S. HRG. 113–824 THE AT&T/DIRECTV MERGER: THE IMPACT ON COMPETITION AND CONSUMERS IN THE VIDEO MARKET AND BEYOND HEARING BEFORE THE SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS OF THE COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION JUNE 24, 2014 Serial No. J–113–66 Printed for the use of the Committee on the Judiciary ( U.S. GOVERNMENT PUBLISHING OFFICE 99–971 PDF WASHINGTON : 2016 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 COMMITTEE ON THE JUDICIARY PATRICK J. LEAHY, Vermont, Chairman DIANNE FEINSTEIN, California CHUCK GRASSLEY, Iowa, Ranking Member CHUCK SCHUMER, New York ORRIN G. HATCH, Utah DICK DURBIN, Illinois JEFF SESSIONS, Alabama SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas AL FRANKEN, Minnesota MICHAEL S. LEE, Utah CHRISTOPHER A. COONS, Delaware TED CRUZ, Texas RICHARD BLUMENTHAL, Connecticut JEFF FLAKE, Arizona MAZIE HIRONO, Hawaii KRISTINE LUCIUS, Chief Counsel and Staff Director KOLAN DAVIS, Republican Chief Counsel and Staff Director SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS AMY KLOBUCHAR, Minnesota, Chairman CHUCK SCHUMER, New York MICHAEL S. LEE, Utah, Ranking Member AL FRANKEN, Minnesota LINDSEY GRAHAM, South Carolina CHRISTOPHER A. COONS, Delaware CHUCK GRASSLEY, Iowa RICHARD BLUMENTHAL, Connecticut JEFF FLAKE, Arizona CAROLINE HOLLAND, Democratic Chief Counsel BRYSON BACHMAN, Republican Chief Counsel (II) C O N T E N T S JUNE 24, 2014, 2:36 P.M. STATEMENTS OF COMMITTEE MEMBERS Page Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota ................... 1 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, prepared statement .......................................................................................... 105 Lee, Hon. Michael S., a U.S. Senator from the State of Utah ............................. 3 WITNESSES Witness List ............................................................................................................. 37 Downes, Larry, Project Director, Georgetown University, Center for Business and Public Policy, Washington, DC .................................................................... 12 prepared statement .......................................................................................... 84 Keyser, Christopher, President, Writers Guild of America, West, Inc., Los Angeles, California ........................................................................................ 8 prepared statement .......................................................................................... 57 Lieberman, Ross J., Senior Vice President of Government Affairs, American Cable Association, Washington, DC ................................................................... 14 prepared statement .......................................................................................... 96 Stephenson, Randall, President, Chairman, and Chief Executive Officer, AT&T Inc., Dallas, Texas .................................................................................... 7 prepared statement .......................................................................................... 38 White, Michael, President, Chairman and Chief Executive Officer, DIRECTV, El Segundo, California ......................................................................................... 5 prepared statement .......................................................................................... 47 Wood, Matthew F., Policy Director, Free Press, Washington, DC ....................... 10 prepared statement .......................................................................................... 68 QUESTIONS Questions submitted to Larry Downes by Senator Klobuchar ............................. 110 Questions submitted to Ross J. Lieberman by Senator Klobuchar ..................... 111 Questions submitted to Randall Stephenson by Senator Franken ...................... 112 Questions submitted to Randall Stephenson by Senator Klobuchar ................... 106 Questions submitted to Michael White by Senator Klobuchar ............................ 108 Questions submitted to Matthew F. Wood by Senator Klobuchar ...................... 109 ANSWERS Responses of Larry Downes to questions submitted by Senator Klobuchar ....... 113 Responses of Ross J. Lieberman to questions submitted by Senator Klobuchar .............................................................................................................. 118 Responses of Randall Stephenson to questions submitted by Senators Franken and Klobuchar ....................................................................................... 119 Responses of Michael White to questions submitted by Senator Klobuchar ...... 129 Responses of Matthew F. Wood to questions submitted by Senator Klobuchar ... 131 MISCELLANEOUS SUBMISSIONS FOR THE RECORD American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), William Samuel, Director, Government Affairs Department, June 25, 2014, letter ............................................................................................ 133 (III) IV Page Communications Workers of America (CWA), Larry Cohen, President, June 20, 2014, letter ............................................................................................................ 134 National Association for the Advancement of Colored People (NAACP) and National Association of Black Owned Broadcasters (NABOB), Hilary O. Shelton, Director, NAACP Washington Bureau, and Senior Vice President for Policy and Advocacy, and James L. Winston, NABOB Executive Director and General Counsel, June 23, 2014, letter ....................................................... 135 THE AT&T/DIRECTV MERGER: THE IMPACT ON COMPETITION AND CONSUMERS IN THE VIDEO MARKET AND BEYOND TUESDAY, JUNE 24, 2014, UNITED STATES SENATE, SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS, COMMITTEE ON THE JUDICIARY, Washington, DC. The subcommittee met, pursuant to notice, at 2:36 p.m., in Room SD–226, Dirksen Senate Office Building, Hon. Amy Klobuchar, Chairman of the Subcommittee, presiding. Present: Senators Klobuchar, Franken, Blumenthal, Lee, and Cornyn. OPENING STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM THE STATE OF MINNESOTA Chairman KLOBUCHAR. Good afternoon. Welcome to this after- noon’s hearing. We are here today to examine a proposed merger that would combine the second largest and fifth largest video pro- viders in the country. It is also a combination of two top competi- tors in their respective industries: satellite television and wireless phone service. DIRECTV has a large national presence with 20 million video subscribers, second only to Comcast’s 22 million subscribers. AT&T is one of the Nation’s top two wireless providers with 116 million subscribers. AT&T’s video service, called ‘‘U-verse,’’ has a more limited reach with 5.7 million subscribers, but it is the fast- est-growing cable service in the country. AT&T also continues to grow its wireline and broadband business. We are not here today to judge whether the merger is better for the bottom lines of these two companies or their shareholders. We will leave that to them and to Wall Street. We are here today to make sense of what this will mean for consumers—consumers who are feeling the squeeze as their cable, satellite, and broadband bills rise, consumers who want better and more choices for the type and amount of programming they are offered, and consumers who want more online video options. The proposed combination of AT&T and DIRECTV in many re- spects appears to combine services that are largely complementary. AT&T has the broadband and wireless capabilities that DIRECTV lacks, and DIRECTV has a top-performing video service with the scale AT&T needs to lower its programming costs. (1) 2 These points have merit, and AT&T’s promise to expand its broadband reach, especially into rural areas, is a compelling aspect of this proposed deal. But our inquiry cannot stop there. We need to ensure that these benefits will not be outweighed by diminished competition or harm to consumers. We know that robust competition keeps prices in check, incentivizes competitors to offer better choices and service, and pro- motes innovation. Yet this merger will result in some consumers losing a choice of video providers. AT&T and DIRECTV currently compete head to head in roughly 25 percent of the country, includ- ing large metro markets such as Chicago, Dallas, Los Angeles, San Francisco, and Atlanta. AT&T and DIRECTV say that together they will be able to offer a better bundle of Internet and video serv- ice to compete against cable company bundles. But the fact remains that this merger will eliminate a competi- tive video provider, so we need to ask: What is the competitive dy- namic in these markets? Will fewer competitors mean higher prices and lower-quality service? Will AT&T actually pass the cost sav- ings they get from lower programming costs to consumers? And will AT&T have the incentive to continue to expand its competitive and fast-growing U-verse video service? Consumers are also impacted by consolidation of pay-television providers because it means fewer outlets for independent program- ming. Will taking out one of the video distributors