AT&T Makes the Argument That Comcast Needs to Make

Ralph de la Vega, President & CEO of AT&T Mobile & Business Solutions. Source: Flickr userDak Dillon

When it comes to press coverage, there's probably no starker contrast in today's merger environment than Comcast and Time Warner Cable's plans as opposed to AT&T's efforts to buy DirecTV . The former have a dedicated coalition -- with a pop-up website -- and multiple tech sites exhorting the Federal Communications Commission to reject the proposed merger while the latter has largely flown below the radar.

Some of the opposition to Comcast's merger plan has an obvious source -- success breeds contempt. The Stop Mega Comcast coalition argues that a combined Comcast and Time Warner would boast over 50% of the broadband Internet market while WebpageFX notes that post-merger, the combined entity would be the largest ISP in 26 states, with co-ownership of the largest in two others.

Additionally, Comcast would control roughly 30% of the U.S. pay-TV market post-merger, leading DISH Network and various TV networks to complain about potential monopsony power. Interestingly enough, as a combined entity, AT&T/DirecTV would have a similar number of pay-TV subs, but would trail Comcast/Time Warner's scale in Internet as DirecTV lacks an in-house broadband solution.

But there's also another reason why analysts have taken to giving AT&T a pass -- the company has been better at controlling and managing consumer expectations during the process. For example, AT&T executive Ralph de la Vega recently gave consumers another reason to root for its DirecTV deal in an interview with Fierce Cable: "AT&T's goal is make it much easier for consumers to get TV content on their smartphones and tablets without having to worry about whether or not they will be able to do so because of content rights."

I hope Comcast is taking notes. Right now, the success of its proposed merger with Time Warner Cable could hinge on convincing subscribers it is in their best interest -- and Comcast has done a poor job to date of convincing customers.

Horrible communicationFor Comcast and Time Warner Cable, it can be argued their poor corporate communication is mostly to blame for the scrutiny they are receiving. While pay-TV providers get blamed for every price increase, in most cases they are simply passing along their content costs to subscribers.

Led by the massive increase in sports-related programming, rising content costs have forced pay-TV providers to charge more. At one point, Liberty Media president Greg Maffei called ESPN's exploding price increases "a tax on every household." That was in 2011.

Fast forward to today, and both companies are still doing a poor job explaining the industry to subscribers in a time when consumer buy-in is desperately needed. There's potential upside for subscribers of a combined Comcast/Time Warner Cable, but the company needs to make the argument.

See, the combined entity should be able to use its size and scale to hold down the growth of content costs. Right now, the companies are negotiating against themselves to secure deals with Disney's ESPN (and all other cable networks) but once they combine to control 30% of the total pay-TV market, they could gain more leverage. In addition, the combined entities could lower operating costs by synergies and redundancy reductions to hold down broadband Internet costs.

But instead of making this salient argument, stories of poor and disrespectful customer service have filled the void amid floundering attempts to fix this long-standing issue. Although its members aren't elected, the FCC is sensitive to citizen feedback. Comcast and Time Warner need to start making their case to the American public -- addressing the rising costs of content and pointing out possible Internet-related merger synergies would be a good start.

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Jamal Carnette owns shares of AT&T. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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