Monday, May 19, 2014

AT&T Announces DirecTV Acquisition

AT&T will acquire DirecTV in a stock-and-cash transaction for $95 per share, or about $48.5 billion.

The transaction enables the combined company to offer consumers bundles that include video, high-speed broadband and mobile services using all of its sales channels nationwide, better positioning AT&T in the competition with cable TV operators.

That is the most immediate change, as up to this point AT&T had been able to sell an owned and branded video product only in parts of its fixed network, limiting the scale of AT&T triple-play and quadruple-play offers.

By 2015, AT&T, for example, will be able to market to only about 33 million locations, some argue, using its fixed network. But AT&T now says it will reach 70 million broadband locations, after the deal.

The DirecTV buy means AT&T can sell its own branded service to nearly every home in the United States.

Verizon’s FiOS covers about 17.8 million homes, so the two telcos will pass about 51 million U.S. homes, by 2015, out of perhaps 145 million U.S. homes by 2015. That implies coverage of about 35 percent of U.S. homes. Other telcos will sell telco TV as well, but collectively could only theoretically reach about 14.5 million homes, or so, by 2015, best case.

Even under the best of circumstances, it is unlikely U.S. telcos would pass even 45 percent of U.S. homes by 2015, some might argue, without satellite coverage.

So the DirecTV acquisition instantly and fundamentally changes AT&T’s video footprint. Though the ultimate implications are yet unclear, AT&T also gets DirecTV’s operations in South America as well, offering a potential growth vehicle in international markets, at some point.

But AT&T also points to the deal’s ability to help AT&T deliver entertainment video to any screen, fixed or mobile, linear or on-demand.

But AT&T also says 15 million customers--mostly in rural areas-- will get faster high speed access as a result of the deal, mostly because the additional cash flow can be used to upgrade existing facilities, in addition to the upgrade plans AT&T already had announced as part of Project VIP.

To help it gain regulatory approval, AT&T will sell broadband-only service at current prices for three years after deal closing, at speeds of at least 6 Mbps. That measure will address concerns that the deal will lead to forced bundling of video with existing “broadband-only” offers.

AT&T also will maintain “stand-alone” purchasing of DirecTV nationally for at least three years after deal closing, with uniform national pricing. That likewise is designed to allay fears that an immediate shift to bundling will happen.

AT&T also will operate under 2010 Federal Communications Commission network neutrality rules, selling “best effort only” consumer Internet access, for three years after deal closing, irrespective of whether the FCC re-establishes such protections for other industry participants following the DC Circuit Court of Appeals vacating those rules.

DirecTV’s South American business is the biggest in the region and DirecTV has more than 18 million subscribers, still growing.

The deal includes a stock price “collar,” automatically adjusting AT&T’s bid if the price of AT&T’s stock falls or grows before the deal is concluded.

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