sec.gov/Archives/edgar/data/732717/000119312514233565/d743205d425.htm
Timestamp: 2019-04-21 22:10:26+00:00

Document:
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.
(_MVPD_) with a national footprint, outstanding content, and a long tradition of innovation and expertise in video. DIRECTV, however, has no broadband capabilities. At the same time, AT&T has world-class wireline and wireless broadband facilities, but its video service, which is available in only a minority of customer locations within AT&T_s 22-state incumbent local exchange carrier (_ILEC_) region, is uneconomic and not fully competitive with cable providers. As a result, each company cannot provide on its own what consumers increasingly demand: an integrated and efficient bundle of high-speed broadband and high-quality video from a single provider.
· The combined company will compete more effectively in a dynamic and rapidly changing marketplace that includes cable operators and a range of other technology, communications, and media companies.
· Millions of consumers will benefit from new and improved bundles of broadband, video, and  due to AT&Ts advanced network and nationwide customer base in mobile communications  wireless services.
· By creating more value for programming partners and taking advantage of broader expertise in video, broadband, and wireless, the combined company will innovate in ways that accelerate the availability of enhanced video options across all screens  TVs, PCs, smartphones, and tablets.
The Rationale for this Transaction. This merger occurs against the backdrop of fundamental shifts in the ways consumers obtain broadband and video services. A high percentage of consumers now purchase MVPD service in a bundle with broadband connections to obtain greater convenience at a lower price. Indeed, more than 97 percent of AT&T_s 5.7 million video customers subscribe to bundled services. This consumer preference is not unique to AT&T, as 78 percent of basic subscribers of the six largest cable operators take at least a double-play of services, predominantly video and broadband. Moreover, consumers who subscribe to MVPD service increasingly want to access video programming from any device, including mobile devices, making mobile service a desirable bundle component as well.
At the same time, enormous industry investment in wireline and wireless broadband networks has created a platform for novel ways of aggregating video content and spawned myriad online, over-the-top (_OTT_) video providers such as Netflix, Amazon, Google, and Hulu. Consumers who use broadband can watch a large swath of traditional content as well as original content made available over the Internet  and do it all at a time and place of their own choosing.
1 As described below in Section VI.C, some of these customer locations currently receive AT&T broadband but will receive a better, significantly faster class of broadband service post-transaction. Of the other locations, most lie in underserved rural areas outside AT&T_s wireline footprint.
DIRECTV cannot capitalize on these trends because its one-way video delivery service lacks broadband capabilities. Nor can it offer the bundles that consumers increasingly seek. DIRECTV has attempted to respond to consumer demand by offering _synthetic_ bundles of DIRECTV satellite video service and a variety of third-party broadband and/or voice services. However, none of these synthetic bundles has sufficiently bridged the gap for DIRECTV. The best-performing synthetic bundle DIRECTV offers is through its relationship with AT&T, but despite their efforts AT&T and DIRECTV have been unable to make significant inroads against the integrated bundle offerings of entrenched cable companies.
AT&T has broadband facilities in most of its 22-state wireline region and wireless broadband facilities available to more than 300 million Americans nationwide. AT&T, however, can only provide video service, and thus a broadband/video bundle, to those homes where it has deployed _fiber to the node_ (_FTTN_) or _fiber to the premises_ (_FTTP_) technologies. While AT&T plans to cover approximately 33 million customer locations with these technologies, that geographic region will still cover less than one-quarter of U.S. TV households. Outside of the U-verse video footprint, AT&T cannot offer integrated bundles of broadband and video service, but must instead rely on synthetic bundles that have not been effective.
As a result of its relatively limited video footprint, AT&T is far smaller than Comcast and Time Warner Cable, its principal competitors. Lack of scale particularly hinders AT&T with respect to content acquisition, which is by far the largest variable cost of MVPD service. AT&T therefore faces challenges selling competitive broadband/video bundles even inside its U-verse video footprint.
At its core, then, the rationale for this transaction is simply stated. Through this combination, the companies will marry complementary assets to achieve what they could not achieve separately or through a contractual arrangement: a compelling bundle of video and broadband services.
The Transaction_s Significant Consumer Benefits. The proposed merger will provide exactly the kind of near-term, verifiable, transaction-specific public interest benefits that the Commission has credited in approving previous transactions.
· Within the U-verse video footprint, AT&T customers will be able to keep their U-verse video service. That service will be enhanced, however, by better content offerings and an improved user experience. DIRECTV customers will be able to purchase an enhanced, truly integrated bundle combining DIRECTV video service and AT&T broadband.
Customers will also retain the ability to obtain standalone DIRECTV video.
· In the balance of AT&Ts broadband footprint, consumers will now have access to an integrated offering of a premier satellite video service from the same company that provides their broadband service, enabling simplified billing and better customer care.
· Both inside and outside the AT&T wireline footprint, DIRECTV customers will be able to keep their video service and, for 99 percent of all Americans, also receive a competitive high-speed broadband and/or mobile service from the same company that provides that video service.
and permanently increase the incentives of the combined company to expand and enhance its broadband networks. At a minimum, AT&T expects to bring new or enhanced high-speed broadband to at least 15 million customer locations, the majority of which are in rural areas with no or limited broadband service choices. Indeed, AT&T is so confident of these savings and other synergies that it is willing to commit to meet this target within four years from the close of this transaction.
Specifically, the combined company will commit to provide FTTP wireline broadband service to 2 million more customer locations. In addition, the combined company will commit to deploy fixed wireless local loop (_WLL_) technology to bring high-speed broadband to approximately 13 million largely rural customer locations. By using a fixed antenna, this service is designed to perform as well as services with advertised speeds of 15-20 Mbps. This fixed WLL deployment will include areas outside AT&T_s wireline footprint and areas within that footprint that currently do not receive the U-verse broadband and video bundle.
2 Joyce Wang, Netflix Talks AT&T-DirecTV, Plans Programming Boost, Cablefax (May 21, 2014), http://www.cablefax.com/programming/netflix-talks-att-directv-plans-programming-boost.
In addition, the combined company_s integrated video, broadband, and mobile operations will better position it to meet consumers_ evolving entertainment preferences  whether traditional MVPD or on-demand OTT video services  on any screen: TV, tablet, smartphone, or PC. As a much more attractive distributor for content providers, the combined company will gain improved access to content rights and be able to bring that content to consumers where and when they want.
The Transaction Will Enhance Competition. Because the products and assets of the merging companies are primarily complementary, economic theory predicts that this transaction will put strong downward pressure on the prices for the combined company_s bundled products. That, in turn, will trigger competitive responses from competing cable providers, to the further benefit of consumers.
· There will be significant downward pressure on the prices of the new integrated bundles of AT&T broadband and DIRECTV video, even without factoring in the improved quality such bundles will offer consumers.
· There will also be downward pressure on the prices of cable bundles and standalone broadband and video products offered by cable operators.
· Any upward pressure on the prices of standalone video or broadband offered by the merged firm will be significantly outweighed by the downward pressure on the prices of bundles of AT&T broadband and DIRECTV video that will now be available at improved quality and attractive prices.
· The net effect on consumer surplus will be positive  again before one factors in the first dollar of cost savings or the first effect of an improved product offering.
Put differently, econometric analysis confirms that, even before efficiencies are considered, the combination of AT&T and DIRECTV will create a pro-competitive, integrated bundle of video and broadband services that provokes a beneficial competitive reaction from cable and results in a demonstrable overall net benefit to consumers. Then, when the significant and merger-specific efficiencies resulting from this transaction are considered, as they must be, the outcome reveals even greater benefits for consumers.
These quantitative projections follow from the market facts. Because it lacks a broadband service and thus cannot offer its own bundle of broadband and video, DIRECTV competes most effectively for standalone video consumers. AT&T, by contrast, focuses on its broadband business, and overwhelmingly delivers video only as part of such bundles and only in the limited areas where its U-verse video service is deployed. Indeed, AT&T_s video footprint covers fewer than one-quarter of U.S. households, and in that limited geography more than 97 percent of U-verse video customers buy that service bundled with broadband or other services. That leaves very few U-verse customers  approximately 138,000 in all  who buy video service on a standalone basis. As a result, AT&T focuses its U-verse video marketing efforts almost exclusively on bundles, and not on standalone video.
each other in character and pricing than either is to cable._3 Consumers who seek bundled MVPD and broadband services are not likely to be choosing between AT&T and DIRECTV: when customers drop the AT&T bundle, they largely switch to cable, not to satellite video providers such as DIRECTV.
Moreover, in that limited geographic overlap and for the declining base of customers who still choose to purchase video on a standalone basis, the combined company will continue to face significant competition from other existing facilities-based video providers. At a minimum, these competitors include the cable incumbent and one other satellite video provider (DISH). Increasingly, the competitors also include an additional fiber-based broadband service provider (_BSP_) or other wireline provider. Forward-looking merger analysis must recognize that MVPDs will also face ever-increasing competition from OTT services delivering content over broadband, including in areas where broadband is made available because of this transaction.
3 United States v. Echostar Communications Corp., No. 1:02CV02138, Complaint ¶ 39 (D.D.C. filed Oct. 31, 2002), available at http://www.justice.gov/atr/cases/f200400/200409.htm.
guaranteed prices, in areas where AT&T offers wireline broadband service today. Finally, with a more efficient video offering and the competitive nature of video services in general, the combined company will have a strong business incentive to market its standalone video services actively and price them competitively. Consistent with that incentive, AT&T will commit to offer, for three years after closing, standalone DIRECTV satellite video service at nationwide package prices that do not differ between customers in AT&T_s wireline footprint and customers outside the footprint.
Practices. AT&T will extend its best-in-class diversity practices to both DIRECTV_s employees and suppliers. AT&T also will continue its practice of working responsibly with the unions representing its workforce.
In sum, this transaction will enable the combined AT&T and DIRECTV to meet the challenges of this new competitive marketplace with improved services and bundles, foster increased competition in broadband and video, and give consumers better choices than are possible today from either company on a standalone basis. For these reasons, the transfer applications should be approved promptly.
4 See AT&T Inc., Annual Report (Form 10-K) at 1 (Feb. 21, 2014) (_AT&T 2013 10-K_).
Trends and Full Year 2014 Financial Guidance (June 3, 2014), http://about.att.com/story/att_provides_update_on_network_transformation_second_quarter_tren ds_and_full_year_2014_financial_guidance.html.
6 Investor Presentation, AT&T, AT&T to Acquire DIRECTV, at 6 (May 19, 2014), available at http://investor.directv.com/files/doc_presentations/ATT%20to%20Acquire%20DIRECTV.pdf.
2012), http://www.att.com/gen/press-room?pid=23506&cdvn=news&newsarticleid=35661&mapcode= (_Project VIP Press Release_).
internet.html (last visited June 9, 2014).
(June 10, 2014) (_Lee Decl._).
11 Press Release, AT&T, AT&T Eyes 100 U.S. Cities and Municipalities for its Ultra-Fast Fiber Network (Apr. 21, 2014), http://about.att.com/story/att_eyes_100_u_s_cities_and_ municipalities_for_its_ultra_fast_fiber_network.html (announcing expansion plans that could cover a total of 100 cities and municipalities).
12 AT&T, U-verse TV Support, HDTV Channels, http://www.att.com/esupport/article.jsp?sid=KB400591&cv=813#fbid=2x-hKz0Wiel (last visited June 9, 2014).
13 Lee Decl. ¶ 8.
9, 2014). Even in these areas, DSL cannot be offered to every address. Due to technical limitations, DSL is available only to households located within three miles of a central office. AT&T, High Speed Internet Support, http://www.att.com/esupport/article.jsp?sid=KB400183&cv=801#fbid=nED5VYWShmU (last visited June 9, 2014). In addition, AT&T has an extensive network of Wi-Fi hotspots, with more than 30,000 locations in sports stadiums, airports, universities, hospitals, and retail stores nationwide. AT&T, AT&T Wi-Fi Hotspots, http://www.att.com/esupport/article.jsp?sid=KB409042&cv=801#fbid=Lj5uv3VX6PK (last visited June 4, 2014).
15 AT&T Inc., Quarterly Report (Form 10-Q) at 27 (May 2, 2014).
https://www.att.com/Common/about_us/pdf/uverse_update.pdf (last visited June 9, 2014).
17 Lee Decl. ¶ 12.
18 AT&T, U-verse Update: 1Q14, available at https://www.att.com/Common/about_us/pdf/uverse_update.pdf (last visited June 9, 2014); Lee Decl. ¶ 12.
19 AT&T has recently announced a $500 million joint venture with The Chernin Group, to acquire, invest in, and launch OTT video services. See Press Release, AT&T, The Chernin Group and AT&T Create New Venture to Acquire, Invest In and Launch Online Video Businesses (April 22, 2014), http://about.att.com/story/the_chernin_group_and_att_create_new_venture_to_acquire_invest_in _and_launch_online_video_businesses.html.
20 Press Release, DIRECTV, DIRECTV Announces First Quarter 2014 Results (May 6, 2014), http://investor.DIRECTV.com/press-releases/press-release-details/2014/DIRECTV-Announces-First-Quarter-2014-Results/default.aspx.
21 HD local channels are available in areas covering over 99 percent of U.S. television households. DIRECTV, Annual Report (Form 10-K), at 3 (Feb. 24, 2014) (_DIRECTV 2013 10-K_).
22 DIRECTV, DIRECTV Bundles, http://www.DIRECTV.com/DTVAPP/content/packages/internet (last visited June 4, 2014). Post-closing, AT&T expects to continue DIRECTV_s contracts with third-party bundle partners to ensure as broad-based a distribution capability for the satellite video product as possible. See AT&T Inc. Acquires DIRECTV, Investor Presentation Transcript (May 19, 2014), http://www.sec.gov/Archives/edgar/data/732717/000119312514204989/d729683d425.htm (discussing post-transaction plans regarding DIRECTV synthetic bundle agreements with Verizon and CenturyLink).
23 DIRECTV 2013 10-K at 2.
http://about.att.com/story/att_to_acquire_directv.html (_AT&T/DIRECTV Transaction Press Release_); Declaration of Patrick T. Doyle, Executive Vice President and Chief Financial Officer DIRECTV ¶ 9 (June 10, 2014) (_Doyle Decl._).
26 Press Release, DIRECTV, DIRECTV Announces First Quarter 2014 Results (May 6, 2014), http://investor.DIRECTV.com/press-releases/press-release-details/2014/DIRECTV-Announces-First-Quarter-2014-Results/default.aspx.
28 DIRECTV 2013 10-K at 14, 16-17.
FCC Rcd 12,878 ¶ 17 (WTB 2013); Application of AT&T Inc. and Qualcomm Inc. for Consent to Assign Licenses and Authorizations, Order, 26 FCC Rcd 17,589, 17,601 ¶ 28 (2011) (_AT&T/Qualcomm Order_); Applications of AT&T Inc. and Cellco Partnership d/b/a Verizon Wireless for Consent to Assign or Transfer Control of Licenses and Authorizations and Modify a Spectrum Leasing Arrangement, Memorandum Opinion and Order, 25 FCC Rcd 8704, 8720 ¶ 29 (2010) (_Verizon/ALLTEL/AT&T Divestiture Order_); Applications of AT&T Inc. and Centennial Communications Corporation for Consent to Transfer Control of Licenses, Authorizations and Spectrum Leasing Arrangements, Memorandum Opinion and Order, 24 FCC Rcd 13,915, 13,931 ¶ 33 (2009) (_AT&T/Centennial Order_).
DIRECTV RB-2 a Satellite in the 17/24 GHz Broadcasting Satellite Service at the 102.825° W.L. Orbital Location, Order and Authorization, 24 FCC Rcd 9393, 9404 ¶ 27 (IB 2009); News Corporation and the DIRECTV Group, Inc., Transferors, and Liberty Media Corporation, Transferee, for Authority to Transfer Control, Memorandum Opinion and Order, 23 FCC Rcd 3265 (2008) (_News Corp./DIRECTV/Liberty Media Order_).
31 The number of AT&T shares to be received will be based on the volume-weighted average price of AT&T common stock on the 30 trading days prior to and including the third trading day prior to closing. If the average stock price is greater than $38.577, then the exchange ratio will be 1.724; if the average stock price is less than $34.903, then the exchange ratio will be 1.905; if the average stock price is between $38.577 and $34.903, then the exchange ratio will be equal to the quotient obtained by dividing (a) $66.50 by (b) the average stock price. AT&T Inc., Current Report (Form 8-K) (May 18, 2014).
32 47 U.S.C. § 310(d).
AT&T/Centennial Order, 24 FCC Rcd at 13,927 ¶ 27.
22 FCC Rcd 5662, 5692 ¶ 56 n.154 (2007) (_AT&T/BellSouth Order_).
35 47 U.S.C. § 310(d).
the public interest, result in no harms to competition, not violate any law or rule, require a waiver of a rule, or result in any unjust enrichment concerns. Nor will the transaction otherwise frustrate or undermine the Commission_s policies or enforcement of the Communications Act.
and structural challenges each faces in delivering broadband and video services in the forms consumers increasingly prefer. As a result, the combined company will be able to compete much more effectively against both the cable operators that dominate the provision of broadband and MVPD services and other emerging competitors.
More and more consumers want broadband bundled with their video services.
10 (2010); Applications for Consent to Transfer of Control of Licenses; XM Satellite Radio Holdings Inc., Transferor, to Sirius Satellite Radio Inc., Transferee, Memorandum Opinion and Order and Report and Order, 23 FCC Rcd 12,348, 12,364 ¶ 30 (2008).
link is the product of two principal underlying forces.
(_Nearly two-thirds (61%) of consumers consider Internet service as the foundation of their future digital lifestyle bundle. It is the most-frequently chosen service in consumers_ present and future digital lifestyle bundles._); Pew Research Center, The Web at 25 in the U.S., at 20-21 (Feb. 27, 2014), available at http://www.pewinternet.org/files/2014/02/PIP_25th-anniversary-of-the-Web_0227141.pdf (more adults would be very reluctant to give up the Internet than television (46 percent vs. 35 percent)); Mike Farrell, Time Warner Cable Steps Up Broadband Push, Multichannel News (Oct. 27, 2011), http://multichannel.com/news/orphan-articles/time-warner-cable-steps-broadband-push/126668 (Time Warner Cable_s former CEO Glenn Britt describing broadband as his company_s _anchor product_).
22 FCC Rcd 20,235 ¶ 20 (2007) (_MDU Order_).
Programming Tying Arrangements, First Report and Order, 25 FCC Rcd 746, 772 ¶ 36 (2010) (_2010 Program Access Order_) (_The Commission has previously concluded that a wireline firm_s decision to deploy broadband is linked to its ability to offer video._).
[END AT&T CONFIDENTIAL INFORMATION] video service, as well as a national video footprint[,]&will fundamentally and permanently shift the economics of investing in broadband. It will change how much and how fast broadband investment is justified and propel otherwise marginal capital-intensive broadband projects forward._); see also id. ¶ 41 (_AT&T_s expansion opportunities will always be limited by the expected return on investment that the company can obtain._).
41 2010 Program Access Order, 25 FCC Rcd at 765 ¶ 29 n.106; see also United States of America and State of New York v. Verizon Communications Inc., Cellco Partnership d/b/a Verizon Wireless, Case 12-cv-01354, Competitive Impact Statement, at 5 (D.D.C. filed Aug. 16, 2012) (stating that broadband and MVPD services are _commonly purchased together in bundles with one another_).
42 MDU Order ¶ 20; see also Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Fifteenth Report, 28 FCC Rcd 10,496, 10,538 ¶ 93 (2013) (_Fifteenth Video Competition Report_) (finding that _[t]he major cable and telephone MVPDs focus their marketing on bundles_).
43 Lee Decl. ¶ 13; see also Stankey Decl. ¶¶ 28-29.
44 Lee Decl. ¶ 13.
45 Doyle Decl. ¶ 19.
46 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, MB Dkt No. 14-16, Comments of DIRECTV, LLC, at 21-22 (filed Mar. 21, 2014) (_DIRECTV 16th Video Competition Report Comments_) (citing Tony Lenoir, Cable_s Triple-Play Penetration of Basic Video Subs Doubled in the Last 5 Years, SNL Kagan (Sep. 12, 2013)).
47 Lee Decl. ¶ 12.
48 Declaration of Rick L. Moore, Senior Vice President, AT&T Inc. ¶ 6 (June 10, 2014) (_Moore Decl._); Lee Decl. ¶ 18; see also Doyle Decl. ¶ 22.
49 Moore Decl. ¶ 14; Lee Decl. ¶ 19. See also Fifteenth Video Competition Report, 28 FCC Rcd at 10,529 ¶ 68 (_Economies of scale appear to produce cost advantages, especially with respect to the cost of acquiring programming and consumer premise equipment, and thus may play a major role in profitability and the willingness to enter the MVPD industry._); Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Fourteenth Report, 27 FCC Rcd 8610, 8643-44 ¶ 74 (2012); Implementation of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992, Statistical Report on Average Rates for Basic Service, Cable Programming Service, and Equipment, Report on Cable Industry Prices, 21 FCC Rcd 15,087, 15,095 ¶ 21 (2006) (_Cable operators sometimes can reduce their per-unit programming costs by increasing their subscriber reach._).
time-warner-cable-management-discusses-q2-2013-results-earnings-call-transcript (Time Warner Cable President and COO Robert Marcus stating: _With respect to your question about Comcast[_s] performance, . . . I think there are some benefits on the cost side that definitely derive from scale._); Time Warner Cable Management Discusses Q1 2012 Results, Earnings Call Transcript (Apr. 26, 2012), available at http://seekingalpha.com/article/531451-time-warner-cable-management-discusses-q1-2012-results-earnings-call-transcript (President and COO Robert Marcus noting that Time Warner Cable was _already enjoying the benefits of reduced programming costs_ due to scale following its merger with Insight Communications in 2011).
51 Lee Decl. ¶ 18; Stankey Decl. ¶ 15.
52 Lee Decl. ¶ 20; Stankey Decl. ¶ 15.
53 See Daniel Frankel, Adobe Study: TV Everywhere Users Up 157 Percent in Q1&Not Counting Olympics, Fierce Cable (June 5, 2014), http://www.fiercecable.com/story/adobe-study-tv-everywhere-users-157-percent-q1-not-counting-olympics/2014-06-05 (discussing Adobe_s Video Benchmark Report and its finding that TV Everywhere users increased 157 percent in Q1 2014 compared to Q1 2013).
54 See Declaration of Michael L. Katz ¶¶ 45-54 (June 11, 2014) (_Katz Decl._) (discussing the growing competitive significance of OTT providers).
55 Press Release, Parks Associates, Online Video the Most Important Video Source for Young Consumers (Mar. 20, 2014), https://www.parksassociates.com/blog/article/pr-mar2014-ott-webcast. In March 2014 alone, nearly 190 million Americans watched over 46 billion online content videos. See Press Release, comScore, comScore Releases March 2014 U.S. Online Video Rankings (Apr. 18, 2014), https://www.comscore.com/Insights/Press_Releases/2014/4/comScore_Releases_March_2014_U S_Online_Video_Rankings.
Combined, AT&T and DIRECTV can better meet these challenges than either could alone. The transaction provides each party with the missing bundle components needed to provide the integrated services consumers want and thereby allows them to better compete against the large cable operators that dominate the provision of these services. It will also enable the combined entity to address the increasing challenges posed by the rise of OTT and other forces.
56 Stankey Decl. ¶ 56.
57 See id. ¶¶ 23-25, 59.
58 Project VIP Press Release.
59 AT&T Inc., Quarterly Report (Form 10-Q) at 27 (May 2, 2014).
60 Comcast Corp., Quarterly Report (Form 10-Q) at 23 (Apr. 22, 2014).
of Licenses and Authorizations, MB Dkt No. 14-57, Public Interest Statement, at 25 (filed Apr. 8, 2014). This subscriber number takes into account planned divestitures to Charter that will grow Charter_s subscriber base to more than 8 million. Press Release, Comcast, Comcast and Charter Reach Agreement on Divestitures (Apr. 28, 2014), http://corporate.comcast.com/news-information/news-feed/comcast-and-charter-reach-agreement-on-divestitures.
62 Lee Decl. ¶ 29.
64 See id. ¶¶ 18-21.
challenging economics of AT&T_s MVPD service have undermined AT&T_s incentives to invest in further broadband expansion, and prevents AT&T from deploying U-verse with FTTP and FTTN technologies more broadly.65 Because content costs are closely tied to video subscriber scale,66 AT&T has only one reliable option to lower its content costs in a reasonable time frame to compete effectively with Comcast: expand its customer base significantly.
65 Stankey Decl. ¶¶ 7, 12, 39, 41.
66 Lee Decl. ¶¶ 19-20; Stankey Decl. ¶¶ 6, 14-16.
67 See DIRECTV Holdings LLC, Annual Report (Form 10-K) at 9 (Feb. 28, 2005) (identifying the _availability of a broadband Internet service_ as a _key element for gaining and maintaining market share._); Doyle Decl. ¶¶ 4, 15-18; Declaration of Paul Guyardo, Executive Vice President and Chief Revenue and Marketing Officer DIRECTV ¶¶ 5-6, 10-13 (June 10, 2014) (_Guyardo Decl._).
68 See DIRECTV, Sunday Ticket, http://www.directv.com/sports/nfl (last visited June 9, 2014); DIRECTV, DIRECTV Genie, http://www.directv.com/technology/genie (last visited June 9, 2014); Stankey Decl. ¶ 18.
of services arranged through arm_s-length agreements with a number of broadband providers. Indeed, since 2009, AT&T and DIRECTV have partnered to sell synthetic bundles consisting of DIRECTV satellite video and AT&T broadband and voice services.70 These arrangements are intended to enable the parties to compete with the integrated bundles offered by cable providers, drawing upon the parties differentiated and complementary strengths.
69 Doyle Decl. ¶¶ 5-6, 14-15, 25; Guyardo Decl. ¶¶ 7, 10-11, 16, 20. In his economic analysis, Dr. Katz notes the _diminishing_ value of a one-way network like DIRECTV_s and the challenges the company faces in adapting to the broadband-focused competitive environment. Katz Decl. ¶¶ 55-60. See also id. ¶ 4 (noting that DIRECTV_s satellite video network _has several competitive limitations as a standalone distribution platform_).
CONFIDENTIAL INFORMATION] Id. ¶ 51.
71 Because two companies have to earn a margin on the service, the size of the discount that can be offered is limited. See Guyardo Decl. ¶ 27. Dr. Katz_s analysis explains and confirms the effects of double marginalization on the AT&T/DIRECTV synthetic bundle arrangement. Katz Decl. ¶¶ 74-77. Dr. Katz further notes that the parties _have not been able to obtain a contractual solution to the double marginalization problem, and there is little reason to believe that such a solution is feasible as long as the parties remain separate entities._ Id. ¶ 76.
available from cable and telco providers with DOCSIS- and fiber-enabled networks._); id. at 25 (quoting the CEO of Comcast as saying, _DSL is the new dialup_).
73 When purchasing the bundle from DIRECTV, the customer must speak to two separate sales representatives to be quoted the _bundled price._ Guyardo Decl. ¶ 31. Likewise, each installation requires two separate appointments, with separate appointment windows and almost always on different days. Id. ¶ 32. Similar problems arise when repairs are necessary or other customer service issues arise. See id. ¶ 34.
74 Consumers expect a single bill when they order a _bundle,_ but DIRECTV and its broadband partners generally bill separately, often on separate schedules, which makes it hard for subscribers to confirm they are getting the proper discount. Guyardo Decl. ¶ 33; Lee Decl. ¶ 57. DIRECTV and AT&T have experienced similar limitations in their synthetic bundle arrangement. Id. ¶ 57.
75 Guyardo Decl. ¶¶ 20-21, 38; see also Doyle Decl. ¶ 25. AT&T likewise has experienced significant difficulties competing through synthetic bundles. Lee Decl. ¶¶ 49, 53-58. These results confirm economic theory, which predicts that misaligned incentives and divergent business strategies will make collaborating through contract both less efficient and less successful than an integrated operation. Katz Decl. ¶¶ 67-70.
76 Guyardo Decl. ¶ 20.
Trefis Team, Dish Network Sweeps H-Block Spectrum Auction For $1.56 Billion, Forbes (Mar.
http://online.wsj.com/news/articles/SB10001424127887324296604578175701069249008. DISH also has partnered with Sprint to develop a fixed wireless broadband product that it intends to deploy in Corpus Christi, Texas starting in mid-2014 and plans to expand to other regions. See Press Release, Sprint Corporation and DISH Network Corporation, Sprint and DISH to Trial Fixed Wireless Broadband Service (Dec. 17, 2013), http://newsroom.sprint.com/news-releases/sprint-and-dish-to-trial-fixed-wireless-broadband-service.htm. DISH_s CEO Charlie Ergen has said that _the company needs to package mobile wireless services with its pay-TV offerings to stay competitive with cable operators and phone companies that already can offer such bundles._ Anton Troianovski & Amy Schatz, FCC Deals a Setback to DISH_s Wireless Network Plans, Wall St. J. (Mar. 2, 2012), http://online.wsj.com/news/articles/SB10001424052970203753704577257873788617682.
products and new integrated bundles of broadband/video services. The transaction, moreover, will generate substantial cost savings and other synergies. As a result, the combined company will be able to deliver more value to consumers and provide stronger competition to cable bundles. All of this, in turn, will enable the combined company to expand its deployment of both wireline and fixed WLL broadband to millions of additional locations. The transaction will position the combined company to meet consumers_ evolving video preferences and, in particular, to propel the development of new OTT products.
Corporation and AT&T Corp., Transferors, to AT&T Comcast Corporation, Transferee, Memorandum Opinion and Order, 17 FCC Rcd 23,246, 23,262, 23,315 ¶¶ 45, 178, 182 (2002) (_AT&T/Comcast Order_) (content cost savings); Applications Filed by Frontier Communications Corp. and Verizon Communications Inc for Assignment of Transfer of Control, Memorandum Opinion and Order, 25 FCC Rcd 5972, 5994-95 ¶¶ 55-56 (2010) (recognizing public benefit of improved service quality to rural areas).
79 Stankey Decl. ¶ 64.
The proposed transaction will internalize complementarities between the parties_ offerings. As separate companies, each party does not take into account the impact of its actions (including pricing, marketing, and customer service) on the profits of the other party. Post-transaction, these effects would be internalized&. The internalization of the positive externalities each party_s actions confer on the other would lead to greater incentives to promote and market their complementary products and to provide high-quality customer care. In addition, the transaction would facilitate the realization of economies of scale and the combination of complementary assets, which would strengthen the combined company_s incentive and ability to engage in various forms of product innovation and improvement.
¶¶ 67, 86 (2013) (stating same, and recognizing that the applicants _would be able to repackage [wireless] plans with their wireline services&to create new products_).
83 Stankey Decl. ¶ 19.
84 Id. ¶ 20; Katz Decl. ¶¶ 122-23.
85 Stankey Decl. ¶ 21.
87 See Section V.A, above; Lee Decl. ¶ 12 (_[M]ore than 97 percent of U-verse video subscribers purchase video as part of a bundle of services that also includes one or more of wireline broadband, wireline voice, and wireless service Approximately 66 percent of our U-verse video subscribers take bundles of three or four services (known as a _triple play_ or _quad play_)._); Guyardo Decl. ¶¶ 10-11, 16 (discussing DIRECTV_s experience that its inability to offer an integrated bundle of broadband and video capabilities diminishes its competitiveness in today_s marketplace); Doyle Decl. ¶¶ 15-17 (discussing consumer demand for integrated bundles and the impact that has on DIRECTV).
88 Lee Decl. ¶ 13; see also Guyardo Decl. ¶¶ 21, 32-34.
89 Doyle Decl. ¶ 19.
broadband to 15 million customer locations.
90 As explained by Dr. Katz, economic theory also indicates that _because the merger will internalize complementarities, the merged company can be expected to offer a bundle superior to those that they offer through their existing joint marketing arrangement._ Katz Decl. ¶ 62.
92 As discussed above in Section II.A, AT&T offers video service only in areas where it has deployed U-verse FTTN and FTTP architectures. In the portions of its wireline footprint where AT&T has deployed IPDSL high-speed broadband or DSL broadband, AT&T does not offer an AT&T video product or an integrated video/broadband bundle.
93 Stankey Decl. ¶ 29.
94 Project VIP Press Release.
In addition, consumers nationwide will have access to an attractive integrated bundle of DIRECTV_s video service and AT&T_s mobile broadband offerings.95 AT&T_s state-of-the-art LTE wireless network soon will reach about 300 million Americans and provides a powerful broadband platform.96 This new service bundle will cater to the substantial number of consumers who watch video on mobile devices. By combining two nationwide services, this transaction will create more robust competition to cable for most Americans.
Most importantly, the transaction will expand the competitive options for the many consumers who currently can choose only cable_s integrated broadband/video bundle. Existing DIRECTV customers will be able to keep their video service and add on a competitive high-speed broadband and mobile service provided by the same company. And AT&T mobile broadband customers outside of U-verse video areas will now have access to a premier MVPD service, also from a single company.
95 Stankey Decl. ¶ 30.
96 Project VIP Press Release.
reduced prices, improved offerings, new services and capabilities, or a combination of these.97 As in prior transactions, these transaction-specific cost savings are significant public interest benefits.98 Moreover, as discussed below in Section VI.C, these cost savings and other benefits of the transaction will facilitate the additional broadband deployment to which AT&T is committing.
97 Katz Decl. ¶ 118 (_Economic logic clearly indicates that the parties, which do face competition, would have incentives to pass through some or all of the marginal cost reductions. Therefore, consumers will benefit from lower prices as a result of the content cost savings._).
98 AT&T/Centennial Order, 24 FCC Rcd at 13,959, 13,960 ¶¶ 106, 108; Applications of Cellco Partnership d/b/a Verizon Wireless and Atlantis Holdings LLC for Consent to Transfer Control of Licenses, Authorizations, and Spectrum Manager and De Facto Transfer Leasing Arrangements, Memorandum Opinion and Order and Declaratory Ruling, 23 FCC Rcd 17,444, 17,512-15 ¶¶ 147-56 (2008); Applications of AT&T Inc. and Dobson Communications Corporation for Consent to Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 22 FCC Rcd 20,295, 20,334-35 ¶¶ 82-84 (2007).
Kagan (Feb. 6, 2014) (noting that _programming costs continue to outpace the rate of inflation, especially [for] sports and retrans_); Robin Flynn, U.S. Multichannel Subscriber Update and Programming Cost Analysis, SNL Kagan (June 2013), available at http://go.snl.com/rs/snlfinanciallc/images/SNL-Kagan-US-Multichannel-Subscriber-Update-Programming-Cost-Analysis.pdf (_programming expenses have been rising quickly due to rising retransmission fees, the additional expense of TV Everywhere and multiplatform agreements, escalating costs for cable network programming (again, sports in particular), and additional channel launches_). The Commission has long recognized this trend. See, e.g., Fifteenth Video Competition Report, 28 FCC Rcd at 10,529 ¶ 69; Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Tenth Annual Report, 19 FCC Rcd 1606, 1628-29 ¶ 29 (2004); Implementation of Section 19 of the Cable Television Consumer Protection & Competition Act of 1992 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, First Report, 9 FCC Rcd 7442, 7453 ¶ 24 (1994).
aggregators. Lee Decl. ¶ 21.
101 For example, when retransmission consent fee negotiations between Time Warner Cable and CBS broke down in August 2013, Time Warner Cable dropped CBS from several of its systems  including those serving New York City, Los Angeles, and Dallas  for an entire month. Time Warner Cable lost over 300,000 customers in that quarter. See Anthony Crupi, Time Warner Cable Pulls the Plug, Adweek, August 2, 2013, http://www.adweek.com/news/television/time-warner-cable-pulls-plug-cbs-151665; Anthony Crupi, CBS Blackout Took a Bite Out of Cable Earnings, Operator Loses 306,000 Subs, $122 million, Adweek, October 31, 2013, http://www.adweek.com/news/television/cbs-blackout-took-bite-out-time-warner-cable-earnings-153525. Programming disputes like this are occurring more often, and they usually harm consumers through prolonged blackouts, higher prices, and sometimes fewer choices. In 2013, there were 127 blackouts of broadcast programming, compared to 96 in 2012, 51 in 2011, and 12 in 2010. See DIRECTV 16th Video Competition Report Comments at 23 n.101.
102 See Lee Decl. ¶ 20.
103 Moore Decl. ¶ 15; see also Stankey Decl. ¶ 22. Dr. Katz_s analysis also finds that economic theory supports the projected content cost savings. Katz Decl. ¶¶ 110-119.
[END AT&T HIGHLY CONFIDENTIAL INFORMATION] because of the company_s increased scale._).
105 Moore Decl. ¶ 16. 106 Id. ¶ 18.
107 See Katz Decl. ¶¶ 118-19; Stankey Decl. ¶¶ 22-23. 108 Moore Decl. ¶ 15.
significant cost savings, the combined company will decrease its expenses in other ways as well.
109 Stankey Decl. ¶¶ 24-25; Katz Decl. ¶¶ 115-17.
[END AT&T HIGHLY CONFIDENTIAL INFORMATION] Moore Decl. ¶¶ 15-16.
111 Moore Decl. ¶ 21.
112 Id. ¶ 23. 113 Id. ¶ 23.
114 Id. ¶ 25. _Super hub offices_ are where video programming is gathered and redistributed to network facilities for delivery to subscribers.
116 Id.; see also Katz Decl. ¶¶ 104-06 (discussing efficiencies related to customer care). 117 Moore Decl. ¶ 25.
Moreover, both parties will obtain additional marketing and sales channels through the merger. AT&T will be able to market AT&T Mobility products to existing DIRECTV subscribers, as well as use DIRECTV_s retail distribution network to market those services.119 Similarly, DIRECTV will be able to utilize AT&T retail distribution channels to expand consumer access to DIRECTV video products.120 The combination of AT&T_s and DIRECTV_s respective expertise and technological capabilities, as discussed below in Section VI.D, also is likely to result in further cost savings and consumer benefits. Together, these efficiencies will create a better experience for both U-verse video and satellite video customers.
119 Id. ¶ 29; Katz Decl. ¶ 108.
120 Moore Decl. ¶ 29; Katz Decl. ¶ 108 (noting that marketing efficiencies from the combination of retail channels _will increase the competitive pressure on rival providers, to consumers_ benefit._).
121 AT&T/DIRECTV Transaction Press Release. This includes the 57 million customer locations that will receive U-verse broadband (FTTP, FTTN or IPDSL) as part of Project VIP as well as 13 million customer locations to be covered by the fixed WLL product. Id.; Project VIP Press Release.
122 See 47 U.S.C. § 706; Connecting America: The National Broadband Plan at 135 (2010), available at http://download.broadband.gov/plan/national-broadband-plan.pdf (_Everyone in the United States today should have access to broadband services supporting a basic set of applications that include sending and receiving e-mail, downloading web pages, photos and video, and using simple video conferencing._).
123 Connect America Fund, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd 17663, 17,681 ¶ 51 (2011) (_Connect America Fund Order_).
124 See, e.g., Oversight of the Federal Communications Commission Before the Subcommittee on Communications and Technology Committee on Energy and Commerce, 113th Cong. 5 (2014) (Statement of Tom Wheeler, Chairman, Federal Communications Commission) (_we must make sure that we do not stand idly by and allow a new digital divide to open up in rural America_); Connect America Fund Order, 26 FCC Rcd at 18,411 (statement of Mignon L. Clyburn, Commissioner, Federal Communications Commission) (Rural Americans _need and deserve reliable fixed as well as mobile broadband in order to thrive. Without this critical broadband infrastructure, rural Americans would be forever left behind._); Remarks of Commissioner Jessica Rosenworcel at Rural Telecom Industry Meeting & Expo at 4 (Feb. 4, 2013) (_as a matter of public policy, we must make sure that modern communications are available in urban America, rural America, and everything in between_); Opening Remarks of Commissioner Ajit Pai at Rural Broadband Roundtable (Sept. 6, 2012) (_If we want to revitalize rural America, encouraging rural broadband deployment needs to be a top priority._); Senate Commerce, Science and Transportation Committee, Hearing on Federal Communications Commission and Federal Trade Commission Nominations, CQ Transcriptions (Sept. 18, 2013) (official version not yet printed) (Testimony of Michael O_Rielly, Commissioner, Federal Communications Commission) (_I_d want to work with the members of this committee and the commission and all stakeholders to correct any deficiencies that may exist so that broadband is provided throughout our nation._).
125 Joyce Wang, Netflix Talks AT&T-DirecTV, Plans Programming Boost, Cablefax (May 21, 2014), http://www.cablefax.com/programming/netflix-talks-att-directv-plans-programming-boost.
126 Stankey Decl. ¶¶ 38-45; Katz Decl. ¶¶ 126-133 (discussing how the proposed transaction will increase AT&T_s incentives to deploy wireline broadband).
127 AT&T/DIRECTV Transaction Press Release.
128 Stankey Decl. ¶ 46.
CenturyLink_s commitments to expand broadband deployment to unserved areas, including rural communities, with specific buildout milestones and speeds offers _public interest benefits_ and that _private-sector investment in broadband, and the competition it will promote among providers, is critical to ensuring a healthy and innovative broadband ecosystem and to encouraging new products and services that benefit American consumers and businesses of every size_); SoftBank/Sprint Order, 28 FCC Rcd at 9682 ¶ 102 (finding that the likely accelerated deployment of advanced mobile broadband services constituted a public benefit and would _support [the Commission_s] goal of expanding mobile broadband deployment throughout the country_); Comcast/NBCU Order, 26 FCC Rcd at 4333 ¶ 233 (finding that Applicants_ commitments to expand broadband deployment to reach approximately 400,000 additional homes in unserved areas, including rural communities _will lead to greater broadband demand, deployment and adoption, and thus adopt them as conditions so that the public will realize these considerable benefits_).
Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act, Eighth Broadband Progress Report, 27 FCC Rcd 10,342, 10,344 ¶ 1 (2012) (finding _that approximately 19 million Americans live in areas still unserved by terrestrial-fixed broadband_).
Wireless_s HomeFusion product using Verizon_s wireless LTE network to provide residential broadband _could increase broadband competition and expand broadband availability, especially in rural areas and other areas where consumers currently have few choices among broadband providers_).
134 Stankey Decl. ¶ 48.
136 Id. ¶ 49. Customers located closer to the cell tower will experience greater speeds. Id.
137 Id. ¶¶ 48-49. 138 Id. ¶ 53.
139 Id. ¶ 54. These _rural areas_ are locations with less than 250 people per square mile. Id. 140 Id. ¶ 55.
involved, including the difficulty of predicting the useful life of a fixed WLL deployment given that customers in the future may expect higher speeds than fixed WLL can deliver.145 This transaction favorably alters the economics of deploying fixed WLL services for AT&T.146 It provides an efficient and competitive multichannel video offering outside of the U-verse footprint that AT&T can bundle effectively with the fixed WLL broadband service and VoIP. Because this bundle will be a compelling offering, it will attract significantly more subscribers with lower churn than a fixed WLL broadband offering would on its own.147 This greater penetration, in turn, will provide a sufficient expected return on the massive upfront investment to justify devoting enormous capital resources to this deployment.
These are not mere projections of actions AT&T might take that could promote the public interest at some future point. AT&T is sufficiently confident that, as a result of this transaction, this deployment will make business sense that it has committed to complete the investment within four years of the transaction_s closing and to offer fixed WLL broadband service to approximately 13 million largely rural customer locations that otherwise would not have been reached by its wireline broadband services.
146 Id. ¶ 52; Katz Decl. ¶¶ 134-135 (discussing how the proposed transaction will increase AT&T_s incentives to deploy fixed WLL). In addition to the increased scale and lower costs discussed above, the transaction will add DIRECTV_s installation capability to AT&T_s team, which further improves the economics of fixed WLL deployment. Stankey Decl. ¶ 36.
147 Stankey Decl. ¶ 52; Section VI.A, above.
148 AT&T/BellSouth Order, 22 FCC Rcd at 5769 ¶ 214 (2007) (quoting GM/Hughes/News Corp. Order, 19 FCC Rcd at 619 ¶ 342 (2004)).
149 See AT&T/Comcast Order, 17 FCC Rcd at 23,317 ¶184 (stating that _[t]he development and deployment of new technologies often entails a significant up-front, fixed investment_ and that _[t]he merged company should have a greater ability to spread those fixed costs across a larger customer base, which should in turn foster incentives for investment by the merged entity_); GM/Hughes/New Corp. Order, 19 FCC Rcd at 620 ¶ 344 (_[T]he transaction is likely to enable the merged entity to achieve certain economies of scale and scope, particularly in R&D, that absent the transaction the parties individually could not have achieved._); AT&T/BellSouth Order, 22 FCC Rcd at 5769 ¶ 214 (_by broadening its customer base, the merged entity will have an increased incentive to engage in basic research and development._).
allows consumers to record five different HD programs simultaneously.151 It also offers the GenieGo product, which allows customers to download or stream content recorded on the Genie DVR for playback on many portable devices.152 Moreover, the company is now working to develop the facilities necessary to offer _Ultra HD_ programming.153 For its part, AT&T, working largely through AT&T Labs, has a history of telecommunications innovations dating back more than 135 years, world-class wireline and wireless networks, and a track record of developing and marketing new technologies.154 Its state-of-the-art, nationwide 4G LTE wireless network provides the platform to deliver the innovative mobile video services that will be part of the next generation of video content delivery. AT&T also has built its MVPD service from scratch, using an IP-based video platform that relies on VDSL technology over its broadband network.155 AT&T_s combination of broadband and wireless expertise will complement DIRECTV_s video expertise, allowing the combined company to better compete in the evolving video marketplace.
153 Stankey Decl. ¶ 32; Alan Breznick, DIRECTV Preps for 4K, LightReading (Nov. 13, 2013), http://www.lightreading.com/cable-video/video-services/DIRECTV-preps-for-4k/d/d-id/706586. 154 See AT&T, AT&T Labs: 135 Years of Innovation, http://www.att.com/gen/press-room?pid=22387 (last visited June 9, 2014).
155 Stankey Decl. ¶ 11.
159 Id. ¶¶ 9, 23, 59; Katz Decl. ¶ 121.
providers can follow their potential viewers, wherever they are and whatever device they use.160 The transaction also gives the combined company the freedom and flexibility to evolve with consumer demand, and to develop OTT offerings tailored to consumer desires however they develop.161 And those innovative OTT arrangements will, in turn, allow the combined company to compete more effectively against its cable and other video and broadband competitors.
160 Stankey Decl. ¶¶ 9, 23, 59; Katz Decl. ¶ 121 (_[A] content owner may want to license web or mobile distribution rights to only one company, and would prefer to partner with a company that has a large video service subscriber base. Or, a content owner may prefer reaching agreements with a distributor that can support a wide array of consumer devices and multi-screen strategy.
161 Stankey Decl. ¶ 60.
162 Id. ¶ 63; see also Katz Decl. ¶ 120 (_The increased supply of original programming will benefit consumers directly through the availability of new programming and indirectly by increasing competitive pressures on other video providers and content creators._).
163 Stankey Decl. ¶¶ 18, 62.
All of the public interest benefits described above will be driven by efficiencies inherent in the transaction, combined with AT&T_s need to meet the evolving demands of the marketplace. AT&T, however, has also resolved to make specific commitments to ensure that the key public benefits of the transaction are realized.
First, as described above, AT&T will use the cost savings and other synergies from the transaction to expand and enhance high-speed broadband service to 15 million customer locations, mostly in underserved rural areas where AT&T does not today provide high-speed broadband service. The expansion will rely on a combination of technologies, including FTTP and fixed WLL capabilities. This commitment, to be completed within four years after the transaction closes, goes beyond the GigaPower and Project VIP broadband expansion plans AT&T has already announced.
Second, in areas where AT&T currently offers wireline IP broadband service, the combined company will, for three years after closing, continue to offer standalone wireline broadband service at reasonable market-based prices, including a service with speeds of at least 6 Mbps down (where feasible) at a 12-month price no greater than $34.95 per month (provided that the price can be increased by no more than any increase in the Consumer Price Index for All Urban Consumers (CPI-U) for Communications every 12 months starting 12 months following deal close). This commitment will guarantee benefits for those customers who want only a broadband service and may choose to consume video through OTT services like Netflix or Hulu.
INFORMATION] video offering and the competitive nature of video services in general, the combined company will have a strong incentive to offer low-priced and innovative video packages both in- and out-of-region, particularly in areas where AT&T lacks fixed WLL broadband facilities. Consistent with that incentive, the combined company will offer, for three years after closing, standalone DIRECTV satellite video service at nationwide package prices that do not differ between customers in AT&T_s wireline footprint and customers outside the footprint. Through this commitment, the combined company will ensure that in-region customers who do not want a video/broadband bundle will benefit from this same incentive.
The proposed transaction combines highly complementary assets. That means both that the competitive interaction between the parties is relatively limited and that the transaction will generate strong pro-competitive benefits.
165 Preserving the Open Internet, Report and Order, 25 FCC Rcd 17905 (2010) (_Open Internet Order_).
166 The transaction also does not alter AT&T_s plans to participate meaningfully in the FCC_s planned spectrum auctions later this year and in 2015. AT&T intends to bid at least $9 billion in connection with the 2015 incentive auction, provided there is sufficient spectrum available in the auction to provide AT&T a viable path to at least a 2x10 MHz nationwide spectrum footprint.
companies (_telcos_), and BSPs. DIRECTV, however, lacks the broadband infrastructure to offer an integrated bundle of broadband and video services. Its synthetic bundles are _clearly at a substantial disadvantage,_167 and, with increasing frequency, DIRECTV loses customers interested in bundles to other providers.168 Thus, the combination of DIRECTV and AT&T does not diminish competition for bundled services. Instead, it will allow the combined firm to provide an integrated bundle to far more customer locations than AT&T currently serves in its limited U-verse video footprint. This will create strong downward pressure on the prices of the newly created integrated bundles and, in turn, on the prices of bundles and standalone products offered by cable competitors.
Moreover, transaction-specific efficiencies will make it possible for AT&T to expand and enhance wireline and fixed wireless broadband deployments, which will likewise expand competition.
167 DIRECTV 16th Video Competition Report Comments at 25. 168 See Guyardo Decl. ¶ 11; see also Section V.B, above.
energy on broadband and bundles, while DIRECTV focuses its energy on standalone video. Thus, the combination of the two firms will not materially lessen competition for video consumers, including those who currently purchase video on a standalone basis.
To the contrary, post-merger DIRECTV must continue to innovate and compete aggressively to sell its video services. That is because those services will be the combined company_s sole video offering outside the limited geographic area where both companies currently offer video service. Although DIRECTV_s nationwide video service is available to nearly all of America_s households,169 AT&T offers U-verse video service in only certain areas within AT&T_s 22-state wireline footprint and currently reaches approximately 27 million customer locations.170 Everywhere else, AT&T and DIRECTV do not compete, and this lack of geographic overlap further ensures that the combined company will maintain incentives to offer competitive standalone video.
169 DIRECTV 2013 10-K at 3 (DIRECTV _provide[s] local channel coverage to markets covering over 99% of U.S. television households_); Fifteenth Video Competition Report, 28 FCC Rcd at 10,509-10 ¶ 33 and tbl.1 (estimating that at year end 2011, DIRECTV was available to nearly all of the 132.5 million US homes).
170 AT&T 2013 10-K at 3.
171 See Lee Decl. ¶ 26.
172 Katz Decl. ¶¶ 3-5, 71.
173 Id. ¶¶ 94-95, 139.
174 Id. ¶¶ 85-90, 92-94.
combined company to offer innovative and competitively-priced video packages.175 Moreover, consistent with its incentive to offer standalone products on competitive terms in response to the competition it will face, the combined company will commit to offer, for three years after closing, standalone DIRECTV satellite video service at nationwide package prices that do not differ between customers in AT&T_s wireline footprint and customers outside the footprint. This commitment will further address any concerns regarding the transaction_s impact on standalone video consumers. As a result, those consumers seeking bundled services will benefit from intensified competition, while those seeking standalone video will continue to enjoy the options of purchasing that service from the combined firm or from multiple other sources, including OTT providers.
175 Lee Decl. ¶ 26.
176 Katz Decl. ¶¶ 66-67, 71, 73-77, 82-83, 85-95; see also Section VI.A.3, below.
177 Lee Decl. ¶¶ 22-23.
178 Fifteenth Video Competition Report, 28 FCC Rcd at 10,538 ¶ 93.
179 Xfinity X1 Triple Play - Multiplex - TV Commercial, YouTube, (Apr. 30, 2014), http://www.youtube.com/watch?v=5lYfv1_h-ZM (_Today, you might be missing out with satellite and slow DSL, but tomorrow you could turn your living room into a multiplex [with Comcast Xfinity]._).
180 Drop Satellite and Move to XFINITY  testimonial, YouTube, (Dec. 17, 2013) http://www.youtube.com/watch?v=D4p8yw19iBk.
181 Fifteenth Video Competition Report, 28 FCC Rcd at 10,538-39 ¶ 93 (_The major cable and telephone MVPDs focus their marketing on bundles&.In contrast, the two DBS MVPDs focus their marketing on video services, in part, because the satellite technology they use for delivering video programming limits their ability to provide non-video (i.e., Internet access and telephone) services._); MDU Order, 22 FCC Rcd at 20,244 ¶ 17. (_Notably, our most recent Cable Price Survey Reports show that the presence of a second wire-based MVPD competitor clearly holds prices down more effectively than is the case where DBS is the only alternative._).
and the lack of rivalry between them.
AT&T_s focus on bundles and the close competition with cable is borne out by the data.
182 2010 Program Access Order, 25 FCC Rcd at 765 ¶ 29 (2010).
183 Lee Decl. ¶¶ 12, 16, 25.
187 See id. ¶¶ 31-33, 38.
188 See id. ¶¶ 31, 38 n.12.
189 See id. ¶¶ 31-33.
visited June 9, 2014). Cox Communications has also just announced a commitment to invest _hundreds of millions of dollars_ on a rollout of a gigabit broadband offering to residential customers. Shalini Ramachandran Cox Joins Push for Ultrafast Broadband, Wall St. J. (May 22, 2014).
191 Google Fiber, Gigabit + TV Plan, https://fiber.google.com/cities/kansascity/channels/ (last visited June 9, 2014).
192 Scott Canon, Within Its Fiberhoods, Google Rules the Roost, Survey Finds, Kan. City Star (May 6, 2014), http://www.kansascity.com/2014/05/06/5006147/survey-google-fiber-selling-well.html; Scott Canon, Google Fiber Begins Sign-ups for More Parts of the KC Area, Kan. City Star (Mar. 10, 2014), http://www.kansascity.com/2014/03/11/4880343/google-fiber-begins-sign-ups-for.html.
193 Google Fiber, Google Fiber Is Looking to Come to Austin, TX, https://fiber.google.com/cities/austin/ (last visited June 9, 2014); Google Fiber, Hello, Provo, https://fiber.google.com/cities/provo/#header=check (last visited June 9, 2014); Jeff Baumgartner, Google Fiber Sets More Service Sign-up Deadlines in Provo, Multichannel News (Mar. 25, 2014), http://www.multichannel.com/news/distribution/google-fiber-sets-more-service-sign-deadlines-provo/338105.
194 Lee Decl. ¶ 34.
195 Scott Canon, Within Its Fiberhoods, Google Rules the Roost, Survey Finds, The Kansas City Star (May 6, 2014), http://www.kansascity.com/2014/05/06/5006147/survey-google-fiber-selling-well.html.
196 Milo Medin, Exploring New Cities for Google Fiber, Google Fiber Blog (Feb. 19, 2014), http://googlefiberblog.blogspot.com/2014/02/exploring-new-cities-for-google-fiber.html.
197 Stacey Higginbotham, Time Warner Cable Starts Offering 300 Mbps in Austin in June, Gigaom (May 21, 2014), https://gigaom.com/2014/05/21/time-warner-cable-starts-offering-300-mbps-in-austin-in-june/; Brandon Watson, It_s Official: Google Fiber Is Coming to Austin, The Austin Chronicle (Apr. 12, 2013), http://www.austinchronicle.com/news/2013-04-12/its-official-google-fiber-is-coming-to-austin/; Press Release, AT&T, AT&T U-verse with GigaPower to Reach Twice as Many Austin Households in 2014 Expansion (Jan. 22, 2014), http://www.prnewswire.com/news-releases/att-u-verse-with-gigapower-to-reach-twice-as-many-austin-households-in-2014-expansion-241466431.html; Press Release, Grande Communications, Grande Communications First to Launch Austin_s Most Affordable 1Gigabit Internet Service (Feb. 10, 2014), http://mygrande.com/press_news/press_release.php?pid=544.
198 Lee Decl. ¶ 37.
200 Id. ¶ 38 n.12.
201 WideOpenWest Finance, LLC, Annual Report (Form 10-K) at 44 (Mar. 17, 2014).
203 About Grande, Grande Communications, http://mygrande.com/about/ (last visited June 9, 2014).
204 Press Release, Grande Communications, Grande Communications to Provide Gigabit Fiber Service in Texas (May 14, 2014), http://mygrande.com/press_news/press_release.php?pid=554. 205 Consolidated Communications, Annual Report (Form 10-K) at 36 (Mar. 5, 2014).
9, 2014). CenturyLink serves approximately 5.6 million broadband customers in 37 states (22 in which U-verse offers service). CenturyLink, Annual Report (Form 10-K) at 3 (Feb. 27, 2014). Frontier Communications serves 385,400 video subscribers in 27 states, offering satellite video services through bundles with DISH and fiber optic -based video services in three states. Of the 27 states where Frontier operates, AT&T offers U-verse service in 16. Frontier Communications, Annual Report (Form 10-K) at 7 (Feb. 27, 2014). In December 2013, Frontier contracted to acquire AT&T_s wireline assets in Connecticut, including its U-verse business, to add roughly 180,000 video subscribers to its portfolio. Id. at 3.
207 Brian X. Chen, Verizon Wireless Prepares Network for TV Broadcasting, N.Y. Times Bits Blog (Jan. 31, 2014), bits.blogs.nytimes.com/2014/01/31/verizon-lte-multicast/?_php=true&_type=blogs&_r=0; Press Release, Sprint, Sprint and DISH to Trial Fixed Wireless Broadband Service (Dec. 17, 2013), http://newsroom.sprint.com/news-releases/sprint-and-dish-to-trial-fixed-wireless-broadband-service.htm.
208 Trefis Team, Dish Network Sweeps H-Block Spectrum Auction For $1.56 Billion, Forbes (Mar. 5, 2014); see also Anton Troianovski, Shalini Ramachandran, & Sarah Portlock, Dish Network Wins a $9 Billion Spectrum Prize, Wall St. J. (Dec. 12, 2012).
reduce competition for those consumers.
209 Press Release, Sprint Corp. and DISH Network Corp., Sprint and DISH to Trial Fixed Wireless Broadband Service (Dec. 17, 2013), http://newsroom.sprint.com/news-releases/sprint-and-dish-to-trial-fixed-wireless-broadband-service.htm.
210 See, e.g., DISH Network, Dish Anywhere, http://www.dish.com/technology/dish-anywhere/ (last visited June 9, 2014); DIRECTV, DIRECTV Mobile Apps, http://www.directv.com/technology/mobile_apps (last visited June 9, 2014); Comcast, XFINITY, http://www.xfinitytv.comcast.net/apps (last visited June 9, 2014); ABC, ABC Apps, http://abc.go.com/shows/abc-apps (last visited June 9, 2014); CBS, CBS Mobile, http://www.cbs.com/mobile/ (last visited June 4, 2014).
211 Doyle Decl. ¶¶ 5-6, 14, 24-25; Guyardo Decl. ¶¶ 7, 16, 20-21. As noted above in n.77, DISH has also recognized this challenge and is attempting to address it through a variety of initiatives that would enable the company to provide integrated bundles of broadband and video in the future.
212 Guyardo Decl. ¶¶ 21-23, 27-29.
213 See Section V.B, n.73, above; see also Guyardo Decl. ¶¶ 31-34.
215 Guyardo Decl. ¶ 11.
216 Lee Decl. ¶ 30.
and scope of the combined company_s bundles and increase video/broadband competition within AT&T_s existing footprint.217 As explained more fully by Dr. Katz, within the areas where AT&T does not provide video service, AT&T and DIRECTV are not horizontal rivals.218 In these areas, the transaction is thus purely a combination of complementary products, which creates downward pressure on prices, even before taking efficiencies into account.219 This, in turn, will lead to a competitive response by rival providers of bundled services.220 All of that will benefit consumers.
217 Katz Decl. ¶¶ 71, 73-77, 82-83, 85-92; Sections VII.B-C, below. 218 Katz Decl. ¶ 73.
219 Id. ¶¶ 71, 73, 77, 85-92, 94-95. 220 Id. ¶¶ 3-4, 89, 91-93.
221 Id. ¶¶ 82-83, 85-92. 222 Id. ¶¶ 82.
223 Id. ¶¶ 33-36, 82; Guyardo Decl. ¶¶ 7, 18-21.
224 Katz Decl. ¶ 82.
decrease the customer service issues created by the arrangement and to improve the incentives for each side to promote and sell the service, but these have been of limited success. Guyardo Decl. ¶¶ 36, 38.
example, inefficiency is inevitable in part because of the well-recognized phenomenon of _double marginalization,_ i.e., the circumstance in which two firms with complementary products each add a mark-up to the final price of the combined product. These dual mark-ups result in a higher price and lower output than would result if both products were owned by a single firm.229 The AT&T/DIRECTV synthetic bundle is an example of this phenomenon: the discount for the synthetic bundle is smaller than the discount for the AT&T integrated bundle, and thus the price for the synthetic bundle is higher.
CONFIDENTIAL INFORMATION] Lee Decl. ¶ 59; Guyardo Decl. ¶ 37. Even if the parties were able to reach such an agreement, it would not fully avoid the difficulties inherent in a synthetic bundle. See Katz Decl. ¶¶ 68-69, 100-03.
229 Katz Decl. ¶¶ 67-68; see also Guyardo Decl. ¶ 27. 230 Katz Decl. ¶¶ 4, 69.
231 Id. ¶¶ 4, 97-99. 232 Id. ¶¶ 99-100.
233 Id. ¶ 82 (_By solving the double marginalization problem, the proposed merger will create downward pressure on the price of the AT&T/DIRECTV bundle._); id. ¶ 77 (_[T]he likely result of the merger_and the associated ability to overcome the limitations of the JMA_would be to lower the quality-adjusted price and expand the output of the AT&T/DIRECTV bundle._); see also id. ¶¶ 4, 71.
235 See id. ¶ 76 (_[T]he merger can be expected to result in the creation of additional bundles comprising AT&T mobile wireless services and DIRECTV_s video services, sold at prices less than the sum of the standalone product prices._); see also id. ¶¶ 4, 98.
237 Stankey Decl. ¶¶ 3, 6-8.
238 See also id. ¶¶ 3, 8, 39, 55.
239 Katz Decl. ¶¶ 3, 79 & nn.160-61, 88.
240 As Dr. Katz notes, any incentive the merged firm may have in theory to increase standalone video prices to drive consumers to its bundle offering would be limited and mitigated by several countervailing factors that instead create downward pricing pressure. Id. ¶¶ 78-79, 95.
241 Id. ¶¶ 5, 95, 109-110; see also Lee Decl. ¶ 26 (discussing post-transaction economic incentives to promote standalone video product).
242 Katz Decl. ¶ 79.
243 Id. ¶¶ 3, 79 & nn.160-61, 88. 244 Id. ¶¶ 4, 80, 88, 94-95.
245 Lee Decl. ¶ 11; see also Fifteenth Video Competition Report ¶ 93.
even wireless services from AT&T.246 In fact, AT&T is so focused on its broadband product that it is willing to sell the AT&T broadband/DIRECTV video bundle to help increase broadband sales, even within the U-verse video footprint.247 Not surprisingly, customers buying standalone video seldom choose AT&T, as evidenced by the previously noted overwhelming majority  more than 97 percent  of AT&T_s video customers who also purchase broadband or other services from the company.248 Consumers purchasing standalone video choose AT&T far less often than, for example, DIRECTV or DISH. This differentiation is not an arbitrary choice but rather flows fundamentally from the different kinds of assets that each company owns. AT&T provides U-verse video through a network leading to a wire to the home, and, by its nature, this network is capable of providing an integrated bundle offering. DIRECTV assets, in contrast, are designed to provide video services only.
246 Lee Decl. ¶ 16.
247 Id. ¶ 41 (_Both inside and outside our U-verse IPTV footprint, AT&T_s overriding strategic goal is to increase broadband sales by offering a bundle that includes broadband and video. That remains our goal even if it means the video component is not an AT&T product._).
249 Katz Decl. ¶ 81.
250 Lee Decl. ¶¶ 7, 12; Guyardo Decl. ¶ 5.
251 Katz Decl. ¶ 81.
252 Lee Decl. ¶ 39. In any case, virtually all AT&T video promotions are for bundled services, not standalone video. Id. ¶ 16.
253 See Guyardo Decl. ¶¶ 3, 43-45.
254 Katz Decl. ¶¶ 5, 79, 80-81, 88, 95.
255 See discussion above, Section V.A.
10555 ¶ 129 (_[C]able MVPDs accounted for 55.7 percent of MVPD subscribers at the end of June 2012._).
[END AT&T HIGHLY CONFIDENTIAL INFORMATION] Id. ¶ 30.
258 Press Release, DISH, DISH Network Reports First Quarter 2014 Financial Results, (May 8, 2014), http://dish.client.shareholder.com/releasedetail.cfm?ReleaseID=846394.
259 Fifteenth Video Competition Report, 28 FCC Rcd at 10,538-39 ¶ 93 (_The major cable and telephone MVPDs focus their marketing on bundles&. In contrast, the two DBS MVPDs focus their marketing on video services, in part, because the satellite technology they use for delivering video programming limits their ability to provide non-video (i.e., Internet access and telephone) services._).
260 Guyardo Decl. ¶ 4. 261 Lee Decl. ¶¶ 32, 38.
increasingly using their broadband connections to access OTT content. From the consumer standpoint, OTT video is low-cost, ubiquitous, and flexible; it is thus a highly popular substitute for, as well as a complement to, traditional standalone pay TV services.
262 See Grande Communications, Cable TV in San Antonio, http://mygrande.com/san-antonio/cable-tv-service/; id., Cable TV in Dallas, http://mygrande.com/dallas/cable-tv-service/; id., Cable TV in Midland, http://mygrande.com/midland-odessa/cable-tv-service/; id., Cable TV in Waco, http://mygrande.com/waco/cable-tv-service/; id., Cable TV in Austin, http://mygrande.com/austin/cable-tv-service/; id., Cable TV in Corpus Christi, http://mygrande.com/corpus-christi/cable-tv-service/; Consolidated Communications, Advanced Digital TV, http://www.surewest.com/DigitalTV/; RCN, Digital Cable TV in New York City, http://www.rcn.com/new-york/digital-cable-tv/services-and-pricing; RCN, Digital Cable TV in Chicago, http://www.rcn.com/chicago/digital-cable-tv/services-and-pricing; WOW!, Locations, http://www.wowway.com/home-map.
during the period covered by this Report. OVDs continue to expand the amount of video content available to consumers through original programming and new licensing agreements with traditional content creators. A few MVPDs now offer OVD services to non-subscribers. Some OVDs have invested in their own servers, content delivery networks, and other infrastructure to facilitate the delivery of video programming. Several technology companies, notably Amazon, Apple, Google, and Microsoft, are delivering end-to-end solutions of Internet infrastructure, software, devices, and video programming._); Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Notice of Inquiry, MB Dkt. No. 14-16 at ¶ 3 (rel. Jan. 31, 2014) (_More recently, most consumers have additional alternatives for delivered video programming from online video distributors_ offerings of video content over the Internet._).
264 Comcast/NBCU Order, 26 FCC Rcd at 4256 ¶ 41 (2011).
265 See Section V.A, above.
268 Guyardo Decl. ¶ 14.
270 Ronald Grover & Liana B. Baker, Exclusive: DIRECTV in Talks with Disney on Deal for Internet Rights, Reuters (Mar. 6, 2014), http://www.reuters.com/article/2014/03/06/us-directv-disney-idUSBREA242GU20140306.
271 DIRECTV, English Packages, http://www.DIRECTV.com/DTVAPP/new_customer/base_packages.jsp?ACM=false& (last visited June 9, 2014).
272 Doyle Decl. ¶ 23.
273 Press Release, AT&T, The Chernin Group and AT&T Create New Venture to Acquire, Invest In and Launch Online Video Businesses (April 22, 2014), http://about.att.com/story/the_chernin_group_and_att_create_new_venture_to_acquire_invest_in _and_launch_online_video_businesses.html.
274 See, Section VI.D, above; Stankey Decl. ¶¶ 9, 23, 59-63.
275 Steve Donohue, Verizon: Intel OnCue Acquisition Will Power New OTT Video Service, Next-gen FiOS TV Product, FierceCable (Jan. 21, 2014), http://www.fiercecable.com/story/verizon-intel-oncue-acquisition-will-power-new-ott-video-service-next-gen-f/2014-01-21.
276 Christina Warren, The Content Battle Heats Up: Comcast Launches Netflix Competitor, Mashable (Feb. 21, 2012), http://mashable.com/2012/02/21/comcast-streampix/.
277 Jeff Baumgartner, Comcast Nears Launch of Cloud-Powered X1 TV Streaming App, Multichannel News (Jan. 10, 2014), http://multichannel.com/news/content/comcast-nears-launch-cloud-powered-x1-tv-streaming-app/356522; Jeff Baumgartner, Comcast _X2_ Rollout is Underway, Multichannel News (Jan. 5, 2014), http://multichannel.com/news/technology/comcast-x2-rollout-underway/256248; Mike Stein, Comcast_s New _X1_ Service, Pondering TV, (Jan. 18, 2013), http://www.ponderingtv.com/2013/01/comcasts-new-x1-service.html (Comcast_s X1 and X2 platforms provide homebound and mobile OTT content to the company_s customers.).
278 Todd Spangler, Comcast Confirms Acquisition of FreeWheel, Eyeing Growth in Online Video Ads, Variety (Mar. 6, 2014), http://variety.com/2014/biz/news/comcast-confirms-acquisition-of-freewheel-eyeing-growth-in-online-video-ads-1201126803/.
279 Richard Lawler, Time Warner Cable Will Sell a $99 Fan TV Box That Streams Cable TV and Internet Video, Engadget (Apr. 22, 2014), http://www.engadget.com/2014/04/22/time-warner-cable-fan-tv/.
280 Press Release, DISH, The Walt Disney Company and DISH Network Sign Groundbreaking Long-Term, Wide-Ranging Agreement (Mar. 3, 2014), http://about.dish.com/press-release/financial/walt-disney-company-and-dish-network-sign-groundbreaking-long-term-wide-rang.
282 Nor will the transaction harm cord-cutters; they now can obtain OTT services from U-verse and cable, among others, and these options will remain after the transaction. Indeed, as noted above, the expansion of AT&T broadband and AT&T_s increased ability to negotiate expanded content rights will increase the OTT options available to consumers. See Section VI.D, above. 283 Lee Decl. ¶ 27; Guyardo Decl. ¶¶ 39-40.
particularly in areas where AT&T lacks fixed WLL broadband facilities. Consistent with that incentive, AT&T will commit to offer, for three years after closing, standalone DIRECTV satellite video service at nationwide package prices that do not differ between customers in AT&T_s wireline footprint and customers outside the footprint.
With this national pricing commitment in place, any post-transaction price increases for standalone video services in the overlap area would simultaneously risk losing standalone video profits in the much larger non-overlap area, where competition will remain constant.284 Because this transaction, by definition, will not reduce competition outside of the U-verse video footprint, linking pricing inside and outside the footprint ensures that consumers inside the footprint will not face higher prices as a result of the transaction.
284 Lee Decl. ¶ 27.
285 Doyle Decl. ¶¶ 5-6, 14, 25.
286 Katz Decl. ¶¶ 78, 84.
288 Id. ¶¶ 4, 84, 88-89.
290 Id. ¶ 88 & tbl. 2, 92 & tbl. 3.
291 Id. ¶¶ 84-85, 88, 90, 92, 94.
292 Stankey Decl. ¶ 4.
speeds AT&T can offer throughout most of its wireline network.293 This competitive dynamic provides a strong incentive for AT&T to keep its broadband prices as competitive as possible with cable.294 These incentives will remain equally strong after the merger.295 In addition, the number of households that receive all of their video from OTT services using a broadband connection is projected to increase over the next decade.296 Thus, the combined company will continue to have a strong incentive to compete against other broadband providers for standalone broadband customers: AT&T will have an ongoing need to meet the market demands for higher speed standalone broadband as a means of delivering OTT video.
after closing also will provide additional protections to consumers.
293 Lee Decl. ¶¶ 23-24, 32.
296 Stankey Decl. ¶ 56.
297 Id. ¶¶ 7, 33-36.
298 Katz Decl. ¶ 93.
· There will be significant downward pressure on the prices of the new integrated bundles of AT&T broadband and DIRECTV video, without regard to the improved quality such bundles will offer consumers.
299 Id. ¶¶ 85, 88-90, 92; see also id. ¶¶ 85 n.166, 86 (further describing the DMA-level nested-logit demand model employed by Dr. Katz for the econometric analysis).
300 The AT&T video footprint is defined as DMAs in which AT&T is the _leading telco_ and in which at least 10 percent of all households subscribe to a telco video offering. Id. ¶ 85 n.166. See also id. ¶¶ 85 n.166, 88, 92, 145 n.242 (further describing the scope of DMAs included in the econometric and simulation analyses).
301 Id. ¶¶ 87, 147.
302 Id. ¶ 87; see also id. App. I.
? The net effect on consumer surplus will be positive.
Based on this analysis, Dr. Katz concludes that _the overall effect of the merger is to increase consumer welfare, even in the absence of any efficiencies,_ with this result holding both inside and outside AT&T_s video footprint.303 When efficiencies are considered, the outcome is even more strongly beneficial to consumers.304 Further, Dr. Katz_s econometric calculation is a conservative one. For three reasons, it understates by a significant margin the amount of consumer benefit. First, it ignores the considerable merger efficiencies discussed in great detail above. Second, it leaves out of the calculations the very substantial consumer benefits generated by the transaction in areas outside of the AT&T video footprint, including a significant expansion of available broadband capabilities that would not occur but for this merger, where the two companies do not overlap at all. Indeed, Dr. Katz calculates that the consumer benefit outside of the AT&T footprint is even larger than the already substantial benefit inside the footprint.305 And third, it does not take account of the quality improvements enabled by the transaction. Thus, even the very conservative econometric analysis performed by Dr. Katz reflects the significant consumer benefits generated by this transaction.
304 Id. ¶¶ 85, 92.
The Department of Justice will conduct its own review of the competitive aspects of this transaction pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976306 and the rules promulgated thereunder. The Applicants have submitted a notification form and an associated documentary appendix to the Department and the Federal Trade Commission and they fully expect that this review will confirm that the transaction does not raise any competitive issues.
There will be regulatory or informational filings in Arizona, Hawaii, and Louisiana.
and authorizations held by DIRECTV and its subsidiaries that are subject to the transaction. However, DIRECTV_s licensees or lessees may now have on file, and may hereafter file, additional requests for authorizations for new or modified facilities that may be granted before the Commission takes action on these Applications.
306 15 U.S.C. § 18a.
consummation of the proposed transaction. Such action would be consistent with prior decisions of the Commission.307 Moreover, AT&T requests that Commission approval include any DIRECTV licenses and authorizations that may have been inadvertently omitted from the Applications.
AT&T/Centennial Order, 24 FCC Rcd at 13,981 ¶ 170; AT&T/Comcast Order, 17 FCC Rcd at 23,330-31 ¶ 224.
308 47 C.F.R. §§ 1.927(h), 1.929(a)(2), 1.933(b), 25.116(b), 25.151(a)(5).
309 See, e.g., Applications of PacifiCorp Holdings, Inc., and Century Telephone Enterprises, Inc.
for Consent to Transfer Control of Pacific Telecommunications, Inc., a Subsidiary of PacifiCorp Holdings, Incorporated, Memorandum Opinion and Order, 13 FCC Rcd 8891, 8915-16 ¶ 45 (1997); Applications of NYNEX Corporation, Transferor, and Bell Atlantic Corporation, Transferee, 12 FCC Rcd 19,985, 20,091-92 ¶ 234 (1997); Applications of Craig O. McCaw, Transferor and American Telephone and Telegraph Company, Transferee, 9 FCC Rcd 5836, 5909 ¶ 137 n.300 (1994); News Corp./DIRECTV/Liberty Media Order, 23 FCC Rcd at 3336 ¶ 159.
As required by Section 1.923(e) of the Commission_s rules,310 the Applicants state that the transfer of control of licenses and leases involved in this transaction will not have a significant environmental effect, as defined by Section 1.1307 of the Commission_s rules.311 A transfer of control of licenses and leases does not involve any engineering changes and, therefore, cannot have a significant environmental impact.
For the foregoing reasons, the Commission should conclude that the proposed transaction serves the public interest, convenience, and necessity and should expeditiously and unconditionally grant these Applications.
310 47 C.F.R. § 1.923(e)(2).
Information set forth in this communication, including financial estimates and statements as to the expected timing, completion and effects of the proposed merger between AT&T and DIRECTV, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These estimates and statements are subject to risks and uncertainties, and actual results might differ materially. Such estimates and statements include, but are not limited to, statements about the benefits of the merger, including future financial and operating results, the combined company_s plans, objectives, expectations and intentions, and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the management of AT&T and DIRECTV and are subject to significant risks and uncertainties outside of our control.
Among the risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements are the following: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (2) the risk that DIRECTV stockholders may not adopt the merger agreement, (3) the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated, (4) risks that any of the closing conditions to the proposed merger may not be satisfied in a timely manner, (5) risks related to disruption of management time from ongoing business operations due to the proposed merger, (6) failure to realize the benefits expected from the proposed merger and (7) the effect of the announcement of the proposed merger on the ability of DIRECTV and AT&T to retain customers and retain and hire key personnel and maintain relationships with their suppliers, and on their operating results and businesses generally. Discussions of additional risks and uncertainties are contained in AT&T_s and DIRECTV_s filings with the Securities and Exchange Commission. Neither AT&T nor DIRECTV is under any obligation, and each expressly disclaim any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise. Persons reading this announcement are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.
INFORMATION ABOUT THE PROPOSED MERGER. Investors and security holders will be able to obtain copies of the proxy statement/prospectus as well as other filings containing information about AT&T and DIRECTV, without charge, at the SEC_s website at http://www.sec.gov. Copies of documents filed with the SEC by AT&T will be made available free of charge on AT&T_s investor relations website at http://www.att.com/investor.relations. Copies of documents filed with the SEC by DIRECTV will be made available free of charge on DIRECTV_s investor relations website at http://investor.directv.com.
AT&T and its directors and executive officers, and DIRECTV and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of DIRECTV common stock in respect of the proposed merger. Information about the directors and executive officers of AT&T is set forth in the proxy statement for AT&T_s 2014 Annual Meeting of Stockholders, which was filed with the SEC on March 11, 2014. Information about the directors and executive officers of DIRECTV is set forth in the proxy statement for DIRECTV_s 2014 Annual Meeting of Stockholders, which was filed with the SEC on March 20, 2014. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement/prospectus regarding the proposed merger when it becomes available.

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