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AT&T Fixes Eyes On DirecTV – Why?

May 24, 2014 | About:

The AT&T (NYSE:T) and DirecTV (NYSE:DTV) deal is a big wave in the wireless industry. The telecom industry is getting saturated, and the Dallas carrier’s move to acquire DirecTV suggests its keen interest in widening its horizon in the broadband and TV services space. In an effort to solidify resources to generate higher revenue from this segment, the telecom provider is investing to increase subscriber base.

Things in the telecommunications and television space are getting interesting. It’s only been three months that Comcast (NASDAQ:CMCSA) spelled its intention to buy Time Warner Cable (NYSE:TWC) in a $49 billion deal, and recently on May 18 AT&T disclosed that it has its eyes on the largest satellite TV business.

The Deal

The second largest wireless provider AT&T is looking beyond telecom wireless network to expand its business. The megadeal is worth $48.5 billion. AT&T’s merger with DirecTV’s would strengthen its video content and provide movies, sports video, TV series, and other shows. This move undertaken by the wireless company is essential to improve its competitive strength in the cable arena, where currently Comcast is one of the dominant players.

AT&T does air TV shows but has limited access in only 22 states in the U.S. With DirecTV on its side, the company’s reach would move on to a nationwide level. The telecom major’s CEO Randall Stephenson claims that the deal would lead to yearly savings of $1.6 billion in three years time. The company wishes to offer several services to its customers including wireless broadband and satellite TV for which it requires DirecTV’s assistance.

Beyond Competition

The acquisition will make AT&T the second largest pay-TV provider in the country. But the deal goes beyond competition as subscribers at large would benefit from this. It would open room for innovation. Years back the introduction of HBO and ESPN revolutionized content offering, which compelled the big three networks to work on some content offering that would widen its competitive setting.

The AT&T and DirecTV combination would benefit content subscribers. The former is majorly into telecom wireless network and is building the 4G LTE network infrastructure. It’s exposure in television content is yet to mature. Currently it has 6 million pat-TV customers, while DirecTV has 20 million content subscribers. Together the two would have sizable reach in the market. And AT&T, being a big company, would have substantial bargaining power that can be leveraged to get original content from TV studios, sports league and other network.

The proposed merger would prove extremely beneficial for subscribers. A combination with AT&T would enable DirecTV subscribers, around 20 million, access to nationwide video. Not just this, the service can be expanded to as many as 15 million rural customers. In addition, it would also give viewers the option of subscribing for bundled videos, and broadband service.

Departing Thoughts

There have been endless talks in the past several years that a time would come when both telecom and television would merge together. This is what we will experience in a very short time frame after the merger is given a green signal. Both telecom and pay-TV players are selling bundled services to offer better services and attract more subscribers.

Megamergers as this have always invited loads of question. In fact AT&T has had a bitter taste in the past with respect to the T-Mobile acquisition proposal it made in 2011. But the company ensures that its merger with DirecTV would be good for subscribers who will get better service at higher internet speed. The regulators would be closely watching the consequences of the proposal. Let’s see where the deal’s headed.

About the author:

Quick Pen
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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