AT&T's DirecTV deal includes plums to woo regulators and consumers

AT&T's mega-bid to buy DirecTV for $48.5 billion and take on another $18.6 billion of DirecTV debt, includes several deal sweeteners designed to win over government regulators and customers.

In a conference call today, AT&T CEO Randall Stephenson called the offer and its special provisions "very, very good for consumers.... Together, I' m confident we'll drive innovation. We have an exciting future ahead of us."

An exhaustive review of the regulatory environment led AT&T to be "more confident this [deal] will pass regulatory muster," Stephenson said. "What allowed us to catch momentum [in regulatory reviews] was our belief that the deal can be designed to be consumer friendly and serves the public interest."

However, consumer advocacy groups immediately attacked the consumer-focused provisions, which include a plan to provide broadband to 15 million homes -- mostly in rural areas -- once the closes. That would come atop an existing AT&T high-speed Project VIP broadband rollout now slated to reach 57 million customers by the end of 2015.

The 15 million homes would be served within four years after the deal closes by a combination of technologies, including fiber optic cable to the home and fixed wireless local loop, AT&T said. Fixed wireless local loop typically refers to a technology to provide small routers inside or near homes that take a fast wireless signal from a carrier and forward it to a user in a home or business.

"That 15 million sounds like a lot, but AT&T could pass that same number of homes with gigabit fiber for far less than the cash they're spending in this deal," said Derek Turner, research director for Free Press, a consumer lobbying group.

Turner attacked the plan to use fiber and fixed wireless instead of using AT&T's advanced DSL technology within its U-verse TV service to the reach the 15 million.

"Translation: this means AT&T is going to be offering the same expensive fixed 4G wireless in the same areas where it refused to upgrade its wired networks," Turner said. "This commitment is not even close to offering real [wired] broadband to 15 million homes. This deal doesn't value consumers at all."

Even investors aren't really benefiting with the deal, Turner said, since he estimated it would cost AT&T $1,500 to connect a single home with gigabit fiber, compared to the cost he calculated of $3,350 per home that AT&T is essentially paying for access to 20 million U.S. DirecTV video subscribers.

"It's a head-scratching deal," he said.

Other commitments AT&T has made once the deal closes -- in possibly a year -- include:

A standalone wired AT&T broadband service of over 6 Mbps at prices guaranteed for three years.

A standalone DirecTV TV service based on nationwide pricing for at least three years.

A commitment for three years to the Federal Communications Commission Open Internet protections created in 2010.

Continued plans by AT&T to participate in two upcoming FCC spectrum auctions, including a bid of at least $9 billion in a 2015 auction.

Turner called AT&T's promise of standalone wired broadband service for three years a "sign of market failure." He termed AT&T's Net Neutrality commitment a "joke" since it is a short-term commitment to a set of "loophole-ridden rules."

Even amid such attacks, several analysts said AT&T's deal for DirecTV is likely to win federal regulatory approval, especially if the Comcast purchase of Time Warner Cable for $45 billion, first announced in February, wins approval. Regulators are also reportedly in discussions with Sprint, controlled by SoftBank, to merge with T-Mobile.

Hugues de la Vergne, an analyst at Gartner, said he couldn't speculate on whether regulators will approve the various deals. But he said AT&T's timing in the offer for DirecTV is important, since most industry observers expect a TimeWarner-Comcast approval. A combined AT&T-DirecTV would become a direct competitor to Time Warner-Comcast, analysts said.

"Now, regulators have to consider multiple mergers that would be coming before them," de la Vergne said.

In his remarks to financial analysts, Stephenson said regulators "will look at new competition that is generated that frankly wouldn't exist otherwise" without AT&T's plan to buy DirecTV.

Roger Entner, an analyst at ReCon Analytics, said that against the backdrop of a likely Comcast/Time Warner merger, AT&T and DirecTV "should have no problems with any regulatory approval."

He said AT&T and DirecTV don't generally compete today, except in some southern cities -- and even there they have already set up some cross-marketing arrangements.

"There are a lot of upsides for consumers when technology comes together and different silos for connecting [over satellite, wired and wireless] are torn down," Entner said. "The combined entity will be able to give cable companies a lot more competition and it will strengthen competition in vast parts of the country."

Entner also agreed with AT&T's view that TV content providers will have a strong alternative to having to work with Comcast-Time Warner. "This deal weakens Comcast's bargaining power for content," he said. That power provides some potential for keeping content costs in check.

Entner called the plan to offer fixed wireless or fiber to 15 million more homes a deal "sweetener" that isn't possible because of any new revolutionary technology from AT&T or DirecTV. The ability to serve another 15 million homes comes from $1.6 billion in cost savings AT&T expects through the deal with DirecTV, he said

"The fixed wireless technology does not miraculously work better because of this deal," he said. "The FCC is always happy to have more people on fixed wireless broadband."

If opponents block the AT&T-DirecTV deal, Entner said that it would be a "horrible mistake for the country.... We need to integrate all telecom, whether it's voice, data, Internet or video."

This story, "AT&T's DirecTV deal includes plums to woo regulators and consumers" was originally published by Computerworld.

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