AT&T Deal For DirecTV Soon?

AT&T reportedly is within weeks of making a firm bid for DirecTV, a move in keeping with AT&T's (SBC) growth strategy over the last couple of decades, which is to get bigger fast using acquisitions. 

Verizon, in contrast, has emphasized organic growth. 

As always, there is disagreement about the value of such a deal. Some think AT&T will not gain as many synergies from the deal as some expect, since the network platforms are distinct. That line of thinking suggests a better approach would allow AT&T to bundle multiple services using a single platform.

But "better" in principle does not take into account the realities of what AT&T can accomplish, in its actual markets, with expected close regulatory scrutiny, at reasonable cost, without damaging its credit rating and debt load.

Any significant-sized deal to acquire additional fixed network assets or mobile assets would almost certainly be rejected by the Federal Communications Commission and Department of Justice, as any big deals in those areas would boost AT&T above 30 percent market share, a trigger for regulatory objection.

In that regard, the Comcast bid for Time Warner Cable would give the new Comcast about 40 percent share of U.S. fixed network high speed access share, even if video entertainment share or voice share would raise fewer issues. 

That level of Internet access market share (40 percent) typically would be a huge warning sign that regulatory opposition is certain. 

In that sense, an AT&T bid for DirecTV would face fewer obstacles than Comcast's bid for Time Warner Cable.
Graph showing projected data-service revenues for a post-merger Comcast, via GigaOmComcast says it would divest about three million accounts, as part of the acquisition, to keep video share under a 30-percent market share level.

But some will argue it is high speed access share that is critical, going forward, not video share. 

And that is one complication for regulators and antitrust authorities looking at fixed network acquisitions and mergers. What is the relevant market: all triple-play services taken together, or market share in each discrete market (voice, video entertainment and high speed access)?

Even more complicated are evolving quadruple-play markets, where U.S. cable operators, not just telcos, soon will be competing against each other, and against other contestants with a single lead app (mobile-only, or satellite-only).

In fact, many observers already believe that, in the future, cable operators will make most of their money from high speed access, not video entertainment and other services. If so, then the strategic change in market structure is high speed access, not video.

Any Sprint effort to buy T-Mobile US would not so much face opposition because it vaults Sprint above the 30 percent market share test, but because it reduces the number of national U.S. mobile service providers from four to three.

That is a major concern of regulators in many mobile markets. 



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