Nearly 10 months after it was originally proposed, AT&T's (NYSE: T) $49 billion purchase of DirecTV (NASDAQ: DTV) could be finally about to close. In a note to investors Monday, Morgan Stanley analyst Simon Flannery said the next few weeks will be "action packed" for the deal, and that its regulatory approval is "imminent.
Not content to forever hold his peace, however, media analyst Craig Moffett also chimed in and wondered if the deal would be better made a decade ago.
"There was a certain logic to it at the time," wrote Moffett, calling the deal "oh so 2005." Verizon (NYSE: VZ), he explained, "was building a 'future-proof' fiber-to-the-home network. By comparison, AT&T's U-verse was perceived to be a stopgap approach at best; investors understood even as early as 2005 that FTTN wouldn't deliver broadband speeds that would be competitive over the long-term."
Purchasing a satellite distribution platform like DirecTV would have at least allowed AT&T to free up 15 Mbps for broadband, taking video off its "underpowered network," Moffett noted.
"Oh," he added, "and satellite was still growing at the time.
"Don't get us wrong. DirecTV is a well-run asset, with a sterling brand and strong management, and the company's free cash flow will clearly help sustain AT&T's dividend. But it is hard to make the case for genuine strategic fit between the two companies."
Further, Moffett provides a bearish take on the satellite distribution business DirecTV lives in, noting its current stagnant subscriber growth in the U.S. is probably a permanent condition.
"Satellite's broadcast-only platform is increasingly anachronistic in an era of everything-on-demand," he wrote. Second, as cable broadband takes share from DSL, cable's vaunted triple play bundles are increasingly difficult for satellite to compete with, if for no other reason than cable's bundled discount makes the synthetic bundle of satellite TV-plus-cable broadband less price competitive. And third, the cable industry, led by Comcast's X1, has finally closed the gap on satellite's historically advantaged interface."
By 2019, Moffett projects satellite operators to lose around 537,000 subscribers as cable operators pick up around 140,000 new video customers--a reversal of the previous decade's subscriber trends.
- see this Moffett Nathanson post (sub. req.)
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