AT&T's DirecTV deal to bolster rural broadband reach to 15M locations
AT&T's (NYSE: T) proposed $48.5 billion deal to acquire DirecTV will make it a powerhouse video provider. As part of the deal with DirecTV, AT&T has committed to expand its broadband services footprint to 15 million customer locations, particularly in unserved rural areas where the telco does not provide service today, using a combination of fiber to the premises (FTTP) and wireless local loop technologies.
Set to be completed four years after the deal closes, the new broadband expansion plan is complementary to AT&T's $14 billion fiber and Project VIP expansion plan. Rural customers also will have the option to buy broadband service stand-alone or as part of a bundle with other AT&T services.
"We're getting very close to closing out our VIP build commitment," said Randall Stephenson, CEO and chairman of AT&T, during the conference call discussing the transaction. "That was a multi-billion dollar commitment to deploy 4G LTE across our network and significant amount of fiber into our network to extend our broadband footprint."
During the most recent quarter, AT&T's broadband customer base grew 4 percent as it added 634,000 U-verse broadband and 201,000 U-verse TV subscribers, ending the quarter with a total of 11 million and 5.7 million subscribers, respectively.
"As you look at that broadband footprint, we got more conviction that if you could get your video product to a profitable level then you could take that VIP build and extend it out and that's where those 15 million lines come from," Stephenson said. "If you put a profitable video product, best in class, on top of our broadband build to another 15 million subscribers, we have a really exciting growth opportunity here."
It will also work to appeal to customers that want to use over the top video services like Hulu or Netflix (NASDAQ: NFLX). AT&T also plans to offer wireline broadband service at speeds of at least 6 Mbps (where feasible) in areas where AT&T offers wireline IP broadband service today at guaranteed prices for three years after closing.
In delivering video services, Stephenson said it will use a number of platforms to deliver services.
"I think you're going to see over the next 3-4 years a broad array of video transmission medium," Stephenson said. "There's going to be a significant amount of satellite. You're going to see as we deploy fiber to the home that video platform will be a fiber-based video platform, and you'll see it delivered wirelessly to the laptop and the car."
Stephenson added that "you'll see the experiences merge so the user interfaces will look and feel the same, but I don't see it displacing our fiber product in our U-verse footprint."
The other question is how will this deal it impact the commercial relationships DirecTV had with both CenturyLink and Verizon, both of which resell the satellite service in areas where they don't offer their Prism TV and FiOS TV products?
"We value our relationship with Verizon, and I know AT&T has commercial relationships with Verizon," said Mike White, president and CEO of DIRECTV. "We expect continue that relationship as we do our relationship with CenturyLink."
Both AT&T and DirecTV's boards of directors have approved the deal, but it still must still be approved by the FCC, the U.S. Department of Justice, a few U.S. states and some Latin American countries. The acquisition is expected to close in around 12 months.
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