Specifically, DirecTV has approximately 20 million U.S. subscribers, and AT&T's U-verse has nearly 6 million customers. Together, Comcast and TWC would reportedly have around 30 million video subscribers, after divesting 3.9 million in an effort to alleviate regulatory concerns.
Randall Stephenson, AT&T chairman and CEO, has said that combining with DirecTV will give the combined company the power it needs to offer an effective bundle of services - including video, broadband and mobile - and allow it to deliver content across multiple screens. In addition, the merger is expected to create $1.6 billion in operating efficiencies and has an international reach. DirecTV currently has 18 million pay TV subscribers in Latin America and has been accumulating spectrum in Argentina and Brazil, with the intent of deploying fixed wireless local loop.
"(I am) bullish for Latin America .... Pay TV is underpenetrated, and there is a lot of potential, particularly in Brazil," Stephenson said. In Latin America, only about 40% of households subscribe to pay TV. In exchange, AT&T promised to divest itself of its interests in American Movil, a Latin American wireless services provider that also offers fixed wireless access and pay TV.
If the deal closes, AT&T has committed to a significant stateside rural broadband deployment that also would include fixed wireless local loop technology. This would mean reaching 15 million locations, mostly rural, where it currently does not provide service.
One analyst, Matthew Harrigan from Wunderlich Securities, called the rural broadband offer "the biggest regulatory carrot" offered by AT&T as the Federal Communications Commission has often stressed the importance of bringing broadband to rural communities. Harrigan, in an interview with CNN Money, said LTE technology is advancing such that it could be used to deliver on the promise.
Other concessions include offering a standalone broadband service of at least 6 Mbps where available, at a guaranteed price for three years. This targets those consumers who want to consume video in an OTT manner. Alternatively, also for at least three years after the deal closes, the company would continue to offer DirecTV at a nationwide package price.
AT&T also suggests that its combined company would provide a "stronger competitive alternative" to cable. "This gives us the opportunity to create something very unique, with this combination of best-in-class wireless network, video service and - when we are done - broadband buildout to 70 million customer locations," Stephenson said.
But one question is whether regulators will see the merged entity as providing competition or taking it away. Cable companies generally do not operate in the same regions. AT&T and DirecTV both operate in at least 22 of the same states. If they join forces, this would effectively reduce the current competition in those areas, according to the Christian Science Monitor.
Delara Derakshani, policy counsel for the Consumers Union, said in a statement that the deal shouldn't be justified simply because Comcast and TWC are doing it. "Neither one is a good deal for consumers," she said, asking regulators to be wary of this starting a "wave of mergers."
As for what makes it a good deal for the companies, Jason Blackwell, director of service provider strategies for Strategy Analytics, said fixed operators are experiencing cost pressure, but DirecTV is known for having a higher-end customer base with a larger ARPU. "Through this deal, AT&T is buying scale in pay TV, premium customers for greater multi-play service adoption and a nationwide footprint for quad-play services," he said.
In addition, aside from the Latin American market opportunities DirecTV brings to the table, it also has football and carries the exclusive rights to NFL Sunday Ticket. The high-priced package allows viewers to watch games outside of their local area. The contract is up at the end of the coming football season, however. According to Reuters, if a renewal agreement is not struck between DirecTV and the NFL, AT&T has the option of backing out of the merger.