Federal Communications Commission DA 21-838 Before the FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 In the Matter of Applications of AT&T Inc. (Transferor) and DIRECTV Entertainment Holdings LLC (Transferee) For Transfer of Control of DIRECTV Enterprises, LLC ) ) ) ) ) ) ) ) ) ) ) ) IBFS Files Nos. SAT-T/C-20210322-00037 SAT-T/C-20210322-00038 SAT-AMD-20210422-00053 SAT-AMD-20210422-00054 SES-T/C-20210322-00546 SES-T/C-20210322-00547 SES-AMD-20210428-00741 SES-AMD-20210428-00742 ULS File No. 0009450204 MEMORANDUM OPINION AND ORDER Adopted: July 16, 2021 Released: July 16, 2021 By the Chief, International Bureau; Acting Chief, Wireless Telecommunications Bureau: I. INTRODUCTION 1. In this Order, pursuant to section 310(d) of the Communications Act of 1934, as amended (the Act), we grant the applications of AT&T Inc. (AT&T) and TPG Capital (TPG), an investment management firm, (collectively, the Applicants) for consent to the transfer of control of Commission licenses from AT&T to DIRECTV Entertainment Holdings LLC (New DIRECTV), which will be jointly managed by the Applicants. See 47 U.S.C. § 310(d); Applications of AT&T Inc. and TPG Capital for Consent to Transfer Control of Licenses (filed Mar. 22, 2021, amended Apr. 22, 2021) (Application); see also 47 CFR §§ 1.948, 25.119. Page citations to the Application refer to the public interest statement submitted as Exhibit A in IBFS File No. SAT-T/C-20210322-00037. As discussed below, AT&T will own 70% of the stock of the new company, with TPG receiving 30% in exchange for its cash investment of $1.8 billion; TPG will also be able to appoint four of the nine board members of the new company. Given the recent divestiture of media assets by TPG, after which it no longer owns any significant interests in video programming or distribution businesses, and the record established in this proceeding, we find no adverse effect on market concentration or likely competitive or public interest harms. Rather, the Applicants contend that the significant new investment will enhance the company’s ability to provide existing and new competitive services to the public. As discussed below, we find that approving the proposed transaction serves the public interest. II. BACKGROUND A. Description of the Applicants 2. AT&T is a global provider in telecommunications, media and entertainment, and technology. See Application at 2. AT&T reports that in 2020, it had almost 5 million fiber broadband connections, over 6 million retail voice connections and served over 180 million wireless subscribers. AT&T Inc. Annual Report (Form 10-K) at 19-22 (Feb. 25, 2021). 3. DIRECTV offers direct-to-home satellite digital television services to consumers, and U-Verse offers video programming over AT&T’s fiber networks. AT&T also offers video programming through its AT&T TV, and Watch TV products. In total, AT&T reports that in 2020, it delivered multichannel video programming to more than 127 million subscribers. Id. at 21. The Commission licenses that support the DIRECTV and U-verse TV businesses are held by DIRECTV Enterprises, LLC, a wholly-owned indirect subsidiary of AT&T. Application at 4. 4. TPG is an investment management firm. Id. at 3. TPG has previously invested in the multichannel video programming distributor (MVPD) marketplace by combining regional providers RCN, Grande, Wave, and enTouch to create Astound Broadband, which offers gigabit-speed communications infrastructure networks. See id. at 4. In June 2021, TPG sold its controlling interest in Astound Broadband. See, e.g., Applications Granted for the Transfer of Control of Subsidiaries of Radiate Holdings, L.P. to Stonepeak Associates IV LLC, Public Notice, DA 21-634 (WCB and IB May 28, 2021); Stamp Grant, IBFS File No. SES-T/C-20201202-01289 (IB-SD granted June 1, 2021). B. Description of the Proposed Transaction 5. AT&T has agreed to contribute DIRECTV Enterprises, LLC, and the other assets of AT&T’s video business unit to a new entity, New DIRECTV. Application at 4. AT&T is retaining its Vrio Latin American satellite television business, its Sky Mexico investment, its regional sports networks, the U-verse network facility assets, the HBO Max streaming platform, and the other WarnerMedia businesses. Id. at 2 n.1. In exchange, New DIRECTV will issue to a wholly-owned indirect subsidiary of AT&T, V HoldCo LLC, a 70 percent interest in common units of New DIRECTV. Id. at 4. An affiliate of TPG, TPG VIII Merlin Investment Holdings, L.P., has agreed to make a cash contribution to New DIRECTV in exchange for a 30 percent interest in common units of New DIRECTV. Id. at 4-5. TPG is contributing $1.8 billion to the new company in exchange for its shares. AT&T & TPG To Form New Entity To Operate AT&T’s U.S. Video Unit, Press Release, Feb. 25, 2021, https://www.sec.gov/Archives/edgar/data/732717/000119312521056922/d544248dex991.htm. (cited at Application n. 9). TPG and TPG VIII Merlin Investment Holdings, L.P. are ultimately controlled by David Bonderman and James Coulter, who are both U.S. citizens. See Application at 3-4, Attach. 2. The Board of Managers of New DIRECTV will be comprised of two representatives from each of AT&T and TPG, two independent non-voting Board members named by each company, and a ninth Board seat filled by the CEO. Id. at 5. The Applicants state that the new company will be co-owned and co-managed and jointly governed by them. Id. at 1. C. Application Review Process 6. After the Application was accepted for filing, See Satellite Radio Applications Accepted for Filing, Public Notice, Report No. SES-02353 (IB-SD Apr. 7, 2021); Space Station Applications Accepted for Filing, Public Notice, Report No. SAT-01541 (IB-SD Apr. 2, 2021); Wireless Telecommunications Bureau Assignment of License Authorization Applications, Transfer of Control of Licensee Applications, and De Facto Transfer Lease Applications, and Designated Entity Reportable Eligibility Event Applications Accepted For Filing, Public Notice, Report No. 15793 (WTB Mar. 31, 2021). the Rural Media Group, Inc. (RMG) and the ABC Television Affiliates Association, CBS Television Network Affiliates Association, FBC Television Affiliates Association, and NBC Television Affiliates (collectively, the Affiliates Associations) filed comments. RMG Comments (May 7, 2021); Affiliates Associations Comments (May 3, 2021). The Applicants responded to the comments, Applicants Response (May 12, 2021). and the Affiliates Associations replied to the Applicants. Affiliates Associations Reply (May 24, 2021). III. DISCUSSION A. Overall Analysis 7. Under section 310(d) of the Act, we must determine whether the Applicants have demonstrated that the proposed transfer of control of licenses from AT&T to New DIRECTV will serve the public interest, convenience, and necessity. See 47 U.S.C. § 310(d); Applications of AT&T Inc. and DIRECTV for Consent to Assign or Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 30 FCC Rcd 9131, 9139, para. 18 (2015) (AT&T/DIRECTV Order). In making this determination, we consider whether the proposed transaction complies with the specific provisions of the Act, other applicable statutes, and the Commission’s rules. AT&T/DIRECTV Order, 30 FCC Rcd at 9139-40, para. 18. If the transaction does not violate a statute or rule, we consider whether the transaction could result in public interest harms by substantially frustrating or impairing the objectives or implementation of the Act or related statutes. See id. We then employ a balancing test weighing any potential public interest harms of the proposed transaction against any potential public interest benefits. See id.; General Motors Corp. and Hughes Electronics Corp., Transferors, and the News Corporation, Transferee, Memorandum Opinion and Order, 19 FCC Rcd 473, 483, para. 15 (2004) (News Corp.-Hughes Order). Where the potential harms appear less likely and less substantial, we accept a lesser showing of potential benefits. See AT&T/DIRECTV Order, 30 FCC Rcd at 9238, para. 276. The Applicants bear the burden of proving, by a preponderance of the evidence, that the proposed transaction, on balance, serves the public interest. See News Corp.-Hughes Order, 19 FCC Rcd at 483, para 15. 8. We are persuaded that the proposed transaction presents no substantial harms and that granting the Application is in the public interest. Granting the Application would not violate any statute or Commission rule and we find that the Applicants are qualified to hold FCC licenses. TPG no longer owns any significant interests TPG holds a less than 5% interest in Vice Media. Applicants Response at 4 & n.13. in video programming or distribution assets and so the proposed transaction does not increase concentration or reduce competition in any market nor raise vertical concerns. Application at 10. The Applicants argue that the transaction will make New DIRECTV a stronger competitor, due to its dedicated management, ability to focus solely on video customers, and the addition of the capital, expertise, and resources of TPG. See id. at 7-8. That claim is not disputed. B. Proposed Conditions 9. The Affiliates Associations contend that because DIRECTV does not provide local-into-local television service in 12 of the DMAs in which it operates, Affiliates Associations Comments at 2. the Commission should require New DIRECTV to provide local-into-local television service to all 210 Nielsen DMAs. See id. at 4. The Affiliates Associations argue that, without such a condition, New DIRECTV will have weakened incentives to serve local communities because of the reduced role that AT&T will play in its ownership. See id. at 3-4; Affiliates Associations Reply at 2. The Applicants respond that this issue is unrelated to the proposed transaction, and that the Commission has denied similar requests from broadcasters in prior transactions involving DIRECTV. See Applicants Response at 2. The Applicants maintain that the proposed transaction would not affect its incentive or ability to provide local-into-local service. See id. at 2-3. In reply, the Affiliates Associations assert that the cases cited by Applicants were wrongly decided, but also seek to distinguish them from the present transaction. See Affiliates Associations Reply at 5-9. 10. The Applicants are correct that the Commission has previously denied similar requests with regard to DIRECTV. See, e.g., AT&T/DIRECTV Order, 30 FCC Rcd at 9277, para. 248; News Corporation and The DIRECTV Group, Inc., Transferors, and Liberty Media Corporation, Transferee, for Authority to Transfer Control, Memorandum Opinion and Order, 23 FCC Rcd 3265, 3330, para. 137 (2008). We agree with the Applicants that nothing in the record indicates that the proposed transaction would reduce New DIRECTV’s incentives to carry local broadcast channels. The Affiliates Associations have not offered evidence or established a credible theory by which the competitive pressures DIRECTV faces to imitate or differentiate itself from other MVPDs in those markets would change as a result of this transaction. Accordingly, we decline to adopt the Affiliates Associations’ proposed condition. 11. We reach a similar conclusion with respect to the condition sought by RMG. RMG, which owns independent programming networks targeted at rural viewers, argues that access to meaningful and relevant programming for rural viewers has decreased in recent years due to media consolidation. See RMG Comments at 2-4. RMG asks that, as a condition of any grant of the Application, the Commission prohibit New DIRECTV from removing rural content from its post-transaction programming lineup, and require New DIRECTV to use at least 1% of its channel lineup for programming focused on rural communities. Id. at 1-2. The Applicants respond that these issues, too, are unrelated to the proposed transaction and that the Commission has previously declined to impose program carriage conditions on DIRECTV. See Applicants Response at 3-4; AT&T/DIRECTV Order, 30 FCC Rcd at 9223, para. 238. 12. The Commission’s program carriage rules prohibit an MVPD, like DIRECTV, from exerting its leverage as a distributor to require a financial interest in, or exclusive rights to, any program service as a condition for carriage. 47 CFR § 76.1301(a)-(b). The program carriage rules also proscribe an MVPD from engaging in conduct that unreasonably restrains the ability of unaffiliated video programming providers to compete by discriminating in the distribution of programming based on the programmer’s affiliation or nonaffiliation with the MVPD. 47 CFR § 76.1301(c). TPG, however, does not hold programming interests See Application at 10. and AT&T’s programming interests will not change. The present transaction therefore does not raise vertical integration concerns that the combined entity would discriminate against unaffiliated programmers. Moreover, there is no evidence that the transaction would change the incentives that drive program carriage decisions made by DIRECTV. For these reasons, we agree with the Applicants that RMG has not established that the proposed program carriage conditions are appropriate here and we decline to adopt them. IV. CONCLUSION AND ORDERING CLAUSES 13. Upon review of the Application and the record, we find no evidence that the present transaction would result in any transaction-specific harm and conclude that grant of the Application serves the public interest, convenience, and necessity. 14. Accordingly, IT IS ORDERED, pursuant to Sections 4(i) and (j), 303(r), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 303(r), 309, 310(d), and sections 0.261, 0.331, 1.948, and 25.119 of the Commission’s rules, 47 CFR §§ 0.261, 0.331, 1.948, 25.119, that the Applications of AT&T Inc. and TPG Capital for Consent to Transfer Control of Licenses ARE GRANTED. 15. IT IS FURTHER ORDERED that the above grant shall include authority for DIRECTV Entertainment Holdings LLC to acquire control of: (a) any DIRECTV Enterprises, LLC licenses and authorizations that may have been inadvertently omitted from the Application; (b) any licenses and authorizations issued to DIRECTV Enterprises, LLC, or its subsidiaries during the Commission’s consideration of the Application or during the period required for consummation of the transaction following approval; and (c) any applications that have been filed by DIRECTV Enterprises, LLC, or its subsidiaries and that are pending at the time of consummation. 16. IT IS FURTHER ORDERED that this Memorandum Opinion and Order SHALL BE EFFECTIVE upon release, in accordance with section 1.103 of the Commission’s rules, 47 CFR § 1.103. FEDERAL COMMUNICATIONS COMMISSION Thomas P. Sullivan Chief, International Bureau Joel D. Taubenblatt Acting Chief, Wireless Telecommunications Bureau APPENDIX Licenses to Be Transferred Part 25 – Space Station Licenses File No. Licensee Lead Call Sign SAT-T/C-20210322-00037 DIRECTV Enterprises, LLC S2632 SAT-T/C-20210322-00038 DIRECTV Enterprises, LLC S2640 Part 25 – Earth Station Licenses File No. Licensee Lead Call Sign SES-T/C-20210322-00546 DIRECTV Enterprises, LLC E010129 SES-T/C-20210322-00547 DIRECTV Enterprises, LLC E050340 Part 90 – Private Land Mobile Radio Licenses File No. Licensee Lead Call Sign 0009450204 DIRECTV Enterprises, LLC WPTZ691 2