By now, everyone’s heard that AT&T is proposing to buy DirecTV for $48.5 billion in cash and stock.
I’m wondering why.
DirecTV and AT&T compete in a few marketplaces in the US, but not really in enough markets to justify a $48.5 billion takeover, especially in the current technological environment. DirecTV’s technology will do nothing to enhance AT&T’s current technology in that DirecTV does not offer internet service and AT&T cannot use it to improve their mobile service. More and more people watch video online, on sites like YouTube (owned by Google, Inc.) and Netflix, meaning the additional customer base for pay TV is likely to continue to dwindle (last year, the number of households that use pay TV actually dwindled). Satellite TV has its issues, too; when I had DirecTV, any interference with the direct line of vision between the dish and the satellite pixellated the picture or canceled the transmission altogether. Snowstorms and rain storms are examples of “interference with the direct line of vision.” In the Great Northeast, we get both on a regular basis.
Regulators are likely to have concerns over this merger, too. This would reduce the number of pay TV options available to consumers in about half of the US markets. Because decreased competition can have the effect of raised prices, this would seem to me not to be in the public’s best interest. This merger makes AT&T the second-largest provider of pay TV services, assuming all of the current customers stick with them (Comcast/Time-Warner is larger). Monopolies are not popular with regulators, either.
I can think of all these reasons for AT&T not to enter this merger; I can’t think of a single reason for them to do so.
So … why?