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AT&T May Be Suiting Up to Battle Comcast

By Erika Morphy E-Commerce Times ECT News Network
May 13, 2014 11:22 AM PT

AT&T has been negotiating to buy DirecTV for close to US$50 billion, based on reports that surfaced Monday. The deal, which has not been confirmed by the companies, could close within a few weeks.

AT&T May Be Suiting Up to Battle Comcast

The current option on the table, according to anonymous sources, would be largely a stock trade but it would include some cash, with AT&T offering in the low- to mid-$90s per share for DirecTV. That would be roughly a 20 percent premium over its current stock price, and it would value the company at close to $48 billion.

Some sources have put the reported offer at $100 per share, but also have noted that the amount of the offer and other terms related to the deal could well change.

The merger would be the largest in the telecom sector in years, and if it were to go through, it would significantly realign the players in the industry, placing AT&T in an optimal position to compete against Comcast, which currently is trying to get its own $42 billion acquisition of Time Warner Cable past regulators.

"Think of it as Gorgon upscaling to meet Godzilla, otherwise known as 'Comcast,'" said Rich Hanley, associate professor and director of the graduate journalism program at Quinnipiac University.

"The DirecTV acquisition would give AT&T a steady revenue stream and more customers to upsell other services to present a suite of entertainment and broadband offerings that can help in its battle with Comcast," he told the E-Commerce Times.

The regulator issues could take a while to work through, he added, "so don't expect anything new any time soon."

A Regulatory Obstacle Course

AT&T certainly can expect just as rigorous an examination from the Justice Department and the Federal Communications Commission as Comcast is receiving.

Regulators will be seeking to ensure that an AT&T-DirecTV combination won't increase prices or lead to restricted options for consumers, Marc Price, CTO for the Americas at Openet, told the E-Commerce Times.

Some reasons regulators might be more likely to favorably view this merger include the emerging competition for video content from Amazon, Apple and Netflix, as well as the prospect of nationwide services from Comcast, he said. "Competition will ensure choice and competitive pricing."

In fact, one reason AT&T likely is pursuing this idea -- a reason that could become a talking point as it negotiates with regulators -- is that if it wants to be competitive, AT&T will need a nationwide video delivery service to complement U-Verse, Price pointed out.

"DirecTV's satellite service provides this capability," he said.

The Question of Net Neutrality

However, that analysis assumes that telecom providers would be unable to restrict consumers from viewing content from any source, including a competitor's.

Acquiring the second-largest satellite TV company would help AT&T catch up as a content distributor, but at the cost of consumer choice regarding available services, Lance Strate, professor of communications and media studies at Fordham, told the E-Commerce Times.

The consolidation of the telecommunications industry "can only strengthen the hand of the corporations that are trying to undermine the founding principles of the Internet as a public service, choke off services, channels and sites that they do not have a financial agreement with or do not care for, and give special fast service to those that they favor, either economically or politically," he said.

The Consumer Loses

Even leaving the ongoing battle surrounding Net neutrality out of the equation, a DirecTV acquisition is bad news for consumers, according to Topher Morrison, author of the book Collaboration Economy, and managing director of Entrevo.

"The advantages are almost all for AT&T, and very few for the customers. They will bill this as their ability to provide better service and wider selection, but that's just a fancy way of saying they will charge the consumer more," he explained.

Consumers don't even need DirecTV anymore, he said, pointing to the very competitors that are likely motivating AT&T in this move.

"I can watch every show I want online through collaboration apps like Netflix, Hulu and Amazon Prime," said Morrison. "AT&T needs to ask themselves how they can partner up with their customers -- not their competitors."

Erika Morphy has been writing about technology, finance and business issues for more than 20 years. She lives in Silver Spring, Md.

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