AT&T, DirecTV Complete Merger to Form Biggest Pay-TV Company

25 Jul 2015 | Author: | No comments yet »

AT&T Completes $48.5 Billion DirecTV Buy With FCC Approval.

NEW YORK (AP) — Even as TV watchers increasingly go online, AT&T has become the country’s biggest traditional TV provider with its $48.5 billion purchase of DirecTV.

The Federal Communications Commission approved AT&T Inc.’s $48.5 billion takeover of DirecTV with conditions, making the former telephone company a new powerhouse in the television business with international reach. The panel’s blessing came one year after AT&T petitioned for government approval — a long slog, but one that lacked the public rancor that doomed another proposed merger: Comcast and Time Warner Cable. The deal gives AT&T control of DirecTV’s 20.4 million customers and valuable programming, turning it into a media giant in addition to a telecommunications company. Instead, FCC Chairman Tom Wheeler and his colleagues viewed AT&T’s deal as a vehicle to tackle one of their highest priorities: improving the nation’s high-speed Internet network.

Armed with DirecTV’s paid content such as NFL Sunday Ticket, which carries an exclusive broadcast of certain professional football games, AT&T stands to entice new subscribers and provide additional offerings to existing customers. In a key condition to win approval, AT&T agreed to dramatically expand its high-speed fiber optic broadband network and upgrade Internet connections to schools and public libraries. The deal also combines a nationwide satellite TV service, the country’s largest, with the No. 2 nationwide wireless network as time spent on mobile devices increases. That said, the two companies do compete against each other in parts of the country where AT&T offers TV service, including in California, Georgia, Illinois and Texas. With DirecTV, AT&T becomes the No. 1 pay-TV company in the U.S. and gains a stronger negotiating position with media companies over TV programming costs.

At a time when fierce competition over cellphone service is shrinking profit margins, the acquisition may also help AT&T diversify the types of content it serves over its mobile network, which increasingly supports non-voice services such as connected cars. DirecTV also has 19.5 million customers in Latin America, where AT&T wants to grow. “We’ll now be able to meet consumers’ future entertainment preferences, whether they want traditional TV service with premier programming, their favorite content on a mobile device, or video streamed over the Internet to any screen,” said AT&T CEO Randall Stephenson in a statement. The F.C.C. recognized that problem and is requiring AT&T to take steps to increase the availability of high-speed fiber lines in the places where it has a traditional wired telephone network so that its customers can take greater advantage of newer Internet-based TV services like Sling and HBO Now. As part of the deal, AT&T has agreed to a number of conditions, such as promising to expand high-speed Internet to 12.5 million households, schools and libraries. Those deals, announced this spring, have a combined value of $67 billion and would catapult Charter into the third-largest pay-TV provider in the nation, behind AT&T and Comcast.

The merger is a spot of good news for AT&T, which revealed in its latest earnings report this week that it had lost customers for most of its consumer-facing services. The AT&T deal did not trigger the same fears from consumer advocates because the company wouldn’t contain an entertainment division like Comcast’s NBCUniversal and wouldn’t gain Internet customers, considered the future of the industry, by buying DirecTV. Last quarter, the company shed 200,000 wireless phone customers, 652,000 fixed line phone customers, 136,000 DSL customers, and 22,000 U-Verse video subscribers. In addition, AT&T will be required to offer an inexpensive Internet plan for low-income residents. “For our goal of universal broadband access to be realized, we need both universal deployment of networks and access to affordable services,” FCC Commissioner Mignon L.

But as John Bergmayer, a senior staff attorney at Public Knowledge, said earlier this week, merger conditions will not address the larger problem in the telecommunications industry that is highlighted by transactions like this one: a lack of competition. With DirecTV customers, the Dallas-based carrier will have 26 million U.S. video customers compared with about 22 million cable subscribers at Comcast.

Analyst Craig Moffett of MoffettNathanson had said before the deal’s close was announced that AT&T would probably build the fiber in markets where it already operates a slower Internet network. “In terms of increasing competition, AT&T has been claiming that bundling with DirecTV will help it compete better with cable. If AT&T doesn’t complete its mandatory buildout of high-speed Internet at the end of four years, all of the conditions will be extended until the construction is complete, according to the deal.

AT&T said that another executive, John Stankey, would become chief executive of the newly formed AT&T Entertainment and Internet Services, with responsibilities over DirecTV and AT&T Home Solutions operations. Another way the agency wants to try to promote video competition is by forbidding AT&T to make a potential online video service of its own not eat up data under the cap imposed by the company on its home Internet customers. If AT&T did that, it could make its own service more appealing compared with Netflix, for example, because streaming Netflix would count toward the data cap and potentially could trigger additional fees if a customer went over the cap. The company also must let low-income customers buy standalone broadband service — a step that lowers barriers for customers who want to forgo traditional TV-programming bundles and rely on online offerings from the likes of Netflix Inc., Inc. and Dish Network Corp.’s Sling TV. AT&T also has singled out Latin America as a source for growth, having expanded service south of the U.S. border with the acquisition of Mexico’s Grupo Iusacell and Nextel Mexico.

Swallowing DirecTV is expected to transform AT&T into a television juggernaut, one that is less reliant on its wireless phone business, which has been subject to price wars among the leading providers.

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