att_directvAT&T’s plan to acquire DirecTV, announced yesterday afternoon, will give the merged company “an opportunity to redefine the future of video for a high-speed world,” said AT&T CEO Randall Stephenson on a conference call with financial analysts and media this morning.

Moving forward, Stephenson said, “Video across all screens is going to be table stakes, it’s what customers expect.”

AT&T already markets DirecTV’s satellite video service to customers as a supplement to AT&T’s own fiber-based U-verse video offering, which is only available to a portion of the company’s customers. Purchasing DirecTV has the potential to increase AT&T’s margins on DirecTV sales and to supplement AT&T’s own content lineup as AT&T seeks to make pay TV content available on wireless devices. Perhaps more importantly, a merger would give the combined company greater leverage in negotiations with content providers.

If Comcast and Time Warner Cable are allowed to merge, they would have the largest base of pay TV subscribers in the U.S., potentially enabling the merged company to garner better content distribution terms. With DirecTV’s customers in its fold, AT&T would be better positioned to negotiate similar terms.

AT&T to Buy DirecTV
AT&T said it is prepared to honor several key commitments if its plan to acquire DirecTV is approved.

These include:

  • Bringing fixed broadband to 15 million additional customers within four years of the deal’s closing. This would be above and beyond the build-out commitments that the company previously made with its Project Velocity IP (VIP) initiative announced in late 2012.  While Project VIP specifically targeted homes in AT&T’s local phone service territory, the new 15 million locations will include more homes outside of AT&T’s local service footprint than within that footprint, executives said on today’s call. In addition they said the majority of new builds will be in rural areas. Service will be delivered using a combination of fiber-enhanced broadband and fixed wireless.It’s important to note that AT&T said “fixed” wireless. When the company announced Project VIP, its wireless plans were based on traditional mobile voice service. With DirecTV in its fold, AT&T would gain a nationwide sales and installation team accustomed to installing antennas, and that may be a factor in AT&T’s commitment to offer fixed wireless.
  • A commitment to bid at least $9 billion in the 2015 incentive auction of TV broadcast spectrum, provided there is sufficient spectrum available for AT&T to have the opportunity to acquire at least a 2×10 MHz nationwide spectrum footprint
  • Abiding by the Net Neutrality/ Open Internet guidelines that were established in 2010, even though those guidelines were struck down by an appeals court earlier this year
  • Offering stand-alone broadband at speeds of at least 6 Mbps in the AT&T local service territory, “where feasible” at guaranteed pricing for three years after closing
  • Offering DirecTV’s pay TV service on a stand-alone basis at package pricing that will be consistent nationwide for at least three years after closing

A New View on Home Services
One of the most compelling comments Stephenson made on today’s call was that “we’re viewing the consumer home solutions business differently than we did just… 12 months ago.”

This realization has made the company more willing to undertake new build-outs and to complete build-outs more quickly, he said.

The fact that Stephenson used the term “home solutions” suggests that the company is finding success beyond multi-play offerings of voice, video and data. The company’s Digital Life home monitoring service is one such offering, for example.

These economics undoubtedly are a key factor in AT&T’s offer to bring broadband to areas outside its traditional home service footprint.

As for the customers that DirecTV already has through agreements with Verizon and CenturyLink, DirecTV executives said today that they “expect to continue” with those relationships.

If the planned purchase garners various regulatory approvals, AT&T and DirecTV expect the deal to close in about one year. During that time executives said the companies will “do as much planning as we can do.” For example, the companies expect to be able to provide a single bill for AT&T and DirecTV services soon after the merger is closed.

Financial details about the AT&T/ DirecTV deal can be found in today’s press release announcing the deal.

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