With the ink barely dry on AT&T’s $86 billion merger with Time Warner, the company keeps imposing price hikes on the company’s streaming and satellite TV subscribers. Price hikes AT&T executives repeatedly insisted wouldn’t happen.
Cordcutter News was the first to report this week that AT&T will be scrapping its existing $40 per month DirecTV Now streaming video plan, replacing it with two new, more expensive options: a $50 per month and a $70 per month plan. The price increase comes on the heels of another $5 hike imposed on the streaming platform less than a year ago. In a bid to calm subscriber annoyance, AT&T will be throwing in an HBO subscription as standard on both tiers. AT&T had previously sold standalone HBO for as little as $5 per month. Still, the move eliminates the option to subscribe to lower cost introductory options that don’t include the “premium” cable channel. All told, AT&T’s base streaming tier has now seen a $15 per month increase in less than eight months’ time.
AT&T’s also been raising rates on its DirecTV satellite TV customers. The company just informed those subscribers they too would be seeing a bevy of price hikes in 2019, including a hike in the company’s “broadcast TV fee”—a controversial surcharge critics say lets cable companies advertise one rate, then charge customers significantly more. AT&T competitors are also facing higher costs. Shortly after the Time Warner merger closed, Dish Network dropped HBO from its channel lineup, saying AT&T was suddenly charging significantly more money than Dish felt the channel was worth. The Department of Justice sued to stop the deal, warning repeatedly that AT&T’s megadeals would drive up consumer costs. Yet before, during, and after the merger trial, AT&T repeatedly proclaimed this wouldn’t happen. The TV market was so competitive, lawyers insisted, AT&T couldn’t possibly raise rates on consumers.
“The evidence overwhelmingly showed that this merger is likely to enhance competition substantially, because it will enable the merged company to reduce prices, offer innovative video products, and compete more effectively against the increasingly powerful, vertically integrated 'FAANG' [Facebook, Apple, Amazon, Netflix, and Google] companies," AT&T stated in a post-trial brief. The DOJ repeatedly warned in government filings that all of its economic models clearly showed price hikes would be inevitable if the merger was allowed to proceed. AT&T quickly dismissed those claims.
“There is no sound evidence from which the court could fairly conclude that retail pay-TV prices are likely to increase," AT&T said in the wake of the trial. The Dallas-based telecom giant insisted that “merger efficiencies will begin exerting downward pressure on consumer prices almost immediately” post merger. Obviously that didn’t happen. AT&T didn’t respond to a Motherboard request for comment seeking an explanation. Lobbyist erosion of government antitrust authority has left government lawyers often incapable of proving even the most obvious of harms. Experts continue to point out that antitrust enforcement needs to be modernized for the internet-connected era. But again, industries happy with the broken status quo lobby relentlessly to prevent that from happening. These problems were made evident when the DOJ’s lawsuit against AT&T fell flat on its face during both the initial trial and the government’s appeal. Court rulings allowing the merger to stand were widely ridiculed for failing to see AT&T’s plan to use its control over both the content and the conduit (broadband) to harm competitors. The DOJ was similarly criticized for trying to make its case without mentioning net neutrality, or the way AT&T often uses its power as an ISP to disadvantage streaming operators like Netflix.
Ironically however, AT&T’s strategy hasn’t been working all that well. The DirecTV and Time Warner mergers loaded AT&T with so much debt, it feels compelled to raise rates to get its head above water. In response to the rate hikes, AT&T has been losing both satellite TV and streaming video subscribers in record numbers over the last few quarters.
“The DirecTV Now price increases seem like an acknowledgement that their OTT strategy doesn’t make sense,” Wall Street telecom analyst Craig Moffett told Motherboard in an email exchange. “They’re hemorrhaging high value satellite subscribers and replacing them with money losing DirecTV Now subscribers.” Moffet argues that while the price hikes might balance the scales in the short term, it’s not going to fix AT&T’s underlying problems over the long run as satellite TV becomes a relic, and those customers continue to flee to cheaper, better streaming alternatives.
“The real issue is that DirecTV’s satellite business is falling apart,” Moffett said. “Raising prices might help the numbers look better for a little while, but when your customers are already fleeing because your prices are too high, raising prices is only going to make the business unravel even faster.”
In other words, AT&T’s megamergers aren’t providing any of the “synergies” AT&T promised, and as it tries to claw out from underneath its merger debt load, it’s AT&T customers (and employees) that will ultimately pay the price.