&T, DirecTV Deal Details Emerge CEOs

AT&T has been laying the track for expanding its pay TV service for the past few years, and that effort will now be turbo-charged with its $67 billion pact to acquire DirecTV.

That was the message sent Monday morning by AT&T chairman-CEO Randall Stephenson (pictured) during a conference call aimed at selling the deal to Wall Streeters, who have been mostly skeptical of the merger’s long-term benefits for both companies. AT&T has been “changing the architecture” of its data networks to be focused on delivering video, Stephenson said.

“The last six years have been about delivering large amounts of data” through these networks, he said. “The next six years will be about delivering video over those networks. That was the key rationale for trying to do something with (DirecTV).”

At the close of trading Monday, investors still seemed to be mostly unimpressed by the deal’s potential. AT&T shares took a big drop early in the day — not unusual for the acquiring entity after a megabucks deal announcement — but recovered some to finish out the day down 36 cents to $36.38. DirecTV shares were down $1.53 to $84.65.

Stephenson emphasized that the union with DirecTV would give the combined company greater ability to innovate and possibly develop over-the-top programming services. As Stephenson and DirecTV CEO Michael White sung the praises of the merger, other details of the blockbuster agreement unveiled Sunday afternoon emerged in a lengthy Securities and Exchange Commission filing.

SEE ALSO: Meet DirecTV’s New Boss: AT&T Chief Randall Stephenson

Notably, the deal includes a clause that allows AT&T to walk away if DirecTV does not renew its lucrative “NFL Sunday Ticket” exclusive football rights deal. Observers were quick to point out what a gift that is to the NFL, which has been in negotiations for months with DirecTV. White said during the call that he and Stephenson have already spoken with NFL execs to explain why the deal is “great for us and great for the NFL.”

Moreover, there is no breakup free in the agreement for AT&T should it decide to nix the deal, but the satcaster would have to fork over $1.45 billion to AT&T if it calls it off or accepts a rival buyout offer.

During the call, Stephenson stressed the benefits of the combined entity having a nationwide wireless service footprint and nationwide video service — something even Comcast Corp. can’t match. But even with DirecTV, AT&T is still unable to catch up with the largest cable operators’ reach when it comes to wired broadband offering the fastest high-speed Internet service for a nation of data-hungry households.

DirecTV’s big presence in Latin America, where it has about 18 million subscribers, is also a major plus, Stephenson said. AT&T sees huge growth opportunities in growing markets such as Brazil.

“This (deal) will accelerate innovation and growth,” Stephenson said. “This transaction will create a very different competitor (from other telecom/pay TV providers) that is going to be very good for consumers.”

AT&T’s broadband offering will reach 70 million “customer locations” by the time it finishes building out infrastructure to serve 15 million homes, mostly in rural areas. That promise to expand service in locations less desirable than densely populated urban areas was one of several carrots worked into the deal to help ease its passage through what will surely be a rigorous regulatory review.

SEE ALSO: Dish Will Turn Eyes to Wireless, After AT&T-DirecTV Strands It at Pay-TV Dance

Stephenson talked up the benefits of bundling AT&T’s voice and data services with DirecTV’s offering through its thousands of retail channels. White noted that DirecTV has long sought to be able to offer customers a single bill for such products.

Both CEOs acknowledged that the recent seismic shifts in the media landscape — from technological leaps forward in high-speed Internet delivery to the consolidation of cable giants — spurred the companies together. AT&T and DirecTV have flirted at merger talks several times in the past.

“The momentum of this really caught steam this year,” Stephenson said. “The whole vision of delivering video on all screens — the more we looked at this, we needed to be scaled in video. …We think we landed on the best video player in the United States. They have the best brand. the best digital customer base, the best content arrangements in this industry.”

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