Most commentary on major mergers appears to take a very short-term view: e.g., Apple buys Beats based on what it will add to near-term profits; or, in the case of AT&T-DirecTV, AT&T is just trying to add customers or pare programming costs.
Our approach is quite different; we believe that major mergers are usually motivated by longer term strategic objectives.
In the case of AT&T and DirecTV, we believe it is fairly clear that a long-term struggle is emerging over national mobile video coverage. This battle will take about three–to-five years to heat up.
The combatants, as of today, will include Comcast (if it acquires Time Warner Cable) and Verizon, and AT&T if its acquisition of DirecTV passes legal/regulatory scrutiny.
With this in mind, the acquisition of DirecTV makes a great deal of sense for AT&T. We have written a number of papers on the topic of direct broadcast TV to cell phones, (including our report of November 2009 on the topic.)
The DirecTV link for AT&T is part of the removal of geographic limits to the broadcast market.
Satellite has always had this capability geographically, but never has had the connection to smartphones. With the DirecTV acquisition, ATT would have the operating platform to beam direct to the smart devices.
The combined customer totals for the two companies, as of today are: roughly 20 million DirecTV subs in the U.S. (38 million including non-U.S.); nearly 6 million AT&T U-verse TV subs; and roughly 50+ million AT&T smartphone users.
The device world can accommodate this step, as the chipsets exist from LG and Samsung and have been marketed in Korea for at least 4-to-5 years.
This business case involves a smartphone base transition, probably over 5 years. Satellite is probably the most cost effective way to stream.
It is ideal for cloud management of the system: both device and services.
An added nuance is that ATT, if it understands the potential, can do this by beaming to their subset of cellsites or data centers, ala CDN-like, and use a Web site or URL or frequency to send the video broadcast.
The site approach would have a better indoor coverage capability than satellite direct and can be augmented in a year or two with their WiFi subnet.
We believe that Comcast has, at least the outlines of a plan to expand largely through WiFi saturation into providing national mobile video and other mobile services. With respect to Verizon, the company has denied it is talking to Dish Network, and we do not believe that a satellite deal is likely from Verizon, which, we believe, will attempt to use terrestrial wireless technology to launch a national mobile video offering.