TV picture looks fuzzy for consumers in AT&T-DirecTV deal

Thu May 22, 2014 3:52am IST

Large satellite dishes at the Los Angeles Broadcast Center of U.S. satellite TV operator DirecTV are seen in Los Angeles, California May 18, 2014. REUTERS/Jonathan Alcorn/Files

Large satellite dishes at the Los Angeles Broadcast Center of U.S. satellite TV operator DirecTV are seen in Los Angeles, California May 18, 2014.

Credit: Reuters/Jonathan Alcorn/Files

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(Reuters) - AT&T Inc's (T.N) planned takeover of DirecTV (DTV.O) has been touted as a deal that will redefine video and broadband, but translating that to reality for a potential 70 million subscribers could take a while.

Combining the second-largest U.S. wireless carrier with the No. 1 satellite TV provider could give the merged company greater leverage to negotiate prices with sellers of TV programming. One exciting benefit to consumers, AT&T has said, involves new service packages with DirecTV, Internet and home phone on one bill.

"We all know from a customer standpoint the more you bundle the more advantageous it is from a value standpoint, from a pricing standpoint," AT&T Chief Executive Randall Stephenson said on a media call on Sunday. [ID:nL1N0O40HW]

But SNL Kagan cable analyst Ian Olgeirson pointed out that sale prices for new customers who sign up for combined services tend not to last. "Where we've seen the industry be aggressive is in the bundled promotions and not on regular rates and I don't think this changes that," he said.

AT&T said it will offer a three-year price guarantee on its standalone broadband service while DirecTV also pledged to keep its service available for the next three years, but not at a fixed cost.

Bundles with DirecTV service, Internet and phone will only be available where AT&T is planning to expand its network, but not for every DirecTV customer. AT&T's U-Verse service, which includes Internet, television and home phone, is available in 22 states including Texas, Louisiana, Florida, Connecticut, Michigan and Ohio.

AT&T has 11 million Internet subscribers out of 25 million homes in its service area, and has previously said it plans to extend its total reach to about 57 million homes by 2015. After the merger closes, AT&T would extend its broadband service to 15 million more homes within four years.

AT&T said the plan would bring its total broadband reach to about 70 million U.S. households. Analysts said this would be viewed as a major public benefit and help smooth the way for regulatory approval of the merger.

OVER THE TOP

As for a video product that can be streamed over the Internet, both Verizon and smaller satellite provider Dish are several steps ahead of AT&T.

Verizon earlier this year acquired Intel Corp's (INTC.O) media technology, as part of its plan to create such a service. Dish has said it expects to launch its personalized streaming product by year-end, having already struck a deal for programming from Walt Disney Co (DIS.N).

AT&T CEO Stephenson said it would take 12 to 18 months for his company and DirecTV to come up with such a service, though both companies have been exploring how to deliver video over the Internet outside of a TV subscription known as an "over the top" service. [ID:nL1N0O50LV]

On a conference call about the merger on Monday, Stephenson spoke about how AT&T customers will be able to see DirecTV content on phones, tablets, in autos, in airplanes and many other places after the merger.

DirecTV CEO Mike White pointed to a bigger research and development budget on a conference call, but it remains unclear whether that content would only be available via Wifi connections or on AT&T's extensive wireless network. The latter option has generally been a non-starter for mobile phone users because of data restrictions, but AT&T could be in a position to lift such curbs in the case of DirecTV programming, said Brean Capital analyst Todd Mitchell.

More broadly, analysts said the merger could eventually allow U.S. consumers, for the first time, to obtain video and wireless service from one provider.

Liz Wile, a 26-year-old subscriber of AT&T's video and broadband service in Burbank, California, said she does not watch much video on her phone because of high data charges. The entertainment marketer said she wonders if AT&T and DirecTV could provide unlimited video without draining her data service.

"I'm definitely one of those mobile people who does things on the go, so it would be nice when you're traveling to have access to your Internet content without worrying about it," she said.

(Reporting by Liana B. Baker and Marina Lopes in New York; Editing by Richard Chang)

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