US carrier AT&T has announced plans to acquire US and Latin American pay TV player DirecTV in a deal valued at $48.5bn. The deal will create a service provider with an offering across mobile, broadband and video that is unprecedented in the market, AT&T said. The transaction, which also involves AT&T assuming $18.6bn in debt, should take a year to complete, the telco said.
The acquisition offers a number of benefits to AT&T, the firm said. It improves the firm’s income mix by greatly increasing video revenues, it will increase its fixed broadband network to 70 million customer locations and it will create significant growth in revenue collected by AT&T from outside the US.
AT&T CEO Randall Stephenson said the deal would “redefine the video entertainment industry” as the firm looks to exploit a substantial retail network to deliver compelling bundled offers.
“This is a unique opportunity that will redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens – mobile devices, TVs, laptops, cars and even airplanes,” he said. “At the same time, it creates immediate and long-term value for our shareholders. DirecTV is the best option for us because they have the premier brand in pay TV, the best content relationships, and a fast-growing Latin American business.”
Announcing the deal, AT&T committed to a number of service and pricing pledges. The firm said that annual synergies of $1.6bn would enable it to expand existing plans for high speed broadband deployment, including 15 million mostly rural customer locations where it does not currently offer the service. The firm pledged to meet this target within four years of closing the deal.
It also undertook to freeze pricing for standalone broadband services and existing DirecTV offerings for three years after the deal closes.
Ovum noted that leading US pay TV providers have seen stagnation in subscriber numbers since 2007, with growth in the sector dominated by telco IPTV plays, including AT&T’s uVerse offering. This trend led to the acquisition of TWC by Comcast earlier this year which, if approved, will create the largest pay TV player in the US. The AT&T-DirecTV deal will create the second largest.
“The concentration of market share in the two largest operators is transformative for the US market: assuming both deals are completed around 60 per cent of the US pay TV market by subscribers will be owned by two operators,” said Ed Barton, leader of Ovum’s TV Practice. “It is perhaps still a little early to assume we are experiencing long term secular decline in US pay TV but the pattern is not encouraging for either Comcast, TWC or DIRECTV given performance over the last few years.”
Barton added that the foothold in Latin America afforded to AT&T by the deal offers better growth opportunities than those available in the US. Household penetration of pay TV offerings in Latin America currently sits at around 40 per cent. The combined company will require huge cashflow to channel into network build out and improvement, he said, with AT&T likely to invest some $10bn in upcoming US spectrum auctions.