AT&T-DirecTV Merger Creates World’s Largest Pay TV Company

25 Jul 2015 | Author: | No comments yet »

AT&T Closes $49 Billion DirecTV Buy.

The Federal Communications Commission approved AT&T’s $48.5 billion acquisition of DirecTV on Friday. WASHINGTON: The No. 2 U.S. wireless carrier AT&T Inc and the biggest satellite-TV provider DirecTV became the country’s largest pay-TV company on Friday, completing their US$48.5 billion merger after receiving final regulatory 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.

AT&T, which on Friday received final U.S. regulatory approval to buy DirecTV, will offer ad-supported TV streaming and mobile video products while building out its advertising technology, John Stankey, the AT&T executive named as chief of the company’s Internet and Entertainment division, told Reuters.For AT&T, the deal is the keystone in its effort to diversify away from the U.S. wireless business, where growth has slowed as market saturation and competition take their toll.

DirecTV, which AT&T has said it is considering renaming, will give the carrier more scale in television and provide leverage to offer new video services over-the-top and on mobile devices. “We’re now a fundamentally different company,” AT&T Chief Executive Randall Stephenson in a news release. This deal posed significantly fewer antitrust problems than Comcast’s proposed merger with Time Warner Cable, which would have combined the nation’s largest and second largest cable companies. (The F.C.C. and the Department of Justice opposed that deal, forcing Comcast to back out of it.) AT&T is primarily a phone and Internet company with a growing cable-TV business, and DirecTV primarily provides satellite-TV service in the United States and Latin America and is not a big player in broadband or telephone services. The company said it will serve more than 26 million U.S. customers and more than 19 million in Latin America, making it the world’s biggest pay-TV company.

He will also oversee the wireless distribution of mostly youth-oriented original content created by Otter Media, a joint venture of the telecom carrier and the investment group headed by media entrepreneur Peter Chernin. “It’s a two-pronged approach – it’s great premium content and scale that DirecTV brings married with the innovative cutting edge, new models that the Chernin organization is focused on and bringing those two together so we can meet customers’ needs over time,” Stankey said. 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. 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. The requirements from the FCC, which ensures that deals are in the public interest, include protections for rival video and pledges to expand high-speed Internet services to schools, low-income Americans and other customers. “The conditions imposed by the Commission address potential harms presented by the combination,” the FCC said in a statement. “The conditions also ensure that the benefits of the merger will be realized.” “We’ll now be able to meet consumers’ future entertainment preferences, whether they want traditional TV service with premier programming, their favourite content on a mobile device, or video streamed over the Internet to any screen,” AT&T Chairman and CEO Randall Stephenson said in a statement. Within four years, AT&T will have to bring fiber to 12.5 million customers; an F.C.C. spokesman told me that would amount to an approximately ten-fold increase from the current number.

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. The carrier also will be required to apply any broadband-data caps it imposes on customers to its own over-the-top video service and content to eliminate any chance that it can take advantage of rivals.

The FCC repeated Friday that it had set certain requirements for the merger, which it had disclosed on Tuesday when the head of the agency announced his support for the deal. AT&T will let DirecTV users stream linear TV content that they watch in their living rooms to their mobile devices even before they set up their satellite TV connection, in addition to offering new mobile video content services targeted at younger customers, according to Stankey. Public advocacy organization such as Public Knowledge and Free Press criticized the conditions as too weak, warning the deal would harm competition in the over-the-top video market. Regulators have signaled they are more worried about providing choice in Internet access and new, online video options than they are about concentration in the declining pay TV business.

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. Video companies Netflix Inc and Dish Network Corp , traffic company Cogent Communications Holdings Inc and others had fought for the FCC to reject the US$45 billion Comcast merger, but took a more lenient tack with AT&T.

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. The companies pushed for limitations to AT&T’s power to slow down or charge fees for the web traffic travelling through its networks, as well as protections for competing video services. In June, Verizon acquired AOL Inc, to access its ad technology and make a $4.4 billion bet that a push into mobile video and targeted advertising can help it find new growth avenues. The issues are addressed by the FCC’s conditions with requirements for AT&T to count its own affiliated video services towards any data caps on fixed broadband connections and to share with the FCC all traffic exchange agreements it strikes with content and web transit companies. AT&T will move aggressively on the advertising side by creating ad tools within the company and partnering or acquiring advertising technology firms, Stankey said.

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.

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