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Cost and Revenue Synergies for AT&T from the DIRECTV Transaction

Ray Sheffer - Author

Jan. 19 2016, Updated 12:02 a.m. ET

DIRECTV transaction and cost synergies

In the previous part of this series, we learned about the AT&T (T) DIRECTV (DTV) merger in July 2015. We also learned about the significant subscriber base in the US (SPY) pay-TV space the DIRECTV transaction brought to AT&T. According to the telecom company, the acquisition is expected to provide significant cost synergies to the merged entity.

According to AT&T, the DIRECTV merger is expected to help bring down costs associated with operations and general administration, supply chain, and content acquisition. A larger pay-TV base should give AT&T more bargaining power with media networks in terms of negotiations for content costs with these networks.

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As we can see in the chart above, and according to the company, the merger cost synergies from the 2015 DIRECTV transaction was expected to be $0.5 billion or lower. Additionally, this figure was expected to be between $1 billion–$1.5 billion in 2016 and $1.5 billion–$2 billion in 2017. The telecom company also anticipated that these annual cost synergies would be greater than $2.5 billion from 2018.

Solid cross-selling opportunities from DIRECTV transaction

The DIRECTV transaction also brought solid cross-selling opportunities for AT&T. The telecom company expected a significant cross-selling opportunity to ~39 million households of this combined entity as of August 12, 2015.

According to AT&T, this cross-selling potential for the Internet to households with DIRECTV was ~3 million, and it was ~15 million for wireless services to the DIRECTV households. AT&T noted that the cross-selling opportunity for video services to AT&T’s wireless customers was in ~21 million households.

You may consider the iShares Core S&P 500 ETF (IVV) for a diversified exposure to select telecom companies in the US. IVV held a total of ~2.3% in AT&T (T), Verizon (VZ), CenturyLink (CTL), Frontier Communications (FTR), and Level 3 Communications (LVLT) at the end of November 2015.


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