Pedestrians walk past an AT&T Inc. store in the Times Square area of New York. (Photographer: Michael Nagle/Bloomberg)

Online TV Prices Are Acting Like Cable TV Prices: Heading Higher

(Bloomberg) -- AT&T Inc.’s $5 price hike on DirecTV Now might spread good vibes about profit on Wall Street, but it’s gnawing at those who warned the phone giant’s $85 billion takeover of Time Warner Inc. would lead to higher prices for consumers.

The increase takes effect by month’s end. Just a few weeks ago, AT&T executives testified in a U.S. antitrust trial that pay-TV prices would fall as a result of the merger. The Justice Department, which said the deal would harm consumers and sued to block it, lost the case last month, allowing the merger to close.

“This is an early sign of what we feared would play out,” said Gene Kimmelman, chairman of Public Knowledge, a consumer advocacy group. “And it’s a clear sign that the judge got the decision wrong.”

AT&T’s decision to raise some prices is playing out in a pay-TV market that has more competitors than ever, thanks to Netflix and, as well as online offerings from existing providers, such as DirecTV Now. In addition to raising prices, AT&T and Dish Network Corp., owner of Sling TV, recently launched video services that are free for some customers.

The price hike was already in the works and unrelated to the Time Warner deal, AT&T said Tuesday. Chief Executive Officer Randall Stephenson told investors in May that DirecTV Now was adding features and eliminating discounts.

New Functions

“You’ll see us begin to charge for the new functionality and move the price point up and move the profitability equation more in line with what you’d expect,” Stephenson said.

AT&T also recently increased one of its so-called hidden surcharges to wireless subscribers. Over the past three months, the company raised its “administrative fee” to $1.99 a month from 76 cents, according to Walt Piecyk, an analyst at BTIG LLC. The fee applies to most of AT&T’s 65 million mobile customers and will yield $800 million in added revenue, Piecyk wrote last week. Sprint raised its fee to $2.50 from 51 cents earlier this year, he said.

In the federal antitrust case, AT&T executives said consumer TV prices would come down as ad revenue grew. Ownership of Time Warner assets like Turner Broadcasting and the development of more sophisticated advertising systems would boost revenue through more targeted spots to AT&T’s TV, internet and mobile subscribers.

“The price increases at Sling and the others certainly gave AT&T the impetus and some cover to raise their DirecTV Now prices,” said Kevin Roe, an analyst with Roe Equity Research LLC. “If AT&T had not been in an antitrust trial the company would have probably raised prices sooner.”

AT&T, based in Dallas, rose 1.6 percent to $32.71 at the close on Tuesday. The stock is down 16 percent this year.

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