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In summer 2015, AT&T acquired pay-TV company DirecTV for $48.5 billion. This announcement came as a surprise to the observers of the pay-tv industry. The way companies are merging is quite different from the environment that existed in the ’90s where the marketplace was clouded with small enterprises. Recently, the new trend has been wave after wave of mergers and acquisitions that has resulted in fewer and large corporations in the marketplace. The pattern signifies what customers expects going forward where companies will continue merging to create fewer and larger competitors.
However, this may be good or bad for the customers depending on the transformation of the markets as a result of these mergers and acquisition. For instance, mergers create synergies and financial capability to innovate and implement big ideas. For AT&T, the deal is basically about gaining scale in acquiring the bargaining power and video especially on licensing premium content and with the looming merger between Comcast and Time Warner Cable.
On this deal, AT&T will combine 5.7 million U-verse TV customers with the Directv’s broad subscriber base of 20.3 million United States subscribers. With the deal, AT&T will become the second largest pay-tv provider in the US which means it can negotiate for a better price and programming. AT&T will gain access to premium content which is key to becoming a major player in the market of video streaming. At the moment, Direct TV is far much ahead of AT&T especially in licensing deals with premium contents.
Consider something like NFL Sunday Ticket currently licensed by the Directv. The deal will be a game changer for AT&T because they may be able to offer it to their wireless customers. The CEO of AT&T has expressed his intention to call an investor meeting to discuss how the company will offer premium video possibly on all screens from cars, to TVs to smartphones and airplanes.
More important to note is that the deal is not just crucial to AT&T but also Direct TV side as well. For instance, Direct TV will upon sealing the deal offer its customers with high-speed internet as part of its satellite package. AT&T believes that the deal will allow Direct TV to provide 15 million Direct TV clients. Many of them are in rural areas but will be able to access the broadband internet using a combination of technologies including the current satellite internet and wireless internet.
According to the CEO of Direct TV, Mike White, one thing the deal misses is the broadband cable. However, he said in a statement that the deal will combine video and broadband to combat the dominance of cable. Apart from the synergies in licensing and content. AT&T will gain regarding the access to the substantial new markets in Latin America. With AT&T having the ambition to expand in Latin America especially Brazil, the deal with Direct TV will be a great move because it has 18 million customers there.
The whole point of the merger is boosting AT&T and Direct TV the ability to become the first wireless company to offer 5G services to its users. After purchasing Direct TV, the company intends to develop its fixed line services to enable the providers of 5G to capitalize on the technology. According to John Donovan, the Chief Strategy Officer of AT&T insisted the company was in a better position since it has fixed line proposition which is a primary requirement to offer 5G network.
AT&T plans to introduce the trials in select locations in the US. Directv sales and special offers will include the 5G package to promote the new network. 5G will offer speeds of up to 20Gbps which will be 100 times faster than the current 4G LTE data networks with a maximum data speed of 150Mbps. Most importantly is that the speed of the network is expected to grow gradually with capacity expected to reach 100 billion devices and latency expected to increase significantly.Read More