Reply Comments of Communications Workers of America

Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Applications of AT&T Inc. and MB Docket No. 14-90 DIRECTV to Transfer Control of FCC Licenses and Other Authorizations Reply Comments of Communications Workers of America Debbie Goldman George Kohl 501 Third St. N.W. Washington, D.C. 20001 (202 434-1194 (phone (202 434-1201 (fax dgoldman@cwa-union.org October 16, 2014

The Communications Workers of America ( CWA submits these reply comments to supplement our initial comments in support of the proposed merger between AT&T Inc. ( AT&T and DIRECTV (collectively, the Applicants. CWA is a labor organization, representing 700,000 workers in communications, media, airlines, manufacturing and public service. CWA represents 110,000 employees at AT&T in its wireline, broadband, and wireless lines of business. The proposed transaction impacts CWA members as workers and as consumers. In our initial comments, CWA identified four important public interest benefits to the proposed AT&T/DIRECTV combination. First, it will expand high-road labor standards and good, career jobs for employees; second, it will create a stronger competitor to the dominant, incumbent cable companies in video and broadband markets; third, it will improve the economics for high-speed broadband expansion; and fourth, AT&T has made voluntary commitments to abide by the Commission s now-vacated 2010 Open Internet rules, expand highspeed broadband, and offer standalone retail video and broadband services for the next three years, commitments that we are confident the Commission will secure as part of its regulatory review. 1 As detailed below, numerous commentators agree with our positive assessment of the merger, while merger critics fail to demonstrate that the merger will harm competition and consumers. 1 See CWA Comments, In the Matter of Applications of AT&T Inc. and DIRECTV to Transfer Control of FCC Licenses and Other Authorizations, MB Docket No. 14-90, Sept. 16, 2014 ( CWA Comments. 1

The AT&T/DIRECTV merger is good for employees and good, career jobs. The impact of a merger on U.S. employment is part of the Commission s public interest analysis. 2 As CWA emphasized in our initial comments, the proposed AT&T/DIRECTV merger is good for employees and good, career jobs. Other commentators agree, and virtually no commentator disputes this important merger-related benefit. 3 CWA represents more than 110,000 employees in AT&T s wireline, wireless, and broadband lines of business. AT&T has the largest full-time union-represented workforce in the U.S. private sector. AT&T s collective bargaining agreements define pay and benefits, rights, protections, and fair treatment for its non-management workforce. The importance of collective bargaining as a mechanism to provide workers the opportunity to share in the productivity gains they generate in the telecom (and other sectors is especially important to counter troubling trends in the U.S. economy characterized by growing inequality, worker wage stagnation, and a growing chasm between productivity growth and worker compensation. 4 2 See CWA Comments, pp. 4-5 (citing Commission precedents in the AT&T/T-Mobile Staff Analysis, WT Docket No. 11-65; Comcast/NBCU Order, MB Docket No. 10-56; Puerto Rico/GTE Order, File No. 03373-033384-CL-TC- 98; T-Mobile/MetroPCS Order, WT Docket No. 12-310; AT&T/BellSouth Order, WC Docket No. 06-74; SBC/Ameritech Order, CC Docket No. 98-141. 3 See Letter from Richard L. Trumka, President, AFL-CIO, Sept. 11, 2014; Letter from Shar Knutson, President, Minnesota AFL-CIO, Sept. 16, 2014; Letter from Richard W. Bloomingdale, President, Pennsylvania AFL-CIO, Oct. 8, 2014; Letter from Joshua D. Sword, Secretary-Treasurer, West Virginia AFL-CIO, Sept. 15, 2014; Letter from Ken Sagar, President, Iowa Federation of Labor; Letter from Mario Cilento, President, New York State AFL- CIO, Oct. 15, 2014; Letter from Milton Rosado, President, Labor Council for Latin American Advancement; Letter from Johanna Hester, President, and Gregory A. Cedana, Executive Director, Asian Pacific American Labor Alliance, Oct. 15, 2014. 4 See Economic Policy Institute, State of Working America, 12 th Edition (available at http://stateofworkingamerica.org/subjects/overview/; John Schmitt and Janelle Jones, Making Jobs Good, Center for Economic Policy Research, 2013 (available at http://www.cepr.net/documents/publications/good-jobs-policy-2013-04.pdf; CWA, 50M People Building a Movement for Economic Justice and Democracy, June 2014 (available at http:/www.cwa-union.org/economicjustice. 2

AT&T respects the right of employees to make their own choice about union representation. And, as guaranteed by CWA s collective bargaining agreements with AT&T, AT&T s progressive labor relations will extend to DIRECTV s non-management workforce after the transaction, providing these employees the opportunity to select union representation free from management intimidation. This has the potential to transform employee labor relations in the pay TV/cable industry, which has a long history of employer interference with employees rights of free association and union representation. With expanded collective bargaining coverage in the pay TV/cable industry, workers will have the ability to negotiate pay and benefits, rights, fair treatment, protections, good working conditions and the career jobs that benefit their families, communities, and consumers with the quality service provided by a skilled, trained, career workforce. 5 The AT&T/DIRECTV merger will provide a stronger competitor to dominant cable in the video and broadband markets. Merger opponents fail in their attempt to paint the AT&T/DIRECTV merger as an anti-competitive transaction that will harm consumers. 6 To the contrary, the proposed merger will create a more formidable competitor to the dominant incumbent cable company, enhancing consumer choice, spurring innovation, with the potential to benefit consumers with service improvements and lower prices. Merger critics ignore crucial 5 See CWA Comments, pp. 14-15. 6 See, Petition to Deny of Free Press, In the Matter of Applications of AT&T Inc. and DIRECTV to Transfer Control of FCC Licenses and Other Authorizations, MB Docket No. 14-90, Sept. 16, 2014 ( Free Press Petition ; Petition to Deny of Public Knowledge and Institute for Local Self-Reliance, In the Matter of Applications of AT&T Inc. and DIRECTV to Transfer Control of FCC Licenses and Other Authorizations, MB Docket No. 14-90, Sept. 16, 2014 ( Public Knowledge et al Petition ; Petition to Deny of Writers Guild of America West, Inc., In the Matter of Applications of AT&T Inc. and DIRECTV to Transfer Control of FCC Licenses and Other Authorizations, MB Docket No. 14-90, Sept. 16, 2014 ( Writers Guild West Petition. 3

facts regarding the video and high-speed broadband markets, facts that demonstrate that the proposed merger will increase competition in the video and high-speed broadband markets. First, incumbent cable companies are the dominant players in local and national MVPD (multi-channel video program distribution and high-speed broadband markets, with 72 percent of high-speed broadband subscribers at speeds great than 10 Mbps downstream and approximately 57 percent of MVPD subscribers. 7 Second, AT&T is a new entrant in the video market, with only 5.8 million video customers. 8 Third, small MVPDs must pay higher prices for video programming than large cable companies, putting them at a competitive disadvantage. 9 Finally, consumers increasingly purchase video as a double- or even triple-play video/broadband bundle. 10 Taken together, these facts explain why a combined AT&T/DIRECTV will strengthen the merged entity as a competitor to the dominant cable companies in video and broadband markets. With a customer base more than four times the size of AT&T s subscriber base today, a merged AT&T/DIRECTV will have the scale to negotiate lower, competitive prices for video 7 See CWA Comments, p.8 (citing Free Press analysis submitted in the Comcast/Time Warner proceeding, MB Docket No. 14-57, Aug. 25, 2014 on high-speed broadband subscribers and FCC, Fifteenth Video Competition Report, Table 7, p. 61 on MVPD subscribers. 8 See CWA Comments, p. 7 (citing AT&T SEC Form 10-Q filed Aug. 1, 2014 for the period ending June 30, 2014. 9 The Commission recognizes the competitive advantage of economies of scale in the MVPD marketplace. The FCC s Fifteenth Video Competition Report states: According to SNL Kagan, economies of scale have grown increasingly significant to maintain or grow margins as cable MVPDs SNL Kagan contends that compared to the smaller and mid-sized MSOs, Comcast, Time Warner Cable, and Charter can better leverage their scale in programming cost negotiations. Statements from MVPDs suggest that scale economies affect the cost of acquiring programming For example, Comcast stressed the importance of achieving scale in both content and distribution in its transaction with NBC-Universal. And Time Warner Cable announced annual cost efficiencies of approximately $100 million through programming expense savings and other cost reductions in its transaction with Insight Communications. See FCC Fifteenth Video Competition Report MB Docket No. 12-203, para 69. AT&T estimates that programming represents 60 percent of its video subscriber revenues and that it will save 20 percent persubscriber on content costs after the merger. See CWA Comments, pp.6-7, citing AT&T Application, p. 22 and 26 and AT&T Declarations of Rick L. Moore, p. 16 and Lori M. Lee, para 18. 10 See CWA Comments, p. 6. 4

programming. With lower outlays for programming and the ability to offer DIRECTV s video subscribers a video/broadband bundle provided by one company, a merged AT&T/DIRECTV will be a more formidable competitor to the dominant, incumbent cable provider, with the potential to benefit consumers with lower prices and service improvements. Moreover, with video a significant source of revenue driving high-speed broadband investment, the proposed transaction will create stronger economic incentives for AT&T investment in high-speed broadband networks. Merger critics erroneously claim that the proposed transaction will limit the growth of the online video market, claiming that AT&T s acquisition of DIRECTV s satellite video business will create the ability and incentive to slow the development of over-the-top video as a competitive alternative to the pay-tv bundle. 11 CWA has long supported the development of over-the-top (OTT video as a means to add value and spur the virtuous cycle of high-speed broadband deployment, while at the same time providing consumers an alternative to the cable companies programming bundles. 12 In fact, consumers increasingly are cutting or shaving the 11 Free Press Petition, 33-37; Public Knowledge et al Petition, 8-9; Writers Guild West Petition, 19-25. 12 See CWA Petition to Deny or in the Alternative Impose Conditions, In the Matter for Consent for the Transfer of Control of Licenses General Electric Company, Transferor, to Comcast Corporation, Transferee, MB Docket No. 10-56, June 21, 2010, pp. 39-50. 5

cable cord in favor of broadband-enabled video streaming, 13 as evidenced most recently by HBO s and CBS announcements to initiate a video streaming service. 14 There is nothing in the proposed merger that will change the fact that after the merger AT&T will have the ability and incentive to pursue multiple business models that add value to its broadband infrastructure. These include both the offer of a high-speed broadband connection for those consumers who prefer over-the-top video streaming and service (including, as promised by AT&T as a voluntary commitment for three years, a stand-alone broadband service and various pay-tv programming bundles (including video/broadband bundles and, as a voluntary commitment for three years, a stand-alone video service. AT&T s $500 million commitment to a joint venture with the Chernin Group designed to acquire, invest in, and launch online video businesses is evidence of its commitment to over-the-top video as a key business strategy. 15 Just last month, the joint venture agreed to purchase a majority stake in Fullscreen, a global online media company, providing further evidence that AT&T is committed to over-the-top video. 16 Moreover, AT&T s recent offer of a low-cost broadband/basic cable/hbo bundle 13 Over 7.6 million homes, or 6.5 percent of U.S. households, are cord cutters and at least one-third of households have an Internet-connected TV, according to Experian Marketing. The rate of cord cutting jumps to one in four among the millennial generation. Experian Marketing Services, Rise in cord cutting creates opportunities for marketers, May 6, 2014 (available at http://www.experian.com/blogs/marketing-forward/2014/05/06/rise-in-cordcutting-creates-opportunities-for-marketers/. 14 Cecilia Kang, HBO is Launching a Stand-Alone Streaming Service in 2015, Washington Post, Oct. 15, 2014 (available at http://www.washingtonpost.com/news/business/wp/2014/10/15/hbo-is-launching-a-stand-alonestreaming-service-in-2015/; Reuters, CBS to Launch Video Streaming Service, Oct. 16, 2014 (available at http://www.reuters.com/article/2014/10/16/us-cbs-corp-streaming-iduskcn0i51mo20141016; 15 AT&T Press Release, The Chernin Group and AT&T Create Joint Venture to Acquire, Invest in and Launch Online Video Businesses, April 22, 2014. (available at http://about.att.com/story/the_chernin_group_and_att_create_new_venture_to_acquire_invest_in_and_launch_online _video_businesses.html 16 AT&T Press Release, The Chernin Group and AT&T s Otter Media Agree to Acquire Majority Stake in Fullscreen, Sept. 22, 2014 (available at 6

indicates its willingness to break the expensive cable bundle model. 17 In summary, the proposed AT&T/DIRECTV merger will result in a stronger competitor to the dominant, incumbent cable company in the video and high-speed broadband markets, and, as we describe below, will result in a more extensive high-speed broadband platform over which consumers will be able to stream over-the-top video programming. The AT&T/DIRECTV merger will improve the economics of broadband expansion. All commentators have emphasized the importance of high-speed broadband expansion for the U.S. economy and society. Despite the claims of merger opponents, the proposed transaction strengthens the business case for AT&T s investment in high-speed broadband networks. As already discussed, video is a major driver of broadband expansion, producing a revenue stream to support investment in high-speed networks. As a more formidable video competitor, and with lower programming costs, a merged AT&T/DIRECTV will have the economic incentive to increase investment in the high-capacity networks that are so essential to drive economic growth, jobs, and the social benefits enabled by high-speed networks. 18 In our initial comments, we noted that in April of this year, AT&T announced plans to build all-fiver Gigapower networks in up to 100 cities in 21 metropolitan areas. At the time of the filing of our initial comments, AT&T had announced Gigapower deployments in Miami FL, Jacksonville, FL, Dallas-Fort Worth TX, San Antonio TX, Austin, TX, Nashville TN, Raleighhttp://about.att.com/story/the_chernin_group_and_atts_otter_media_to_acquire_majority_stake_in_fullscreen.html 17 Jamal Carnette, Verizon and AT&T are Fighting for You to Pay Less for Cable, The Motley Fool, Oct. 7, 2014 (available at http://www.fool.com/investing/general/2014/10/07/verizon-and-att-want-you-to-pay-less-for-cablesho.aspx 18 See CWA Comments, pp. 9-13. 7

Durham NC, Winston-Salem NC, Chapel Hill NC, Greensboro NC, Charlotte NC, St. Louise MO, Cupertino CA, and Overland KS. 19 In the past month, AT&T has made additional announcements to build Gigapower networks in Chicago IL, Atlanta GA, and two smaller markets (Decatur GA and Newnan GA. 20 In addition to its previous commitment, the Applicants have made the voluntary commitment to expand the Gigapower deployment to an additional two million more customer locations within four years after closing, and to deploy a fixed wireless local loop ( WLL technology to bring high-speed broadband to approximately 13 million largely rural customer locations at advertised speeds of 15-20 Mbps within four years after closing. This fixed WLL deployment will include areas outside AT&T s wireline footprint. 21 The merger raises few anti-trust concerns. AT&T, largely a broadband and wireless carrier, and DIRECTV, a pure-play satellite provider, primarily serve different markets. In local markets, both compete against the dominant cable company. Upon completion of AT&T s planned U-Verse expansion, AT&T will offer U-Verse video to to 33 million customers in 21 states, less than one-third of potential customer locations across the nation. DIRECTV s 20 million satellite video customers are dispersed throughout the nation, and without a broadband offering of its own, DIRECTV cannot compete effectively in the broadband and broadband/video bundled service markets. To alleviate any potential concerns, the Applicants have made voluntary commitments to offer stand-alone DIRECTV satellite video service at comparable 19 Id., pp. 11-12 (citing various AT&T Press Releases. 20 Various AT&T Press Releases dated Oct. 14, 2014. 21 AT&T/DIRECTV Application, pp. 5 and 41. 8

nationwide prices and stand-alone retail Internet access of at least 6 Mbps for three years after closing. 22 Conclusion. The proposed AT&T/DIRECTV merger will provide substantial public interest benefits with few, if any, countervailing public interest harms. The merger will expand high-road labor standards and good, career jobs for employees; create a stronger competitor to the dominant, incumbent cable company in broadband and video markets; and improve the economics of high-speed broadband expansion. CWA urges the Commission to move forward expeditiously to approve the proposed AT&T/DIRECTV merger and affirm the Applicant s voluntary commitments. Respectfully Submitted, Debbie Goldman Communications Workers of America October 16, 2014 22 AT&T/DIRECTV Application, pp. 8-9, 79-80, 82. 9