AT&T Talks DirecTV Acquisition: We Feel Quite Good About Our Prospects

By Josh Long

**Editor’s Note: Please click here for a recap of the biggest communications mergers in Q1 2014.**

AT&T executives are confident regulators will approve its $49 billion acquisition of DirecTV.

In a conference call with financial analysts last week, AT&T Chairman and CEO Randall Stephenson said the company thoroughly examined the regulatory implications of the deal and determined it could pass scrutiny.

“It is our belief and our conviction a deal can be designed in a way that is consumer-friendly and serves the public interests,” Stephenson said, according to a transcript of the May 19 conference call that AT&T filed with the Securities and Exchange Commission.

AT&T and DirecTV “are not each other’s closest competitors by any stretch of the imagination,” added Wayne Watts, senior executive vice president and general counsel for AT&T, during the call.

For example, DirecTV isn’t able to bundle its video service with other offerings while AT&T does, but in a limited geography, Watts said.

“Our primary competitor[s] from that standpoint are the cable companies,” he said. “So we have that complementarity … and we do not have that close competition. You put those two things together and we feel quite good about our prospects.”

The two largest cable companies in the United States have made similar arguments to the FCC that they do not compete against each other. Comcast and Time Warner Cable in February announced plans to merge.

Critics of both deals worry the combined companies will be too big, depriving consumers of adequate choices and resulting in higher prices. Antitrust officials with the U.S. Justice Department will examine the potential impacts of the mergers on consumer choice, competition and cost.

The AT&T-DirecTV agreement is valued at $49 billion, excluding $19 billion in debt AT&T would assume from DirecTV.

The two companies reportedly had been talking on and off about a potential combination for years, but discussions heated up in 2014, Stephenson said. A number of industry changes may have made the deal more enticing for both companies, including the growing importance of broadband service, and and television’s continuing transformation from fixed service to video availability on multiple devices such as smartphones and tablets.

“The evolution of TV Everywhere and video over mobile with the 4G network is new and in so many ways, people have talked about us together for four years,” said Michael White, chairman, president and CEO of DirecTV, during the call. “But I have to tell you, I think actually it is the change in the trends in the industry, broadband being more important, technology change that enables higher speeds with broadband, competitive content costs being important if you want to have a great video business and video on mobile.”

Earlier this month, DirecTV reported surpassing 38 million total subscribers, bringing its combined total in Mexico and Latin America to more than 18 million. AT&T plans to divest its interest in America Movil in hopes of appeasing regulators.

In the United States, DirecTV’s first-quarter revenue rose 5 percent to $6.09 billion compared to the year-earlier period. Still, DirecTV only achieved modest subscriber growth of 12,000 net additions, ending the quarter with 20.27 million customers.  Its competitor Dish Network closed the quarter with approximately 14.1 million pay-TV subscribers.

AT&T’s U-verse TV only serves 5.7 million subscribers. That’s less than a third of DirecTV’s U.S. base. Nonetheless, AT&T boasts that it serves more pay-TV customers than any other telecommunications company.