Comcast may have officially dumped its $45 billion merger with Time Warner Cable, but the $49 billion AT&T-DirecTV deal is still on the table.
In fact, last week while the other mega-merger was unravelling, AT&T was promoting the public interest benefits of its merger with the satellite operator in front of US regulators at the FCC and the Justice Department.
In filings with the FCC earlier this week, AT&T pointed out consumers’ preference for integrated bundles of broadband and video, how the deal would benefit over-the-top providers and reiterated its broadband deployment commitments if the deal is approved. It argued that by combining the largest US telephone company and largest US satellite-TV provider it would create a business that could offer bundles of broadband and video, translating into lower prices.
This could convince the FCC to give the deal the go-ahead. When it comes to competitive concerns surrounding Comcast, the FCC was worried about that deal’s impact on online video, given that the merger would have consolidated broadband access into a third of the country’s homes (30-33 million households) into the hands of one entity. And, it would be an entity that has a vested interest in its own content, being the owner of NBCUniversal, and in the distribution of it, being the No. 1 pay TV company in the nation.
“Today, an online video market is emerging that offers new business models and greater consumer choice,” FCC Chairman Tom Wheeler said in a statement. “The proposed merger would have posed an unacceptable risk to competition and innovation, especially given the growing importance of high-speed broadband to online video and innovative new services.”
But the AT&T-DirecTV deal is a little more nuanced. It’s not so much about scale as it is about filling in missing pieces for each others’ subscribers.
DirecTV has no broadband play, so AT&T can help it there; conversely, AT&T has only a limited TV presence, so DirecTV offers an expansion path on that front. The merger wouldn’t have the same effect of consolidating power over the last mile, in other words.
That said, the fact remains that in areas where AT&T offers U-verse TV, the deal would definitely reduce choices for video service. And Cox Communications, in a 7 April filing, said the merger would bring about “a troubling and unprecedented combination of wireline, wireless and satellite assets.”
Even so, AT&T is proceeding with confidence. It announced on Thursday the completion of the third largest corporate bond sale in history, for $17.5 billion, to help pay for the DirecTV buy.
“The response was incredibly strong, perhaps even stronger than we had anticipated,” said Andrew Karp, co-head of Bank of America Merrill Lynch’s Americas investment-grade capital markets, which co-ordinated the deal with J.P. Morgan and Morgan Stanley.
AT&T just reported its first quarter 2015 earnings, and U-verse added TV and broadband subs, but at a slower rate than a year ago. It added 440,000 U-verse Internet customers in Q1, extending that total to 12.6 million, but below the 634,000 subs it added last year. On the video side, AT&T added 50,000 U-verse TV subs, versus 201,000 adds in the year-ago quarter, to reach 6.1 million. U-verse TV penetration at the end of Q1 was 22%, while U-verse broadband penetration was 21%.