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ACA Seeks Program Access Conditions For AT&T-DirecTV Transaction

Trade Group Urges Congress To Examine Market Conditions Fueling Latest Merger Wave

PITTSBURGH, June 24, 2014 - A senior American Cable Association official said today in dual Congressional Committee appearances that the proposed AT&T-DirecTV combination would give the united firm a bigger incentive to gouge competing independent cable operators for access to such popular video channels as regional sports networks (RSNs), a flaw that the trade group wants corrected before the transaction is approved.

ACA's testimony was delivered by Ross J. Lieberman, the trade group's Senior Vice President of Government Affairs, who appeared on the same day before two Congressional panels looking at the $67.5 billion AT&T-DirecTV deal: the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law, and the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights.

Lieberman's overall message - which included a request for Congress to take a hard look at the corrosive effects of unbridled media consolidation - stressed that the AT&T-DirecTV deal is a threat to hundreds of small and medium-sized multichannel video programming distributors (MVPDs) and millions of consumers in their markets.  Regulators, he said, needed to adopt conditions tailored to ensuring fair access to DirecTV's programming.

"The proposed AT&T-DirecTV transaction will increase the incentive of DirecTV-affiliated programmers, especially RSNs, to charge higher prices to their rivals, including hundreds of small and medium-sized MVPDs. ACA believes that regulators reviewing the transaction should adopt conditions to head off this potential harm," Lieberman said.  About 120 ACA members carry at least one RSN owned by DirecTV.

At the same time, Lieberman said, Congress should review existing rules and regulations to ensure that industrywide problems are addressed so that the new market order does not harm consumers by hindering the ability of firms other than the merging parties to compete effectively.

"This will ensure consumers that receive service from companies not growing larger through acquisition can continue to benefit from a competitive market," Lieberman said, noting that regulators were also reviewing Comcast's $45 billion merger with Time Warner Cable and their related cable system sales and trades with Charter Communications contingent upon merger approval in Washington, D.C.

In May, AT&T and DirecTV announced their merger to create a voice, video, wireless and broadband giant with about 26 million paying TV subscribers. AT&T CEO Randall L. Stephenson and DirecTV CEO Michael D. White testified at the same hearings with ACA's Lieberman.

In his testimony, Lieberman said program access merger conditions to the AT&T-DirecTV merger were necessary based on economic theory and evidence relied upon by the Federal Communications Commission in analyzing past MVPD transactions that involved  programming interests. In those deals, the FCC found that companies that own programming have an incentive to disadvantage their rivals in the sale of their affiliated programming in proportion to their per-video-subscriber profits.

"In other words, if the profit margin per video subscriber of a vertically integrated MVPD rises, so does its incentive to harm its rivals by either withholding its programming permanently or temporarily during negotiation impasses, or simply by forcing them to pay higher prices for this programming," Lieberman said.

In terms of remedies, Lieberman said ACA opposed adopting similar arbitration conditions to those previously imposed on DirecTV or the more recent version imposed on Comcast-NBCU. Those arbitration conditions, though well-intended, had a number of defects and problems limiting their effectiveness, particularly for small and medium-sized MVPDs. In particular, arbitration, even with one-way fee shifting, remains far too expensive for most small MVPDs to utilize.

Later, Lieberman stressed that the current wave of media consolidation provided an opportunity for Congress to understand the forces behind so much merger activity and create new policies that allow locally based communications providers to coexist with Fortune 500 companies with dominant regional and national footprints.

"Congress and regulators cannot limit their time and effort to looking just at deals like AT&T-DirecTV and Comcast/TWC/Charter; they must provide enhanced oversight of the market as a whole, and update rules and regulations that work in the new market order," Lieberman said.

Lieberman's underscored the need for several policy changes, including:

Rules that would assist independent cable operators in the program acquisition market. Historically, programmers have used their market power to require small cable operators to pay 30% more per subscriber.  As programming fees rapidly escalate, this disparity is threatening their competitiveness, and ultimately their viability, against MVPD rivals serving tens of millions of subscribers. Smaller cable operators need Congress to review the existing rules and regulations that govern the market to ensure that industrywide problems, which cannot effectively be dealt with through a merger review, are also addressed;

A change in FCC rules to ensure that buying groups have access to the program access rules as Congress intended. Current FCC rules include a definition of a "buying group" that prevents the nation's largest programming buying group, the National Cable Television Cooperative (NCTC), from availing itself of the program access protections Congress intended. As a result, more than 900 MVPDs that rely on NCTC are effectively denied the protection of the program access rules; and

A requirement that DBS providers contribute their fair share of FCC regulatory fees, tracking with the FCC's decision last year to create regulatory fee parity between cable and IPTV providers. Cable's annual  $1.00 per-subscriber FCC regulatory fee payment would drop to $0.68 if DBS providers had to contribute on an equal basis. Lieberman said the time had come to ensure that rules governing small and medium-sized MVPDs are applied to all MVPDs in a technologically and competitively neutral manner, and Congress or the FCC should address this problem immediately.

About the American Cable Association: Based in Pittsburgh, the American Cable Association is a trade organization representing about 850 smaller and medium-sized, independent cable companies who provide broadband services for nearly 7 million cable subscribers primarily located in rural and smaller suburban markets across America.  Through active participation in the regulatory and legislative process in Washington, D.C., ACA's members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business.  For more information, visit http://www.americancable.org/


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