IBJNews

AT&T aims for TV's future with $48.5B DirecTV deal

Back to TopCommentsE-mailPrintBookmark and Share

Priming itself for the age of Internet-delivered video, AT&T Inc. said it would buy DirecTV for $48.5 billion in cash and stock, or $95 per share.

While DirecTV doesn't help the telecom company compete in the online video space immediately, cost savings from the merger and the extra cash flow will improve its ability to compete with the cable giant that would be formed by Comcast Corp.'s proposed $45 billion takeover of Time Warner Cable.

With 5.7 million U-verse TV customers and 20.3 million DirecTV customers in the U.S., the combined AT&T-DirecTV would serve 26 million. That would make it the second-largest pay TV operator behind a combined Comcast-Time Warner Cable, which would serve 30 million under a $45 billion merger proposed in February.

AT&T is already the largest mobile service provider in the U.S., serving 116 million customers compared to Verizon's 103 million.

"What it does is it gives us the pieces to fulfill a vision we've had for a couple of years - the ability to take premium content and deliver it across multiple points: your smartphone, tablet, television or laptop," AT&T's Chairman and CEO Randall Stephenson said on a conference call with journalists Sunday.

The companies are aiming to eke out $1.6 billion in annual cost savings in an increasingly expensive and maturing pay TV business. Using DirecTV's cash flow, AT&T has greater ability to invest in its landline and mobile networks for broader reach and faster speeds in an Internet service market where it risks falling behind a bulked up Comcast-Time Warner Cable.

The companies also promised consumer benefits like more economical bundles that tie mobile phone, pay TV and Internet service together on a single bill.

But the deal could face unique regulatory scrutiny from the Federal Communications Commission and Department of Justice. Unlike the cable company tie-up, the AT&T-DirecTV merger would effectively cut the number of video providers from four to three for about 25 percent of U.S. households.

Cable companies operate in regions that don't overlap, but in comparison, AT&T provides TV service to 22 states, where it is a direct competitor to DirecTV, which is nationwide. Reducing choice in those markets could result in higher prices for consumers and that usually gives regulators cause for concern.

Stephenson said those concerns would be addressed with a number of what he called "unprecedented" commitments. Among them:

— DirecTV would continue to be offered as a standalone service for three years after the deal's closing.

— AT&T would offer standalone broadband service for at least three years after closing, so consumers could consume video from Netflix and other online services, with download speeds of at least 6 megabits per second where feasible.

— AT&T would expand high-speed broadband access to 15 million more homes - beyond the 70 million that could now get AT&T service — within four years.

— AT&T vowed to abide by the open Internet order from 2010 that the Federal Communications Commission is now in the process of revising after a court struck it down.

— AT&T vowed to sell its roughly 9 percent stake in Latin American wireless carrier América Móvil for about $5 billion.

"This is going to prove to be a pro-competitive and pro-consumer transaction," Stephenson said.

Several consumer groups disagree. Delara Derakhshani, policy counsel for Consumer Reports magazine's lobbying arm, Consumers Union, said the deal "is just the latest attempt at consolidation in a marketplace where consumers are already saddled with lousy service and price hikes."

"You can't justify AT&T buying DirecTV by pointing at Comcast's grab for Time Warner, because neither one is a good deal for consumers," she said in a statement.

AT&T and DirecTV expect the deal to close within 12 months. Under the terms announced Sunday, DirecTV shareholders will receive $28.50 per share in cash and $66.50 per share in AT&T stock. The total transaction value is $67.1 billion, including DirecTV's net debt.

Stephenson and DirecTV CEO Michael White both said the merger would allow the combined company to offer video over multiple screens, but acknowledged that deals with content providers to expand service on multiple platforms still need to be negotiated.

White said that, for example, DirecTV's exclusive deal for its signature product, NFL Sunday Ticket, expires at the end of the coming season. He said he was "confident" the deal would be extended with the NFL on an exclusive, long-term basis, and noted that in the past, DirecTV has sold the football package directly to online platforms, such as to users of Sony's PlayStation.

"This positions us well to compete in the 21st century," White said. "I think our future is bright together in ways that make both of our companies stronger."

Analysts have questioned the strategic benefits of a deal, particularly because it would give AT&T a larger presence in the mature market for pay TV.

Last year, pay TV subscribers in the U.S. fell for the first time, dipping 0.1 percent to 94.6 million, according to Leichtman Research Group.

While AT&T and DirecTV are doing better than cable companies at attracting TV subscribers, DirecTV's growth in the U.S. has stalled while AT&T is growing the fastest of any TV provider.

DirecTV offers neither fixed-line or mobile Internet service, and its rights to airwave frequencies for satellite TV are not the kind that AT&T can use to improve its mobile phone network.

Still, Stephenson has talked exuberantly about how the growth of online video helps boost demand for its Internet and mobile services. Last month, AT&T entered a joint venture with the Chernin Group to invest in online video services.

DirecTV would continue to be based in El Segundo, Calif., following the merger, the companies said.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Hello Dear Are you tired of Seeking Loans and Mortgages,have you Been Turned down constantly By your banks and Other Financial Institutions or Micro Finance scheme. This is let you know with 100% guarantee that we Offer loans ranging from $1,000 Minimum to $1,000,000.00 Maximum at 3% interest rate per Month. We give out LOANS for developing business. a competitive edge/business expansion. email address: michealscottloan124@gmail.com We offer the following kinds of loans and many more; * Personal Loans ( Unsecured Loan) * Business Loans ( Unsecured Loan) * Consolidation Loan * Combination Loan * Home Improvement * Xmas Loans for contact to seek for loan email this email address: michealscottloan124@gmail.com Thanks

  2. My name is Mr Henry Josh and i live in the USA California and life is worth living right now for me and my family and all this is because of one man sent by GOD to help me and my family, i once had a life filled with sorrow because my first SON needed a kidney transplant and all our savings were going towards his medications and this normally leaves us with no money to pay our bills or even put enough food on our table and our rent was due and no funds to pay these bills and life felt so unfair to me and every night my wife will cry herself to sleep every night until one day, i was browsing through yahoo answers and i saw a striking advert of a man that gives out personal loans and that the offer is opened to all and i have heard so many things about internet scams but at this point of my life, i was very desperate and ready to take any risk and at the end of the day, i applied for this loan and from one step to another, i got my loan within 12 hours through bank transfer and you know, it was all like a dream and i called Mr Daniel Jones A Man who is the GOD sent lender i found and said, i have received my loan and he smiled stating that to GOD be the glory and i was so shocked as i have never ever seen anyone with such a GOD fearing and kind heart and today, i am the happiest man on earth because by GOD’S grace, my SON kidney transplant was successful and today he is healthy, i and my family are living very comfortable and happy and if you are in my former situation or in serious and legitimate need of a loan, you can reach this GOD sent lender via fidelityloanfirm@outlook.com

  3. Greetings to everyone reading this comment!!! I am Greg William by name. I am out here to recommend the effort of Mark Oscar,I was in need of a consolidation loan amount of 50,000 and as soon as I got in contact with Mark Oscar Loan Firm on Wednesday last week and on Friday last week as well I receive an alert from my bank(Royal Bank of Scotland Group) that the fund was transferred,I want everybody on this site to contact Mark Oscar now via email on how to get a loan because I got my loan from them and I am very happy,so contact them now. Oscarloanfinance@hotmail.com Thanks!!!!!!

  4. Elected officials, like Mourdock, get vested in 8 years. It takes 10 years for all other public employees, most of whom make a lot less money. So much for the promise to finish out his term.

  5. Great state treasurer and a good man!! Just curious if the folks who didn't quite understand his quote would like to tell my daughter-in-law that God didn't intend her! Mourdock's comment was correct but twisted and the article didn't mention that his opponent and the press let the impression stand that Mourdock meant that the rape was intended. Stupid people!!

ADVERTISEMENT