Update: AT&T–DIRECTV Merger




In late May, FierceCable reported that AT&T (T) and DIRECTV (DTV) sent a memo to the FCC (Federal Communications Commission), “pushing back on proposed deal conditions suggested by rivals including Dish Network (DISH) and Cogent Communications (CCOI).”

Dish had proposed that after the merger, AT&T–DIRECTV should provide an Internet product at a fixed price and speed for seven years. AT&T has opposed this condition, stating that it is ready to provide such a service for three years following regulatory approval, but not beyond that. This is because AT&T would not have access to any broadband infrastructure with its purchase of DIRECTV.

As indicated by the chart above, the proposed $67.1 billion deal between AT&T and DIRECTV would be the third largest acquisition in the US telecom industry.

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DIRECTV and the pay-TV market

Currently, the pay-TV market is in decline, with subscribers becoming “cord-cutters”—they have stopped subscribing to pay-TV and have moved to online video streaming providers like Netflix (NFLX).

In this changing scenario, the lack of DIRECTV’s own wireless or broadband services would mean that the company would have struggled against bigger players like Verizon (VZ) with its FiOS TV. Hence, DIRECTV would benefit after being acquired by AT&T, as the combined entity will give it an opportunity to compete.

A merger between AT&T and DIRECTV would also allow AT&T to bundle broadband Internet access and voice services with DIRECTV’s video services. AT&T would also gain access to DIRECTV’s ~20 million US pay-TV subscribers and its extensive distribution network in rural areas. By becoming bigger, AT&T would have better negotiating power with content providers over licensing deals.

It appears that the AT&T and DIRECTV deal could pass regulatory scrutiny, as both operate in different industries. For more information about the merger, please read Merger must-know: Why did AT&T bid to acquire DIRECTV?

You can get a diversified exposure to both AT&T and DIRECTV by investing in the Core S&P 500 ETF (IVV), which holds 0.99% and 0.25%, respectively, in these companies.


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