AT&T pursues $50B DirecTV deal. Roadblock for Comcast/Time Warner?

Another blockbuster media deal is looming, and it could spell trouble for the mega-merger between Comcast and Time Warner Cable.

AT&T is nearing a $50 billion deal to buy satellite TV provider DirecTV, according to a report from the Wall Street Journal. AT&T is the second-largest mobile carrier in the United States, and the purchase, if completed, would give it control of the country’s largest satellite television provider and create a formidable competitor in the TV/Internet space. It also may create an extra legal hurdle for the merger of cable TV giants Comcast and Time Warner, which is currently under review by federal regulators.

According to WSJ, a sale would give DirecTV investors a mixture of stock and cash, and a deal could be finalized in as little as two weeks. Rumors of the sale have sent DirecTV shares surging 12 percent over the past month and sent shares of both companies climbing in after-hours trading Monday evening. 

Buying DirecTV would help AT&T expand its national footprint and compete in the pay-television marketplace, says Jeff Kagan, a media industry analyst based in metro Atlanta. “AT&T is a strong regional company, and if it wants to offer nationwide services this helps them do that,” he says. “In general, we’re seeing a trend toward consolidated nationwide companies.”

Indeed, AT&T-DirecTV and Comcast-Time Warner (a deal worth $45 billion, if approved by antirtrust regulators) are just the latest among a wave of large-scale media acquisitions over the past year or so. Earlier in 2014, Time Warner bought Charter Communications, another leading cable TV provider, for $38 billion. In 2013, Comcast acquired NBC Universal in a deal worth approximately $17 billion. The result of such mergers is fewer companies with larger national footprints.

That can be a mixed bag for consumers. In general, fewer companies means less competition and the potential for one company or another to completely dominate a given market. That’s something antitrust regulators looked to prevent, in fact, when they blocked a potential purchase of T-Mobile by AT&T in 2011.

The pay-TV and Internet market, however, historically has been characterized by single companies, like Comcast and Time Warner, dominating certain regional markets. In that case, Mr. Kagan argues, having even a few large companies competing for the same space might actually be an improvement. "If we as consumers have the choice for either AT&T or Verizon or CenturyLink or Comcast or whatever in the same space, that will drive innovation, and drive prices down,” he says. “There is a growing level of competition that there wasn’t 10 years ago.”

What’s still unclear, however, is what the AT&T-DirecTV deal would mean for Comcast-Time Warner’s approval. It presents a complication, those familiar with the talks told WSJ, because regulators would likely have to consider both deals simultaneously, and one would inform the other. “If they approve one they have to approve both,” Kagan says. "It’s hard to know [AT&T’s] thinking on this. It could be a way to get their deal on the same wave of regulatory approval, or it could be a way to derail the Comcast merger.”