AT&T DirecTV Acquisition Shows Power of the Bundle

As U.S. Federal Communications Commission officials weigh a number of high-profile proposed mergers, the definition of “relevant market” will arise. It might seem obvious that Comcast buying Time Warner Cable is a simple matter of consolidation within the video entertainment or cable TV market.

That might not be the case. If the transaction is approved, Comcast would have 40 percent market share of the high speed access market.

If AT&T’s bid to buy DirecTV is approved, AT&T would instantly become the second-biggest provider of subscription linear video entertainment services, but would not see its voice, high speed access or mobile segment market share change at all.

Any future proposed consolidation in the leading ranks of mobile service providers likewise would directly affect the mobile provider segment, and might change multi-play services market share.

The point is whether it makes sense to regulate cable TV, video, mobile, high speed access and voice as discrete industries and markets.

Consider that 97 percent of AT&T customers bundle their video subscription service with other AT&T services.  Cable providers have 75 percent or more of their subscribers on a bundle of video and broadband, AT&T notes.

About 41 percent  of Comcast’s customer base bought triple play packages in 2013, for example. And that is a global trend.

Aside from free cash flow, subscriber mass and the value of video entertainment services, AT&T sees upside from new bundling capabilities as a result of the DirecTV acquisition.

All considered, AT&T sees the opportunity to gain new customers through the effective bundling of video, fixed network high speed broadband and wireless services to at least 70 million locations.

AT&T also sees upside from the ability to bundle linear TV and mobile service to another 45 million U.S. customer locations.

Depending on how one wishes to characterize such a bundle, it is a dual-play package(mobile plus entertainment video) or a triple-play offer (video, broadband Internet access and voice).

One example of how the mobile-plus-video package represents new ground for AT&T is the fact that about half of AT&T retail stores do not currently sell a subscription TV product. After the merger, all AT&T stores can sell a dual-play or triple-play bundle.

Overall, the DirecTV acquisition allows AT&T to sell a conventional triple play service to at least 70 million fixed network locations (perhaps 24 million fixed network locations than originally foreseen for Project VIP) and a mobile-plus-video bundle to another 45 million locations.