Top analysts have been unimpressed by the potential combo, based on reaction issued in response to deal rumors that surfaced earlier this month.
In general, analysts note that the opportunity for growth and expansion from the union of the two companies is limited because they are mostly in different businesses that are facing big challenges.
DirecTV’s video business is threatened by upstart over-the-top players and the promise that Big Cable is only going to get bigger in the coming years a la the merger of Comcast and Time Warner Cable. AT&T’s core telephone and broadband service is facing plenty of wireless competition as well as cable’s push into telephony.
AT&T is touting the deal as allowing it to offer a cable-like bundle of voice, video and data service, but that only applies to 25% of the country where AT&T has a wired network, researchers at MoffettNathanson noted. DirecTV, on the other hand, has a national footprint — but 75% of those markets will not be able to receive any additional AT&T services unless the telco giant goes on a costly building binge.
“How will AT&T ever justify to its shareholders that it is buying a company where in 25% of the country the best they can hope for is to preserve revenues they already have, while in the other 75% of the country they are consigned to secular decline?” MoffettNathanson wrote on May 13. “No doubt AT&T will spin an engaging story about bundles of wireless and video, out-of-region over-the-top video offerings, and perhaps even fixed wireless broadband. But as we noted last week, the combination smacks of strategy-by-process-of-elimination.”
Other prominent media biz observers were equally skeptical of the deal’s long-term benefits.
“We question the strategic rationale in acquiring additional legacy assets as video viewing habits are rapidly changing,” Jeffries analyst Mike McCormack wrote about AT&T-DirecTV in a note issued May 13.
“We see few strategic benefits to the combination, which would neither improve AT&T’s spectrum position nor its core broadband infrastructure, but indirectly would provide some capacity relief should video traffic be diverted from U-Verse to satellite infrastructure,” RBC Capital Markets analyst Jonathan Atkin wrote on May 13.
Atkins noted that adding AT&T-DirecTV to the list of mergers awaiting federal approval could prolong the review of Comcast-TW Cable that is already under way.