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AT&T may buy DirecTV for $50B

AT&T would gain national base of pay-TV subscribers

May 13, 2014 01:22 PM ET

Computerworld - 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 Comcast is already working out a deal with regulators to purchase Time Warner Cable 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."

Now, Entner said, regulators may believe the large cable TV providers need the counterbalance of an alternative wireless TV provider.

"In a lot of markets you have a monopoly of cable TV providers ... and if you want competition, you want to either bring in IPTV like with Verizon FiOS or AT&T with U-verse or... a satellite TV provider," Entner said.

This article, AT&T may buy DirecTV for $50B, was originally published at Computerworld.com.

covers consumer data storage, consumerization of IT, mobile device management, renewable energy, telematics/car tech and entertainment tech for Computerworld. Follow Lucas on Twitter at Twitter @lucasmearian or subscribe to Lucas's RSS feed Mearian RSS. His e-mail address is lmearian@computerworld.com.

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