Driving force of AT&T-DirecTV deal: TV anywhere

DirecTV and AT&T

Credit: WFAA

Driving force of AT&T-DirecTV deal: TV anywhere

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by ROGER YU

USA TODAY

Posted on May 19, 2014 at 1:02 PM

The clamor for TV-anywhere was the driving force behind AT&T's willingness to pay $48.5 billion for DirecTV.

In a call with analysts a day after their acquisition deal was announced, the chief executives who shook hands after weeks of negotiations -- AT&T CEO Randall Stephenson and DirecTV CEO Mike White – envisioned Monday various scenarios in which their customers can watch live-TV on tablets in their backyard or on family road trips.

With DirecTV's 20 million customers under AT&T's umbrella and its ability to beam satellite TV to just about anywhere in the U.S., AT&T will look to integrate the technology with its own portfolio of a nationwide wireless network and landline Internet and TV businesses that currently have a more limited reach.

"We need to be scaled on video," Stephenson said. "We think we landed on the best video player out there."

AT&T has offered to pay $95 for each DirecTV share. But with a daunting regulatory approval process ahead and analysts' still questioning AT&T's motive in buying a company that lacks spectrum assets and expertise in broadband Internet, investors remained skeptical Monday morning. DirecTV shares fell 1.95% to $84.50.

Shares of AT&T fell 1.3% to $36.26.

DirecTV has won legions of fans with its NFL Sunday Ticket – live airing of all NFL games – and 195 high-definition channels, more than its competitors. And Stephenson, who has come to know DirecTV's business well over the years through their joint distribution agreement, said he believed DirecTV has the industry's "best video customer base" and "the best content arrangement" that will boost AT&T's video options.

The significance of DirecTV's exclusive contract with the NFL is huge. The contract expires after the end of the upcoming season, and other content providers, including reportedly Google, are interested in replacing DirecTV. White said he's confident they will have a renewed deal by the end of the year.

But AT&T has an option to walk away from the merger if DirecTV can't renew "substantially on the terms discussed between" the two companies, according to a filing AT&T made with the Securities and Exchange Commission Monday.

For DirecTV, its inability to offer competitive broadband Internet -- and offer a bundle with a single bill -- has cast a cloudy outlook in its future. Its various deals with telecommunications companies to deliver Internet – many of them still using DSL lines – weren't sufficiently competitive and were proving to be operational challenges. White told analysts that he'd be relieved to operate just one fleet of corporate vans and trucks dispatched to customers. "We've been talking on and off for years," he said. "AT&T brings so much to the party."

Stephenson also sought to sell analysts on the wisdom of increasing exposure to the intricacies and potential benefits of international expansion. DirecTV has 18 million customers in Latin America. And there's more room to grow since the percentage of the region's customers who have pay-TV is lower, as are programming costs, he said.

To appease regulators in the region, AT&T plans to sell its equity stake in América Móvil, a Mexico-based wireless carrier controlled by billionaire Carlos Slim.

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