June 2015

A decision on AT&T's merger with DirecTV is expected any day now, and suddenly federal officials are being swarmed with visits and calls by the companies who are arguing over details of the conditions attached to any approval. Public filings show that top AT&T and DirecTV executives have met with antitrust officials and commissioners at the Federal Communications Commission to answer a slew of last-minute, detailed questions in recent weeks -- a major sign that regulators are likely to approve the $45 billion merger that would create a mobile video powerhouse. The companies elaborated on plans to deploy their top-speed Internet service to an additional 2 million homes -- a promise made to sweeten their merger pitch. They discussed AT&T's pricing schemes for wireless data, and how the merger would affect consumers' wireless bills.

In several calls and meetings, they replied to questions about so-called "interconnection fees" -- the money a company such as Netflix is paying AT&T to make sure its streaming videos move across the backbone of AT&T's networks in a high-quality manner. In meetings with the FCC's top antitrust official, Jonathan Sallet, company executives including AT&T's top regulatory and legal officials, Wayne Watts and Robert Quinn, reiterated their pitch for "voluntary commitments...which will provide the Commission with further assurance that the transaction will serve the public interest and deliver benefits to consumers," one of the filings say. Of course the FCC and Justice Department could still reject the deal, especially given the controversy over interconnection fees.

AT&T will soon get a financial shot in the arm from becoming a satellite-TV provider. But the long-term health benefits for the telecommunications company from owning DirecTV remain unclear. AT&T’s acquisition of DirecTV is expected to close very soon, and the stock has risen in anticipation, including a 3 percent jump June 23 on the back of analyst upgrades. The shares likely have more room to climb, as most Wall Street analysts have yet to raise their estimates. Those who have envisage 2016 earnings per share coming in 8 percent to 10 percent higher than the current consensus figure suggests. Higher earnings would also mean more coverage for AT&T’s all-important dividend.

And DirecTV may offer a counterweight to the challenges at AT&T’s wireless business, which has been battered by a price war. The question is whether this justifies DirecTV’s $64 billion purchase price, including net debt and multiple of 7.6 times 2015 earnings before interest, taxes, depreciation and amortization. That is only slightly below Comcast ’s multiple of 8.1 times-- despite Comcast’s greater scale and broadband offering -- and above AT&T’s 6.8 times. The risk around DirecTV’s long-term value boils down to AT&T’s ability to navigate the transition between traditional TV viewing and TV viewed over the Internet. This is a particularly pressing question in light of a boatload of evidence suggesting the pay-TV industry is declining, albeit slowly for now. And while DirecTV has continued to attract new subscribers, rising programming costs have kept pressure on its profit margin. One key question is whether AT&T can successfully grow by offering new bundles of video, broadband and mobile services.

Chrystal Bougon remembers the days when customers walked through the door of her plus-size lingerie shop in San Jose (CA) and uttered the phrase, "I saw you on Facebook." Now the small business owner rarely hears those words. Concerned that people will leave the site if shown too many ads, Facebook in 2015 began filtering users' News Feeds to eliminate many of the unpaid status updates they receive from businesses they've "liked." As businesses vie for limited space on the social network, that's made it far tougher for them to reach customers without paying. "The philosophy behind Facebook is that the user comes first. If people can't have a great experience on News Feed then the businesses trying to reach them won't be able to reach them," said Elisabeth Diana, a Facebook spokeswoman. But the change is a hard hit to some small business owners such as Bougon, who don't have a lot of money or time to spend on social media.

After years of building up their fanbase on Facebook, they're seeing more of their posts get lost in a stream of text, photos and videos -- unless they pay Facebook to deliver their message. "People said they want to get my content. They signed up for my page and then Facebook changed the rules later and said you've got to pay," Bougon said. The situation also underscores a challenge for social networks such as Facebook, which need to convince small businesses that spending money to advertise on their websites is worth it, while making it easier for them to test out new tools at a low cost, said John Swanciger, CEO of Manta, an online small-business resource.

[Commentary] The Federal Communications Commission’s priority is the spectrum auction, and what to do about wireless mics -- which are so critical to the production of news, sports and entertainment for broadcast and online distribution -- simply isn’t important. The latest Notice of Proposed Rulemmaking proposes setting up a single UHF channel in each market, which will be shared by wireless mic users and white space devices. Howard Kaufman, technical representative for wireless mic maker Lectrosonics, sat in on a meeting with FCC Chairman Tom Wheeler. “Sitting with [Chairman] Wheeler himself, he said that Congress tasked us [the FCC] with a bill to recover this spectrum, and sadly for you, meaning [the] wireless mic [community], Congress did not provide any guidance with what to do with wireless mic users,” says Kaufman. “Broadcasters generally don’t know this because they aren’t regularly involved with the FCC,” engineer Louis Libin says. “They don’t realize that this nice world where we have some stability in terms of production and the equipment we use is going to change drastically.”

Wireless mics are entwined with the auction and repack process because they operate on UHF channels that are unused in TV markets. Currently, two 6 MHz channels per market are reserved for use by wireless mics, a term which is shorthand for a variety of wireless TV production gear, including mics, IFB, intercom systems and in-ear monitors worn by musical performers. It’s not unusual for other unused TV channels in a market to be assigned on a temporary basis to handle wireless mic spectrum requirements for big, live sports and entertainment productions where more spectrum is needed. However, repacking TV stations into a much smaller swath of spectrum following the incentive auction means less availability of UHF spectrum for wireless mics.