US telecoms giant AT&T has announced plans to acquire leading US satellite TV provider DirecTV in a deal valued at $48.5bn.
AT&T already offers TV via its U-Verse service, which runs over its terrestrial broadband internet lines. The company says it will continue to offer this service once the DirecTV acquisition closes.
For DirecTV, however, the deal would give it the ability to bundle broadband internet service with its satellite TV offerings for the first time, making it more competitive with cable TV providers.
"This is a unique opportunity that will redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens – mobile devices, TVs, laptops, cars and even airplanes," said AT&T CEO Randall Stephenson in a canned statement.
AT&T says it has already committed to building out its broadband network to 15 million new customer locations over the next four years, mainly in rural areas, where satellite TV service like DirecTV is often the most attractive option. If it does, it will more than double the 11 million internet subscribers it claims now.
It stands to gain the most in Latin America, where DirecTV is already one of the leading pay TV providers. Expanding into that market won't be easy, however, as it will pit AT&T head to head with Mexican multibillionaire Carlos Slim's telecoms heavyweight, América Móvil.
AT&T currently holds an 8.4 per cent stake in América Móvil, but said it would sell off its shares and withdraw its board members from the company as part of the DirecTV buy, to avoid conflicts of interest.
"I learned a lot from Carlos and so, obviously, Carlos and I have spoken and he is a very dear friend, but now he is going to be a competitor, and we recognize that, and off we go," Stephenson said in a conference call with investors on Monday.
The move may please Mexican antitrust regulators, which have griped that telecoms and pay TV in the country have been largely divided between América Móvil and Televisa, respectively.
US regulators, on the other hand, may not be so thrilled. The Department of Justice has been wary of mergers in the telecoms business, and in 2011 it blocked AT&T's acquisition of smaller rival T-Mobile, a move that ultimately cost AT&T $4bn. More recently, it has been giving a close eye to the proposed $45.2 megamerger between Comcast and Time Warner.
Consumer advocacy groups have been even more skeptical. In a statement issued on Monday, Consumers Union policy counsel Delara Derakhshani said, "The rush is on for some of the biggest industry players to get even bigger, with consumers left on the losing end. You can't justify AT&T buying DirecTV by pointing at Comcast's grab for Time Warner, because neither one is a good deal for consumers."
As usual, however, AT&T's acqusition of DirecTV is no sure thing. AT&T says it expects the deal to close within a year, but according to a document filed with the US Securities and Exchange Commission on Monday, there are conditions.
As it stands, DirecTV has exclusive rights to broadcast NFL Sunday Ticket, a lucrative sports package that includes every out-of-market Sunday US-style football game, but its contract is due to expire at the end of the 2014-2015 football season. According to the SEC filing, if DirecTV fails to renew the contract, AT&T has the option of scrapping the merger.
Investors seemed wary of the deal, with shares of AT&T and DirecTV both sliding downward more than 1 per cent on the news. ®