This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Does AT&T Want to Buy Satellite-TV Technology?

NEW YORK (TheStreet) -- When AT&T announced plans to buy satellite-TV operator DIRECTV (DTV), industry watchers were left perplexed that a broadband and wireless company would want to execute a $48.5 billion deal to acquire an operator of satellite-TV when that technology is being fast outmaneuvered by new high-speed fiber-optic networks owned and operated by cable-TV providers.

Investors continued to question AT&T's move for DIRECTV, selling shares in the stock which fell for a second day on Tuesday, falling 1.2% to $35.95. DIRECTV also slipped, losing 0.8% to $83.99.

While DirecTV has more than 20 million subscribers in the US alone, domestic growth has slowed and even fallen in some regions. Streaming outfits like Netflix (NFLX) and Hulu, a venture of Comcast's (CMCSA) NBCUniversal, 21st Century Fox (FOXA) and Walt Disney's (DIS) ABC Television Group  are disrupting the business models of not just satellite but cable-TV companies as well. Comcast has had to seek growth through the acquisition route as it attempts to win government approval to buy Time Warner Cable (TWC).

For AT&T, whose convergence brand U-Verse--a mix of telephony, internet, and pay TV-- has around 5 million subscribers, it became necessary to match Comcast's moves, even though the industry outlook overall remains bleak.

The challenge for the new entity will be how to manage the expectations of the new age customer, who has an Internet-centric view of the world, and wants higher bandwidth every year to consume rich media content, where TV is just one part of the big picture.

While DIRECTV will bring some premium programming as part of the deal--like the exclusive NFL Sunday Ticket--more skeptical observers are asking how buying a satellite-TV company improves AT&T's ability to battle fiber optic-centric rivals like Comcast, which are desperately trying to make "cord-cutting" a losing proposition.

Does AT&T hope that DIRECTV customers will switch to the U-Verse brand? If that happens, the company would be cannibalizing growth rather than adding new customers. Compared to Comcast, AT&T has an edge in mobile telephony, but thanks to VoIP, it may not be significant.

DIRECTV strength is in markets such as Latin America--where it has 18 million subscribers. Revenue from the region should help the balance sheet of the new entity but then again AT&T would have to take a conscious decision to focus on international markets for future growth. 

One argument in support of AT&T's move is that a much larger subscriber base would allow the merged company to negotiate better re-transmission deals for programming from media content companies such as CBS (CBS) and its biggest rival, Comcast, owner of NBC. Unfortunately, with like Netflix moving to producing their content--like House of Cards--the industry landscape may be moving faster than anticipated.

If anything, it would not be impossible to imagine AT&T and Comcast allying against the one company whose ambitions could make a major dent in their respective bottom line: Google (GOOG). Google Fiber's ambitious plans on creating a broadband superstructure across the US has even got federal regulators like the FCC excited.

It's very hard as a consumer to say no to a promotional punchline that says 'The goodness of Internet and TV. TIme 100." With plans to cover 34 cities rolled-out, Google might make AT&T's investment a very costly gamble in the weeks to come.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff



Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,563.30 -317.06 -1.88%
S&P 500 1,930.67 -39.40 -2.00%
NASDAQ 4,369.7730 -93.1290 -2.09%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs