Technology
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Remember ReplayTV, Pegasus, Telocity, Primestar, PanAmSat Corp, 180 Connect or LifeShield?
Those were all television and communication companies that existed before they were purchased by DirecTV. Now, DirecTV might be adding itself to the list of forgotten telecom assets as it agrees to a nearly $50 billion deal to be acquired by AT&T.
When announced on Sunday, the proposed deal had some analysts and media watchers scratching their heads over why AT&T — a relatively successful company that makes much of its money in the cell phone market — wanted to buy a company that delivers only television, an industry arguably in decline, and only via satellite, a technology arguably outdated for delivering television and unfit for transmitting other services like high-speed Internet.
But with a day’s perspective, analysts say they now see the underlying logic. They say it might not make traditional business sense. DirecTV doesn't eliminate redundancies, increase efficiency or even increase profit. It does, however, make sense as a power play to maintain relevance in the cutthroat cable and telecom world.
Experts say the deal, which comes after a spate of successful and failed multi-billion dollar telecom takeover bids, is an attempt by AT&T to ensure the company retains political influence in a rapidly consolidating industry. With so few players left in the telecom world and so much controversy about the direction of the telecommunications industry, experts say AT&T is trying to retain enough market share to remain a powerful voice.
"Like any merger born of necessity rather than opportunity, the combination of AT&T and DirecTV calls to mind images of lifeboats and rescues at sea," analyst Craig Moffett of Moffett Nathanson Research wrote last week as rumors of the deal percolated. “The combination smacks of strategy-by-process-of-elimination."
AT&T, perhaps predictably, isn’t as outwardly cynical about the deal. Its press release says the merger, which is worth over $67 billion when DirecTV’s debt is included, will create a “content distribution leader,” which is able to deliver video “to multiple screens — mobile, TV, laptops and more — to meet consumers’ future viewing and programming preferences.”
It is true that AT&T is lagging behind other companies when it comes to distributing across platforms: Time Warner Cable and Comcast, which recently announced their intent to merge, can offer content in the form of television channels, TV and Internet service in the form of cable, and they offer bundles with Verizon Wireless for cell phone service.
Verizon owns Verizon Wireless as well as FiOS, its cable and Internet arm. Analysts say Verizon’s investment in fiber optic cable gives it a good chance of being successful in the future.
AT&T already has a broadband Internet and television distribution network called U-verse, but it doesn’t have as wide a customer base as Comcast or Time Warner, or the same level of technology as Verizon’s FiOS.
So some say it makes sense that AT&T is trying to expand. But given DirecTV’s reliance on satellite delivery, the company likely won’t make many inroads providing Internet or cell phone service anytime soon. As Moffett puts it, “It seems like this is a deal that’s 10 years too late. ... AT&T is buying into the satellite business just as it looks like satellite TV is at the beginning of a long-term … decline.”
So what does AT&T get by buying DirecTV? Experts say the deal has to be seen as a power play, plain and simple.
“They can invest in a future-proof technology like Verizon did — but they don’t seem to be doing that,” said Matt Wood, policy director at Free Press. “Rather than building its own infrastructure, they’re killing off their competition.”
DirecTV may not employ a forward-looking technology like fiber optics, but it has 20 million subscribers. By absorbing those customers, AT&T can ensure it stays as big or bigger than the other telecom giants, and therefore ensure influence in the national and international debates surrounding the telecom industry.
Wood and others point out that AT&T when it announced the deal said it would voluntarily uphold net neutrality regulations for three years, even in the Federal Communications Commission changes its policy in the meantime.
A little refresher: Net neutrality is the equal treatment of data on the Internet — the refusal to charge more for some kinds of data, or data-heavy services like streaming video. If the FCC does change its regulations, companies like AT&T would be allowed to create a “fast-lane” for higher-paying customers and slow down connections for others.
Regardless of whether AT&T upholds their bargain to keep the net neutral after three years is besides the point, experts say. What’s important is that they’re wading into the debate in the first place. By commenting on net neutrality right in their DirecTV deal announcement, analysts say AT&T is making clear what they’re trying to buy: influence.
“This plays into the role of dominance,” said Richard Craig, a communications professor at George Mason University. “It’s going to make them a very big player. It ensures that they’re going to have leverage.”
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