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AT&T to Acquire DirecTV for $48.5B

Alan Breznick
5/18/2014
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Spurred to act by Comcast's pending acquisition of Time Warner Cable, AT&T plans to buy satellite TV leader DirecTV for about $48.5 billon.

The deal between AT&T Inc. (NYSE: T) and DirecTV Group Inc. (NYSE: DTV), first reported two weeks ago by the Wall Street Journal and announced publicly by the two companies late Sunday afternoon, would transform the landscape for video, broadband, cable, telecom, and wireless services in the Americas. That would be particularly true in the US, where the union of the nation's largest telco and satellite TV provider would produce a monolith with nearly 26 million video and 17 million broadband subscribers, as well as 16 million residential phone lines and close to 100 million wireless customers. (See Broadnet Gets 400G-Ready With Huawei and AT&T Eyeing a Bid for DirecTV?)

The combination would also create a far more powerful rival to Comcast Corp. (Nasdaq: CMCSA, CMCSK), which is pursuing its own visions of grandeur by buying Time Warner Cable Inc. (NYSE: TWC) for more than $45 billion. The new Comcast would wind up with about 29 million video, 28 million broadband, and 13 million wireline voice subscribers, assuming that the deal is approved by federal regulators and it follows through on its planned divestitures to and system swaps with Charter Communications Inc. .

Further, AT&T doesn't plan to stop there. In the merger announcement by the two companies, AT&T said it will "expand its plans to build and enhance high-speed broadband service to 15 million customer locations" over the next four years. The new commitment would be above and beyond the company's existing fiber and Project VIP initiatives.

The carrier said it also intends to pursue more wireless spectrum in the upcoming federal auctions this year and next. It stressed that it aims to "bid at least $9 billion in connection with the 2015 incentive auction," as long as there's sufficient spectrum available to provide it "a viable path to at least a 2x10 MHz nationwide spectrum footprint."

Clearly seeking to appease federal regulators who must approve the blockbuster deal, AT&T pledged that it will offer "standalone wireline broadband speeds of at least 6 Mbit/s (where feasible)" in areas where it already offers broadband at "guaranteed prices for three years after closing." In addition, the carrier vowed to maintain its commitment to the Federal Communications Commission (FCC) 's net neutrality policies for three years after closing the deal, even if the Commission fails to re-impose those rules. Moreover, AT&T said it will keep up DirecTV's nationwide package pricing for at least three more years.

If both AT&T and Comcast succeed in completing their proposed acquisitions, the US broadband, telecom, and pay TV landscape would be dominated by two huge national or virtually national companies -- the new AT&T and the new Comcast. Between them, the two giants would easily control more than half of the pay TV and broadband markets, as well as nearly half of the wireline voice market and a sizable chunk of the wireless market.

On its own, the combined AT&T-DirecTV would also maintain DirecTV's status as the largest pay TV provider in Latin America, with more than 18 million satellite TV subscribers in Mexico, Argentina, Brazil, and elsewhere.

Like the Comcast-Time Warner Cable deal, the AT&T-DirecTV pact will be subject to stiff regulatory scrutiny by both the Antitrust Division of the U.S. Department of Justice and the FCC. Both federal agencies are already gearing up to scrutinize the proposed Comcast-TWC union, making for an extremely busy summer and fall.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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DHagar
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DHagar,
User Rank: Light Sabre
5/19/2014 | 9:11:56 PM
Re: Why Does This Make Sense
@danielcawrey, It is my understanding that it will include that - which will make their package highly competitive.

It is also my understanding that they have written into the deal the option to withdraw from the offer if DirecTV does not get the NFL renewal contract (which is rumored to be having a hefty rate increase).
brookseven
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brookseven,
User Rank: Light Sabre
5/19/2014 | 6:28:29 PM
Re: Why does this make sense?
desi,

My point is this.  For all times t from the start of recorded history until now, Good Content gets paid.  Good Content Never Pays.  JK Rowling gets paid to write books.  Metallica gets paid to put out albums.  The NFL gets paid to televise games.  See how this goes?

Disney will NEVER pay for a fast lane to deliver any content.  Just remember Comcast is already paying Disney a BOATLOAD of money to put in a special fast lane to deliver its content via its pay TV service.  Anybody who thinks Disney is going to pay to do OTT is patently insane.  That is why this fast lane thing matters not in the least.

Note: Netflix outside of House of Cards and Arrested Development is not a content owner but an aggregator.

As to the deal, remember U-verse in its current implementation requires 2500' loop lengths.  Outside of urban/suburban areas this is just not going to be possible (1 VRAD per farm in Kansas).  Not only does AT&T get all the video stuff, it gets to remove broadcast video from the requirement of a rural DSL upgrade.  Right now in those properties AT&T had been deploying ATM based ADSL (in fact they had us turn off ADSL2+ on the DSLAMs so that the line would train in ADSL).  They have wanted to move to IP DSL but probably want to offer a ubiquitous triple play as a way to get a switch done.  Now they can.

seven
desiEngineer
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desiEngineer,
User Rank: Light Beer
5/19/2014 | 5:44:17 PM
Re: Why does this make sense?
seven,

I think it means holding on to a subscriber is worth the expense (pays for delivery and the cost of a win-back).  Good content is one way.  NFL Sunday Ticket is to ATT what Barclay's Premier League is to BT (I would have said NBC except they don't really know what they're doing).

-desi
danielcawrey
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danielcawrey,
User Rank: Light Sabre
5/19/2014 | 5:08:42 PM
Re: Why does this make sense?
It's Comcast versus AT&T in the United States for cable. 

I find it strange that AT&T would buy DirecTV, a satellite company. But there are only so many corporate marriages that can be done when you get to the size of AT&T. We'll see how this shakes out over time.

Does it mean that the NFL Sunday Ticket Package will be available to all AT&T subscribers? That could be a windfall of revenue. 
kq4ym
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kq4ym,
User Rank: Light Sabre
5/19/2014 | 4:46:38 PM
Re: Why does this make sense?
I had read that the buy would add about 20 million new U.S. customers which make the price about $2000 per satellite customer. That should easly pay off over about three years, the time AT&T says subcription prices will remain steady for the new customers. Expect a healthy profit and continuing revenue for AT&T if the deal goes through.
brookseven
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brookseven,
User Rank: Light Sabre
5/19/2014 | 3:24:05 PM
Re: Why does this make sense?
Phil,

Isn't it interesting that people on these boards think that good content is going to pay for delivery given your note here?

seven

 
Atlantis-dude
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Atlantis-dude,
User Rank: Light Sabre
5/19/2014 | 1:45:55 PM
Uverse v/s Direct
TV content. How will it be split ?
Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
5/19/2014 | 12:13:11 PM
Re: Why does this make sense?
Dan,

 

FYI, they just discussed on CNBC that AT&T could pull out if DirecTV doesn't get a renewal of the NFL Sunday Ticket deal. This could mean a bidding war for that content.
DOShea
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DOShea,
User Rank: Blogger
5/19/2014 | 11:32:27 AM
Re: Why does this make sense?
I don't think it explains the whole deal, but agree that NFL Sunday Ticket and perhaps other DirecTV content are important gamepieces in this deal.

Overall and strategically, I don't completely get it either. AT&T has been rumored for about six or seven years to have desire for a satellite acquisition, so maybe Ma Bell just couldn't put this one out of her mind.
Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
5/19/2014 | 9:20:59 AM
Re: Why does this make sense?
A big key to this could be NFL Sunday Ticket. This give AT&T some valuable content which is likely to become more important than ever in light of the planned Comcast-Time Warner deal. 

It would likely also help AT&T in non-rural areas where U-verse has only limited availability. For example, I have a daughter who lives in Springfield, Ill. U-verse is not available in her subdivision, though it is available a few blocks away.
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