AT&T (NYSE: T) told the federal government Tuesday that its proposed acquisition of DirecTV (NASDAQ: DTV) will give it the leverage it needs to cut spiraling program costs by 20 percent.
In 8-K documents filed with the Securities Exchange Commission, AT&T outlined the increase to its bargaining power with media conglomerates, adding 20 million U.S. DirecTV subscribers to an AT&T domestic base that only has around 6 million.
AT&T predicts that it will benefit from around $1.6 billion in "synergies" over the first three years by combining forces with DirecTV, with most of that yield coming from better negotiating terms with content providers.
"Programming cost reductions are the most significant part of the expected cost synergies," AT&T writes in its 8-K filing. "At this time, AT&T's U-verse content costs represent approximately 60 percent of its subscriber video revenues. With the scale this transaction provides, we estimate AT&T's U-verse content costs after the completion of the transaction will be reduced by approximately 20 percent or more as compared with our forecasted standalone content costs."
Meanwhile, AT&T also spelled out the benefits of acquiring DirecTV's Latin American operations: "DirecTV's business in Latin America offers unique opportunities for new revenues and growth," the filing noted. DirecTV has spectrum covering 43 million homes in Brazil, Colombia, Peru and Argentina with which it is expanding its offering of fixed wireless local loop broadband service. When combined with AT&T's scale and expertise in wireless data and broadband services, the company will be able to offer video and broadband bundles to customers in these fast-growing, under-penetrated areas."
Of course, AT&T also took the time to sell the SEC on the "consumer benefits" of the proposed merger, noting, "The combined company will have the ability to offer customers the option of bundling the DirecTV experience with integrated AT&T offers: mobile, broadband or any number of other products. The ability to bundle a high-quality video product with other services outside of our current U-verse TV footprint creates a unique new competitor giving customers what they want -- an integrated bundle of video, broadband, mobility and other services. It also gives the new merged entity the economic case to significantly increase investment in broadband infrastructure."
You can see AT&T's full 8-K filing here.
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