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Update on AT&T’s Cost Synergies after Its DIRECTV Acquisition


Dec. 30 2015, Updated 9:04 a.m. ET

AT&T’s DIRECTV acquisition

In the previous part of the series, we learned about the expected net pay TV additions of AT&T (T) DIRECTV’s (DTV) domestic operations in 4Q15.

During the UBS Global Media and Communications Conference held on December 8, 2015, Randall L. Stephenson, AT&T’s chief executive officer and chairman, talked about the cost synergies from the DIRECTV acquisition.

Stephenson said, “And so, whether it’s content synergies, we’ve done a number of content deals since we closed the DIRECTV acquisition.” He mentioned, “We just, last Friday, had our labor union in the Southeast. Ratify, the contract we’ve been working on for the last four, five months, that gives us the ability to do a single truck roll to provision a satellite or a university IPTV or a broadband solution.”

He said, “That was the last major milestone needed to get the synergies that come from single truck roll.”

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Content cost synergies from DIRECTV acquisition

On an annual basis, AT&T has planned to get at least $2.5 billion in cost synergies from the DIRECTV acquisition by 2018. Note that AT&T acquired DIRECTV on July 24, 2015. As we can see in the above chart, synergy from content costs is a significant portion of these expected savings.

After its DIRECTV acquisition, AT&T’s pay TV base became the largest in the United States. Note that before the acquisition, DIRECTV had the second-largest US pay TV base, and the largest in this metric was Comcast (CMCSA) (CMCSK). A large subscriber base in this market gives AT&T better negotiating power for content costs.

For a diversified exposure to AT&T, you may consider investing in the iShares US Telecommunications ETF (IYZ). The telecom company made up ~10.8% of the ETF at the end of November 2015.


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