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AT&T may buy DirecTV for US$50 billion

Lucas Mearian | May 14, 2014
AT&T is in advanced talks to acquire DirecTV for about $50 billion, according to published reports.

AT&T is in advanced talks to acquire DirecTV for about $50 billion in a deal that would give AT&T a nationwide base of pay-TV subscribers.

According to a report published by the Bloomberg news service, the plan would allow DirectTV to continue running itself as a division of AT&T.

The merger could lead to AT&T's becoming the largest pay-TV provider in the country, unseating Comcast.

"But that's seven, eight or nine years out. It's not like it's in a five-year period," said Erik Brannon, an analyst with IHS. "It takes time to reach that level of penetration. It's not inconceivable that AT&T achieves a market penetration of 37% or 38%."

"This highlights the death of linear television. Both Dish Network and DirecTV have recognized that, and their answer to the grim reaper on the horizon has been to buy wireless spectrum or to partner with someone... or in DirecTV's case to be bought by someone," said Roger Entner, an analyst with Recon Analytics.

As the nation's largest satellite-TV provider, DirecTV would give AT&T an additional install base of 25 million pay-TV subscribers on top of the 5 million AT&T has today through its U-verse bundled wire service.

A DirecTV spokesperson wrote in an email reply to Computerworld that the company has not made any announcements nor is it commenting on the buyout reports.

IDC analyst Greg Ireland said adding a satellite provider to its services would open up AT&T's broadband services by allowing it to shift its video services over to satellite.

"AT&T's U-verse doesn't have as much [bandwidth] capacity, so AT&T U-verse television service competes for the same limited bandwidth coming over the pipe into the home," Ireland said. "By moving some subscribers over to satellite, or encouraging them to move to satellite, it means the broadband pipe can be leverage exclusively for [data]."

One of the biggest benefits for AT&T's paid television services would be more leverage in contract negotiations with TV networks, Ireland said. The more subscribers, the more leverage to force better content deals, Ireland said.

AT&T's merger talks come at a time when Time Warner Cable is already working out a deal with regulators to purchase Comcast for $42 billion.

An additional merger between AT&T and DirecTV would likely throw antitrust regulators a curveball as they would have to consider how both deals would affect the industry as a whole.

AT&T's move follows a trend in the industry where telecommunication providers are becoming integrated media companies offering a wide variety of bundled services, including TV service, Internet and wireless home security.

"I don't think this [AT&T-DirecTV] combination would be possible without a combination with Comcast and Time Warner," Entner said. "Five years back, we would have thought the market we're looking at is the satellite TV market, and we can't have one taken out by the big [telecom] guys. But that has evolved."

 

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