Wireless, cable consolidation altering digital playing field

AT&T’s bid for DirecTV latest in merger mania in telecommunications

News servicesMay 20, 2014 

Few industries have been as deeply embroiled in merger mania as the telecommunications industry, particularly after AT&T’s $48.5 billion bid for DirecTV.

It follows Comcast’s $45 billion offer for Time Warner Cable, which if completed would create a national colossus in the cable television and high-speed network sector.

AT&T’s acquisition most clearly affects the country’s other major satellite television provider. Dish’s chairman, Charles W. Ergen, has made no secret that deals were an important part of his strategy, whether they be a foiled attempt at buying Sprint or a withdrawn bid to acquire the bankrupt broadband wireless provider LightSquared.

And in recent months, news reports contended that Ergen was interested in pursuing deals either for T-Mobile USA or for DirecTV itself. At the same time, analysts had long speculated that Dish might make an attractive acquisition target for AT&T.

Starting last week, however, Ergen conceded that Dish doesn’t have the same sort of financial firepower that bigger competitors do. And while a merger with DirecTV would make sense, he was not willing to pay what he described as a “lofty” valuation.

Verizon might ultimately end up courting the satellite TV operator, which could help bolster the telecommunications giant’s video offerings in the same way that DirecTV would help out AT&T’s.

Meanwhile, AT&T could pull out of its agreement to buy DirecTV if the satellite TV operator is unable to renew a deal with the National Football League to offer the popular NFL Sunday Ticket football package, according to a regulatory filing Monday.

The current DirecTV offer allows subscribers to watch football games outside of their local markets on Sundays. The exclusive package, which costs subscribers up to $300 a year, is an important tool for DirecTV to attract subscribers, and the company has said about 2 million people receive the service.

On a conference call with analysts Monday, DirecTV CEO Mike White said he and AT&T Chief Executive Randall Stephenson had spoken with NFL commissioner Roger Goodell and New England Patriots Owner Robert Kraft who heads the league’s broadcast committee, and the parties were in “positive and constructive” discussions with the league.

“I am still highly confident that we are going to get our deal done,” White said, adding he expects a pact to be agreed by the end of the year, which would be before the acquisition closes.

For consumers, the proposed AT&T deal could mean bundling mobile phone and TV bills together, if the deal is approved by regulators.

Here’s a quick look at the consumer effect of the deal, based on information provided by the companies:

Q. How will my bill change?

A. For the time being, not at all. The deal is subject to government approval in both the U.S. and Latin America. Until the transaction is approved, the companies will operate separately. AT&T and DirecTV expect to close the deal within 12 months.

After that, however, the companies say a single bill for mobile phone, Internet service and TV can be offered in certain areas.

Q. Will prices rise?

A. That is a concern when competition is eliminated. AT&T offers its U-verse video in 22 states, while DirecTV is offered nationwide. The overlap accounts for 25 percent of all U.S. households. Competition helps keep prices to consumers low. To ameliorate the harm to consumers by reducing the number of TV competitors in many markets from four to three, the companies vowed to offer DirecTV on a stand-alone basis for at least three years at nationwide prices that won’t rise or fall depending on local market conditions. Q. What does this mean for so-called net neutrality, the principle that Internet providers treat all traffic equally, regardless of the type of content?

A. Similar to Comcast’s promise when it bought NBCUniversal, AT&T says it will abide by the Federal Communications Commission’s 2010 open Internet order for three years, despite it being struck down by a court. While the FCC is in the midst of changing those rules to allow for paid-priority fast lanes on the Internet with certain restrictions, sticking by the old order will effectively prevent AT&T from discriminating against Web traffic on its network for the time being.

Q. What new services will this allow?

A. Within a few years, AT&T says, consumers can expect to get more DirecTV content on their mobile devices, or even streamed into cars or airplanes.

By the numbers

Price tag for proposed deal:

$48.5

billion

Cost savings:

AT&T says it will use cost savings — targeted at $1.6 billion a year — to roll out high-speed broadband to 15 million more homes, mostly in rural areas, within four years.

Customer expansion:

AT&T is the second-largest wireless provider with 116 million customers. The company will gain access to DirecTV’s 20.3 million U.S. customers and its 18.1 million Latin American customers. DirecTV’s U.S. customers, coupled with 5.7 million U-verse TV customers, will give the combined AT&T-DirecTV 26 million U.S. users for video. 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. OTHER DETAILS OF PROPOSAL

 • DirecTV would continue to be offered as a stand-alone service for three years after the deal’s closing.

 • AT&T would offer stand-alone 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 — to 70 million total — 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.

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