AT&T Eyes DirecTV Acquisition for Broadband Video

11 Mar, 2015 By: Erik Gruenwedel

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As AT&T awaits regulatory approval of its $48.5 billion acquisition of DirecTV, AT&T CFO John Stephens said one of the main reasons for the union is broadband video. As AT&T’s U-verse pay-TV business grows, it eyes OTT video as supplementary to linear TV.

“The ability to bundle our 57 million broadband [households] with DirecTV’s video product offering is a huge advantage,” Stephens told attendees March 11 at Deutsche Bank Media, Internet & Telecom confab in Palm Beach, Fla. “We [also] think pay-TV has a long life to it.”

With over-the-top video dominating home entertainment and pay-TV conversations, Stephens said one of the biggest challenges in video is not having broadband distribution. For AT&T, the CFO said the biggest challenge is the reality that 30 million of its broadband subscribers don’t have a video-capable connection due to owner economics.

Such remarks suggest AT&T will unveil a budget direct-to-video OTT venture upon completion of the DirecTV merger, which is expected to close in the first half of the year. Indeed, Stephens said that post-merger, AT&T would have 70 million broadband/video bundle opportunities.

In addition, post-merger, AT&T becomes one of the largest content distributors in the country. And as a telecom distributor — not content holder, AT&T also eyes upwards of 60 million to 70 million smart phone and tablet subscribers — an addressable market in excess of 100 million subs able to access video, according to Stephens.

“We have 15 million [U-verse] video connections without a broadband connection. We’re going to come out of [the merger] a much different company … focused on business, on video and broadband, on international and consumer-ability,” he said.

The CFO said the recent Title II ruling by the Federal Communications Commission reclassifying Internet as a utility has taken the issue out of DirecTV regulatory issues.

“Title II seems to be a solution in search of a problem. They need to publish [the order], but because of the steps the FCC took, it’s almost as if they may have moved [net neutrality] from [our] transaction,” Stephens said.

Regardless, the executive said increased regulatory measures regarding pricing, customer interactions, and locations clouds the horizon.

“Any kind of uncertainty is not good for investment and does not bode well,” Stephens said. “We expect litigation over the matter.”

Indeed, the executive said that since President Bill Clinton engaged in a “light touch regulatory” approach to the Internet and broadband 20 years ago, the industry has invested a quarter of trillion dollars in broadband [3G, 4G] technology.

“We have probably advanced broadband and high-speed interconnectivity greater than any place in the world in that time frame,” Stephens said.

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