From the initial reports of AT&T's potential interest in buying DirecTV, I've been a bit puzzled. While a possible deal gives AT&T a broader reach for video offerings and more scale and market power in an industry segment where both are important, pay TV doesn't seem to be the business in which AT&T most wants to play going forward. (See AT&T Eyeing a Bid for DirecTV?.)
It is certainly not AT&T Inc. (NYSE: T)'s primary business, from what I can see, nor is it even all that profitable a part of the service bundle, according to most experts. The cost of content continues to rise, while the ability to pass those increasing costs on to consumers is reduced by growing availability of cheaper online content.
So what's the appeal of buying DirecTV Group Inc. (NYSE: DTV) that would prompt AT&T to pay an expected 20% premium for its stock, according to Amy Yong, a New York-based analyst for Macquarie Group Ltd., quoted in this Dallas News article?
My favorite explanation is this one: Using DirecTV's satellite service for TV frees up more bandwidth for broadband distribution. A separate nationwide video distribution network would let AT&T free up bandwidth and compete more effectively on broadband. Better broadband is ultimately the greatest competitive tool and the single most important service. This is especially true as AT&T moves to use broadband as the support for wireless voice inside the home, delivered via femtocells or other small cell technology, replacing wireline voice or supporting its wireless subscribers in places where cellular coverage is weak.
AT&T's determination to avoid the cost of fiber-to-the-home has left its U-verse service vulnerable to higher bandwidth options from cable. And while AT&T and its vendors have pushed DSL and compression technologies much farther than most of their critics initially thought possible, there are still limits to what copper can deliver versus a more fiber-rich solution. And there are places where U-verse won't be available, in areas covered by other competitors, that DirecTV can reach.
Of course, there are limits to the satellite distribution of TV signals, as anyone who has ever subscribed to Dish Network LLC (Nasdaq: DISH) or DirecTV knows all too well: Weather-related outages plague both services and aren't likely to go away any time soon, and interactivity is limited. Coupling a DirecTV option more tightly with broadband would make such outages less relevant in a video world in which time-shifting dominates the viewing environment and time-sensitive programming, such as live sports, can be made available via online options.
That's what makes the most sense to me; let me know what you think.
— Carol Wilson, Editor-at-Large, Light Reading
Especially in Los Angeles. Some of the copper is insulated with paper or cloth; and zoning prevents the ability to get in to replace it. So, they actually maintain the city block's wiring with a 150-lb tank of nitrogen gas that blows water away. The gas tank the same size as a Helium Tank and has to be refilled twice a week.
In the event of an emergency, like an earthquake, my guess is that maintaining the gas tanks will be at the bottom of a list of priorities.
One thing I haven't seen in discussions is that most satellites are designed with a typical life of 20-15 years anyway. My guess is that DirecTV's satellites need to be updated/replaced. If they replace them all with LTE techonology (similar to ViaSat), DirecTV might be onto something great.