AT&T and DirecTV bank on size to control programming costs

The sheer size of a merged AT&T (NYSE: T)-DirecTV (NASDAQ: DTV) entity should result in overall better video offerings and prices for consumers, executives from both companies suggested during a webcast detailing the proposed $48.5 billion acquisition.

randall Stephenson, AT&T Michael White, DirecTV

Stephenson, at left, and White.

"This combination leverages our excellent content relationships, our experience and scale with AT&T networks' broad coverage, which we expect will redefine how customers experience video entertainment," DirecTV Chairman-CEO Mike White said. "Customers will also see more competitive pricing as we roll out the market's most extensive bundle of top quality video, broadband and mobile services."

Programming costs, at least peripherally, were part of a series of upfront commitments AT&T made in announcing the deal. Specifically, AT&T Chairman-CEO Randall Stephenson said, the new company will offer a "three-year price guarantee on standalone broadband service where we offer high-speed IP broadband today."

While repeatedly emphasizing the benefits of bundled services--especially integrating AT&T's 4G LTE wireless into DirecTV households--the companies said that DirecTV, which will continue to be headquartered in Segundo, Calif., will "continue to be available on a standalone basis nationwide at prices that are the same for all customers no matter where they live for at least the next three years," Stephenson said.

Video, he emphasized, is the cornerstone of the deal.

"We believe that video across all the screens is going to be table stakes. We think it's what customers expect and we're adding the premium video provider in the industry by far," he said.

The video threat to cable, while there, is probably going to be restricted to Charter Communications (NASDAQ: CHTR) and smaller operators with rural franchises, wrote analyst Craig Moffett.

By running broadband to about 15 million more locations, AT&T will become a "more formidable competitor" but cable, with DOCSIS 3.0, will "still have the upper hand in all markets upgraded with DOCSIS 3.0," Moffett wrote.

Programming cost savings are only part of a series of "synergies" the two companies expect to harvest for both themselves and their customers and which they are presenting as positives to federal regulators who will now be taking a long hard look at the deal.

"It obviously gives us great opportunities to … use our nationwide sales channel," Stephenson said, adding that "DirecTV also has thousands of agents."

While video is the end game, broadband as a method of delivering video is a big piece of the overall play for the two companies, White and Stephenson both said. For DirecTV, broadband adds an element that has been missing; for AT&T, broadband opens up the possibilities of delivering over-the-top content that would, in no small way, compete directly with incumbent pay TV providers.

"This whole vision of delivering video on all screens, the more we looked at this, evaluated it, are building these networks to accommodate it, the more we said we needed to be scaled in video," Stephenson said. "If you believe you need to be scaled in video, you say 'Who is the best video player out there?' And we think we have landed the best video player in the United States. They have, we think, the best content arrangements in the industry."

Including a nascent OTT interest that AT&T will carefully exploit while "reaffirming net neutrality commitments," Stephenson said.

Finally, from a technology perspective, Stephenson pointed to DirecTV's "clear and elegant path to Ultra HD."

Both companies are so confident the deal will go through that they've waived the customary breakup fee that AT&T would pay DirecTV if the deal is blocked by regulators on antitrust grounds. DirecTV, on the other hand, will owe AT&T $1.445 billion if it steps away and accepts another company's acquisition bid. Both companies have the right to call the whole thing off by May 18, 2015.

Consumer groups had a far less enthusiastic response to the merger.

Free Press, for instance, took aim at both AT&T-DirecTV and Comcast-Time Warner Cable, suggesting the money being invested in acquisitions could be better spent elsewhere.

"For the amount of money and debt AT&T and Comcast are collectively shelling out for their respective mega-deals, they could deploy super-fast gigabit fiber broadband service to every single home in America," the organization said in a comment attributed to Free Press CEO-President Craig Aaron, who called on FCC Chairman Tom Wheeler to "block these wasteful and anti-competitive deals."

Consumers Union, in its own release, cited Delara Derakhshani, policy counsel, as citing the deal as "the start of a wave of mergers that should put federal regulators on high alert."

The deal is, Derakhshani said, "just the latest attempt at consolidation in a marketplace where consumers are already saddled with lousy service and price hikes."

For more:
- AT&T has this press release
- Free Press has this press release
- and Consumers Union has this press release

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