Washington

AT&T to SEC: $1.6B in DirecTV Synergies By Year 3

Outlines financial expectations; makes case for why regulators will approve 6/03/2014 08:58:00 PM Eastern

AT&T has told the government that it expects the proposed DirecTV merger to result in more than $1.6 billion in "synergies" in the first three years. and increase with the addition of video subs, primarily from the reduction in programming costs. AT&T says at least 40% of that total will be realized within two years. AT&T also makes its case for why it thinks the FCC and DOJ will approve the deal, which comes down to consumer benefits and complementary strengths.

That is according to AT&T's 8-K filing with the Securities and Exchange Commission, a form that provides information on important changes to a company--like a merger--that could affect investors and thus is important information for the SEC.

"Programming cost reductions are the most significant part of the expected cost synergies," said AT&T in the filing. "At this time, AT&T’s U-verse content costs represent approximately 60% of its subscriber video revenues.  With the scale this transaction provides, we estimate AT&T’s U-verse content costs after the completion of the transaction will be reduced by approximately 20% or more as compared with our forecasted standalone content costs."

But there is more than just savings from reducing costs in the deal. AT&T says there will be significant "revenue synergies" through bundling, video content to multiple screens, cross selling and advertising.

"AT&T sees the opportunity to gain new customers through the effective bundling of video, high speed broadband and wireless services to at least 70 million locations," the company said. "There’s also a revenue opportunity by being able to offer competitive bundles of pay TV and wireless service to approximately another 45 million U.S. customer locations. Bundling also allows subscribers to integrate traditional linear video with on-demand and OTT services in ways that create a richer, more flexible and increasingly ubiquitous video experience across multiple screens."

AT&T also says it is looking to develop multiscreen content offerings for its 4G LTE mobile wireless network (290 million people) and its  high-speed fixed broadband customers (70 million), and sell adds to that increased universe of end-users.

On the business market side, AT&T is looking at opportunities to bundle AT&T services with DirecTV video in hotels, restaurants and bars and with real estate managers.

AT&T tells the SEC that its fixed wireless broadband service will be able to provide speeds of 10-15 Mbps at peak periods with even higher speeds at off peak. The FCC's current definition of high speed is 4 Mbps, but it reportedly is considering boosting that baseline.

As to why regulators will bless the deal, or at least not curse it.

"DirecTV is a premier video product that is available throughout the United States. The combined company will have the ability to offer customers the option of bundling the DirecTV experience with integrated AT&T offers: mobile, broadband or any number of other products.  The ability to bundle a high-quality video product with other services outside of our current U-verse TV footprint creates a unique new competitor giving customers what they want -- an integrated bundle of video, broadband, mobility and other services.  It also gives the new merged entity the economic case to significantly increase investment in broadband infrastructure.

"Second, the assets of DirecTV and AT&T complement each other, with limited competitive overlap. AT&T is a leading broadband company, and in some areas, we bundle broadband with our U-verse video product. DirecTV, on the other hand, offers a nationwide, best-in-class video experience, but it does not offer its own broadband product. By combining these assets, AT&T will be well positioned to offer customers better bundled options than either company could provide on their own. This is especially true when you add in the strength of our wireless network. Given our limited competitive overlap [about 25% of the country has a choice between U-verse and DirecTV], and the significant consumer benefits, we are confident that the regulators will approve this combination."

AT&T has yet to submit the deal proposal to the FCC, which will include a public interest benefit statement likely to make some of the same arguments.

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