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U-Verse/DirecTV Merger Drawing Heat

August 22nd, 2014

It’s difficult to measure exactly how the AT&T/DirecTV merger has been affected by the Comcast/TWC dealings this past spring and summer. On one hand, you might expect the fanfare surrounding the Comcast deal to spark more interest in the idea of corporate merger and their affects on the public, but on the other, such a big merger can also distract from a second, and only slightly smaller one, like AT&T’s.

A proposal of $48 billion in the AT&T acquisition of DIRECTV is based on two simple business ideas, 1) AT&T has broadband but needs a stronger video product to compete with cable; and 2) DIRECTV needs a voice and broadband product to compete with cable. By combining services they can save money on customer service, back office and an estimated $1.6 billion in annual programming costs. On the surface, it seems like a merger that will create a stronger competitor to cable systems everywhere. So what’s the regulatory concern?

The first issue is that AT&T has a video offering with its U-verse service. U-verse is a state of the art high-end fiber to the node (FTTN) service that also offers video, much like Verizon’s FiOS. Thus in markets where U-verse operates, video competition will be reduced. But this is not an insurmountable hurdle.

AT&T and their soon to be subsidiary DIRECTV will tru to argue and prove in court that consumers will still have two other options in those markets and the local cable company, not to mention OTT services such as Netflix, Hulu and Amazon Prime.

Furthermore, mobile broadband speeds are approaching the point where they will be able to offer a competitive video service in the foreseeable future. If necessary, AT&T could also use a third party to market U-verse to ensure it competes with DIRECTV – much in the way Time Warner allowed Road Runner to market its internet service after the AOL merger.


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