AT&T Deal For DirecTV Faces Questions

AT&T’s $48.5 billion agreement yesterday to purchase satellite TV operator DirecTV and its 20.27 million U.S. video subscribers will provide a muscular competitor to the bulked-up Comcast-Time Warner but the Federal Communication Commission will not be alone in questioning the wisdom of the combination.

“It gives us the parts to fulfill a vision we have had for a couple of years, that is, the opportunity and the ability to take premium content and deliver premium content over multiple points for the customer, whether it be through a smartphone, through a tablet, or television or laptop,” AT&T CEO Randall Stephenson said on a conference call monitored by Reuters.

“With the transaction, AT&T said its high-speed broadband network will cover 70 million customer locations,” report Bloomberg’s Alex Sherman and Scott Moritz. “That was one of the reasons for the deal because it helps customers watch TV on any device, DirecTV CEO Mike White said in a phone interview.”

But “many Wall Street analysts have questioned whether DirecTV has significant strategic value to AT&T, especially as U.S. wireless competition has picked up with the resurgence of T-Mobile and SoftBank Corp.'s acquisition of Sprint Corp. last year,” Thomas Gryta and Shalini Ramachandran point out in the Wall Street Journal.

Blair Levin, a former chief of staff at the FCC, tells the Wall Street Journal’s Ryan Knutson that the deal is a defensive response to Comcast’s pending $45 billion acquisition of Time Warner Cable and he suspects that the deal making isn’t over yet. “What you see is that there is now starting to be this convergence of all the services, which means you really want to lock down customer bases,” Levin, a fellow at the Aspen Institute think tank, says.

AT&T’s attempt to buy T-Mobile for $39 billion three years ago was scuttled after the U.S. Department of Justice filed an antitrust lawsuit to block the deal. It claimed that the combination would leave AT&T and Verizon Wireless dominating the mobile market, CNNMoney’s David Goldman reported at the time, and “would result in tens of millions of consumers across the U.S. facing higher prices, fewer choices, and lower quality products for wireless services.” 

The WSJ’s Knutson points out that “FCC Chairman Tom Wheeler has stressed the need for competition to counterbalance heavy regulation.” Levin tells him: “The question is, what happens when the guy whose mantra is ‘Competition, competition, competition’ meets a market whose mantra at the moment is ‘Consolidation, consolidation, consolidation.’” 

“There are sensitive areas for sure but they are all manageable,” Stephenson told Bloomberg. “We think this will pass regulatory muster.”

Indeed, “some analysts believe the company will face less heat from the federal government,” Michael J. de la Merced, David Gelles and Brian X. Chen report in the New York Times. “By their reckoning, regulators are likely to look favorably upon a deal that creates a bulwark against a strengthened Comcast.”

“They want wireless to compete with wires,” BTIG media analyst Richard Greenfield, tells the Times. “The only way to complete that is to allow these deals to occur.”

“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,” counters Delara Derakhshani, policy counsel for Consumers Union, in a Reuters report.

Because AT&T and DirecTV “share little overlap,” there won’t be much difference to consumers — “at least at first” — as AT&T plans to bundle DirecTV’s services with existing offerings like broadband Internet and cellphone service, according to the Times’ report. But the deal will give it more clout in negotiations with media companies, CEO Stephenson maintained in an interview. 

“Sensing heavy scrutiny from federal regulators for its merger approval, AT&T and DirecTV listed several ‘commitments’ that will be carried out after the deal closes,” Roger Yu reports in USA Today, citing broadband extension, speed guarantee, DirecTV continuance for at least three years a standalone service and net neutrality.

It won’t hurt that it “reportedly plans to cozy up to regulators by framing its DirecTV buy as a move to expand Internet access in underserved areas, a longtime technology policy goal of the Obama administration,” Time’s Alex Fitzpatrick writes with a link to Brian Stelter’s piece for CNNMoney.

Stelter got his hands on “an internal presentation extolling the virtues of the deal for shareholders of the two companies” that “predicted” deal will “pass muster” with regulators. He points out, however, that consumer activists will fight to oppose it. 

“The captains of our communications industry have clearly run out of ideas,” Free Press president and CEO Craig Aaron said in a statement. “Instead of innovating and investing in their networks, companies like AT&T and Comcast are simply buying up the competition. These takeovers are expensive, and consumers end up footing the bill for merger mania.” 

Meanwhile, AstraZeneca seems to have developed an antidote for merger mania, having rejected Pfizer’s final “take it or leave it offer” to create the world’s biggest pharmaceutical company.” It just said no yesterday.

Tags: cable tv, m&a, telecom
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1 comment about "AT&T Deal For DirecTV Faces Questions".
  1. Paula Lynn from Who Else Unlimited , May 19, 2014 at 8:54 a.m.
    How would you feel if there was only one corporation controlling all media ? What do you think the ramifications would be in a few years ? 10 years ? It is not just about rates skyrocketing.