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What's Next for the New AT&T?What's Next for the New AT&T?

Now that AT&T has finally closed its $48.5 billion purchase of DirecTV, what will it do with its new satellite TV prize?

Alan Breznick

July 28, 2015

4 Min Read
What's Next for the New AT&T?

Now that AT&T has finally closed its $48.5 billion purchase of DirecTV, the big question is how will the carrier leverage its prize satellite TV asset? The answer: in as many ways as humanly possible.

With the consummation of the DirecTV Group Inc. (NYSE: DTV) acquisition late last week, AT&T Inc. (NYSE: T) instantly became the largest pay-TV provider in the New World, with 26.4 million video customers in the US and another 19.5 million in Latin America. AT&T also became an even bigger broadband player than before, adding DirecTV's 2 million or so satellite broadband customers to its 14 million fiber-enriched and copper DSL subscribers to boost its total to 16 million, second in the nation after Comcast Corp. (Nasdaq: CMCSA, CMCSK). (See AT&T Closes Acquisition of DirecTV.)

But, with the traditional pay-TV market now slowly eroding in the US and broadband penetration seemingly approaching the saturation point, neither mature market offers very promising growth prospects for the future. As a result, more than one financial analyst has argued that AT&T has now consigned itself to "fighting yesterday's war," as Craig Moffett, principal analyst at MoffettNathanson LLC , has put it.

AT&T and DirecTV executives have other ideas, though. In news releases after the merger closed and talks with financial analysts over the past few months, they have indicated that they plan to make big pushes on the mobile video, over-the-top video and multiscreen video fronts in the next few months. As part of the various merger conditions set by federal regulators, AT&T officials have also laid out ambitious plans to bring gigabit speeds to far more US homes, potentially reshaping the nation's competitive broadband landscape.

First, on the video end of the business, AT&T said it intends in the coming weeks to "launch new integrated TV, mobile and high-speed Internet offers that give customers greater value and convenience." While the company didn't expound on these offerings in its release, retiring DirecTV CEO Mike White has said his company was studying the creation of both skinny-bundle OTT services like Dish Network LLC (Nasdaq: DISH)'s Sling TV and other "broadband-plus" Internet video offerings. Now it's up to John Stankey, the new CEO of the freshly created AT&T Entertainment & Internet Services unit, and his team to follow up on that groundwork. (See DirecTV Grudgingly Eyes OTT .)

Further, AT&T officials have repeatedly made it clear that they are working on "developing unique video offerings for consumers" through such initiatives as their Otter Media joint venture with the Chernin Group. Established to "invest in, acquire and launch OTT video services," the $500 million joint venture has so far bought majority stakes in Crunchyroll, an anime service, and Fullscreen, a YouTube Inc. multichannel partner network that works with content creators.

In addition, AT&T executives relish the opportunity to offer some version of DirecTV service to their vast flock of wireless subscribers. The company is the largest mobile provider in the Western Hemisphere, with 132 million customers and connections in the US and Mexico.

"We look forward to delivering more video content options over multiple screens, including wireless devices, tablets, laptops and computers," the company says in a Q&A fact sheet about the merger posted on its website. "We will share updates on new services as soon as we have them."

Want to know more about pay-TV market trends? Check out our dedicated video services content channel here on Light Reading.

On the broadband end, AT&T plans to market its broadband services heavily to DirecTV's 20 million or so video subscribers. In its Q&A fact sheet for customers, the company says it will offer broadband discounts to DirecTV customers in the 21 states where it offers service "in the coming weeks."

Beyond the DirecTV gambit, AT&T has pledged to federal regulators that it will extend its GigaPower service to another 12.5 million "customer locations" across the country, in addition to the 1.5 million locations in the dozen or so markets where it already offers the service over its fiber lines to U-verse subscribers. That move will likely make AT&T far more competitive against cable operators in many areas than it has been up till now, giving it the chance to capture a much greater share of the still-growing broadband market

In his latest analysis of the merger's implications, Moffett argues that, while AT&T probably won't reach as many actual homes with fiber as indicated because of the inflated method it uses to count customer locations, it will become a true fiber force to be reckoned with. He says that Comcast, Time Warner Cable Inc. (NYSE: TWC) and Charter Communications Inc. will be the three large cable operators most affected by AT&T's planned GigaPower spree.

"For all the attention that Google Fiber has received, it is now clear that AT&T will be by far the largest fiber builder over the next five years or so," Moffett writes in his report to investors. "To be sure, the AT&T fiber numbers aren't as big as first meets the eye. But they are a real increase in competitive intensity."

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

About the Author(s)

Alan Breznick

Cable/Video Practice Leader, Light Reading

Alan Breznick is a business editor and research analyst who has tracked the cable, broadband and video markets like an over-bred bloodhound for more than 20 years.

As a senior analyst at Light Reading's research arm, Heavy Reading, for six years, Alan authored numerous reports, columns, white papers and case studies, moderated dozens of webinars, and organized and hosted more than 15 -- count 'em --regional conferences on cable, broadband and IPTV technology topics. And all this while maintaining a summer job as an ostrich wrangler.

Before that, he was the founding editor of Light Reading Cable, transforming a monthly newsletter into a daily website. Prior to joining Light Reading, Alan was a broadband analyst for Kinetic Strategies and a contributing analyst for One Touch Intelligence.

He is based in the Toronto area, though is New York born and bred. Just ask, and he will take you on a power-walking tour of Manhattan, pointing out the tourist hotspots and the places that make up his personal timeline: The bench where he smoked his first pipe; the alley where he won his first fist fight. That kind of thing.

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