Wednesday, May 28, 2014

A bundle of issues: AT&T, DirecTV and what you watch

WHEN COMCAST announced plans to buy Time Warner Cable on Feb. 13, for $45.2 billion in stock, it was a Godzilla announcement in the business world, one that fully declared Comcast’s intention to dominate in cable like no company ever had before. The deal proposes to combine the country’s two biggest U.S. cable companies into one inescapable media behemoth.

“This leaves Comcast as the sole king of the cable hill,” said Richard Greenfield, an analyst with BTIG LLC, to Bloomberg. “This is a game changer for Comcast.”

Now comes Game Changer #2. On May 19th, AT&T and DirecTV Group Inc. announced a proposed $48.5 billion merger, a monster mashup that would combine the nation’s second-largest telecommunications carrier and the undisputed 8,000-pound gorilla of satellite broadcast television.

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The AT&T-DirecTV deal will require the blessing of the Federal Communications Commission and either the Justice Department or the Federal Trade Commission. But pending the necessary chin-pulling by regulators, the television landscape may be about to undergo its second big shift of the year.

Bloomberg reported that the proposed Comcast-Time Warner Cable nuptials could face up to a year of scrutiny, but would “probably will end in approval after regulators secure pledges the combined company won’t harm Internet users.” We’ll certainly get the same pledge that AT&T/DirecTV won’t bend satellite subscribers or mobile customers over too far. At least not yet.

But layoffs are another matter. If previous mergers and acquisitions are any guide, and they are, they’re almost inevitable. Count on it: Thanks to the ruthless operational efficiencies that are basic to the economies-of-scale diktat of modern business, an unknown number of people will be filling Bankers Boxes with everything in and on their desks under the watchful eye of large security guards before it’s all said and done. You watch.

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WHILE THIS proposed deal has attained the breathless PR frisson of something new, we might have seen this coming. Visitors to the AT&T web site have long been invited to “Shop DIRECTV satellite TV bundles from AT&T, featuring packages with High Speed Internet, Wireless, and Home Phone services.”

This customer convenience takes on a new significance. AT&T and DirecTV have been in a kind of joint-venture status since AT&T announced it would market and sell co-branded DirecTV services back in January 2009 — in what looks now to have been a protracted courtship before the engagement just announced.

It’s this clout through consolidation, and its impact on consumers, that’s already the biggest concern for lawmakers in Washington. Senate Judiciary Committee Chairman Patrick J. Leahy (D-Vt.) expressed his worries on May 19.

“With this latest proposed merger, I am concerned that the telecommunications marketplace is trending even further toward one that favors big companies over consumers," said Leahy, as quoted by the Los Angeles Times. Leahy also suggested “that his panel would bring in top company executives for a hearing as well,” The Times reported.

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THE INDUSTRY needs more competition, not more mergers,” John Bergmayer, senior staff attorney at public-interest group Public Knowledge, said in a statement excerpted on the CNet web site. “The burden is on AT&T and DirecTV to show otherwise.”

In a conference call reported by CNN, AT&T CEO Randall Stephenson sought to calm the waters, saying that benefits to AT&T and DirecTV customers will be obvious “right out of the gate,” with new bundles becoming available right after the deal closes, whenever that is.

“The merger with DirecTV would triple AT&T's cable and TV customer base, providing service to more than 30 million people, adding to the company's wireless subscriber base of about 100 million,” CNN’s David Goldman reported on May 19.

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But that breadth of coverage could give AT&T and DirecTV more power over content providers — the networks whose programs you watch. DirecTV's contract with Disney channels, including ESPN and ABC, for example, expires at the end of the year. With a bigger pool of customers beyond the 20 million it has now, a post-acquisition DirecTV would wield fresh leverage over Disney and other networks in a way that doesn’t necessarily work to consumers’ advantage.

Remember what happened in January, when The Weather Channel was blacked out by DirecTV over a dispute over fees and content? “Most consumers don’t want to watch a weather information channel with a forecast of a 40 percent chance of reality TV,” DirecTV said in a statement.

That battle lasted about three months, only ending on April 9, when The Weather Channel (owned by NBC, in turn owned by Comcast) agreed to cut back on its then-emerging slate of reality programming.

A newly-configured DirecTV, bulked up on AT&T’s resources and reach, shouldn’t be expected to be any more magnanimous toward those content sources in the future than it is right now.

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IRONICALLY, WHEN the regulatory smoke clears, there may be two big winners who are now seen as outliers. The first possible winner is Dish Network. Long in second-place in satellite service subscriber numbers (about 14 million), constantly trumped in marketing and advertising reach, Dish in its current form won’t be in any better position once the deal goes through, as widely expected.

But the operative phrase is “in its current form.” The second possible winner could do something about that “current form”: Carlos Slim Helú , the jefe grande billionaire whose América Móvil telecom empire in Latin America is the Latam equivalent of AT&T. The two companies have co-existed for years — the two towering neighbors in control of their respective turfs.

That ended when the proposed AT&T/DirecTV deal was announced. As part of the transaction, AT&T will divest itself of its 8 percent stake in América Móvil, Slim’s telephone company, to avoid conflicts of interest or the appearance of same. Partners are now rivals, or soon will be.

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And with Slim’s U.S.-based Tracfone Wireless already having a sizable beachhead in the United States, with more than 25 million subscribers, according to Business Insider, the stage is set for war on a wider field of battle — in the USA.

Macquarie analyst Kevin Smithen told Business Insider that América Móvil could make just such a move. “I think we will see that América Móvil is now free to enter the U.S. We may see it try to partner with one of the other players be it Sprint, T-Mobile or Dish.”

Such a scenario would put Dish very much in play. The homely also-ran will likely be the object of a telecom suitor before long. And who will it be? Verizon? Sprint? T-Mobile? — América Móvil? Nationalism being anything but dead, it’s a given that Congress and U.S. regulators would push back against the idea of a foreign national acquiring Dish.

Election-year politics certainly makes this possible; that works to the advantage of Verizon or Sprint, and the disadvantage of América Móvil (based in Mexico) or T-Mobile (based in Germany).

But the immutable bylaws of business may hold sway. With a market value of $93 billion and a customer base of 246 million people, América Móvil can sure as hell run in the tall weeds. A competitive Slim/América Móvil bid for Dish would make everything interesting all over again.

People watch TV on all kinds of devices these days. But whatever you’re using to do that now, keep watching the screen. No matter how big or small that screen is, what you watch — and what you pay for what you watch — is about to change. Again.

Image credits: DirecTV dish: Reuters/Shannon Stapleton. DirecTV logo: © 2014 DirecTV. AT&T logo: © 2014 AT&T. The Weather Channel logo: © 2014 The Weather Channel. Carlos Slim Helu: via América Móvil logo: © 2014 América Móvil. 


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