AT&T(s t) may have announced a blockbuster deal to buy DirecTV(s dtv) for $48.5 billion this weekend, but it’s going to be a while before we see anything come of it. The merger still has to get by regulators in multiple countries. We won’t see the first AT&T-DirecTV wireless-broadband-satellite service package until the summer of 2015 – assuming the deal goes through.
But what would such a bundle look like? AT&T offered some hints when it announced the deal on Sunday. It wants to tie together as many of the two companies’ products and services as possible.
For instance, it wants to use DirecTV’s partnerships with he NFL and its ownership stakes in other cable TV stations such the MLB Network and NHL Network along with AT&T’s own joint venture with Chernin Group to program and develop more content, instead of just distribute others’ content over its pipes. AT&T wants to use its multiple networks to distribute the content more widely, especially its mobile broadband networks, making the mobile phone an extension of the home DVR.
But most significantly, AT&T wants to tie the video distribution network more closely to the broadband network. AT&T doesn’t just want consumers to buy their satellite TV and internet from the same provider, it may require it – or at least make it much more costly to separate them.
In its announcement, AT&T said it would continue to offer stand-alone DSL and U-Verse connections at guaranteed prices for three years after the deal’s close. The same goes for DirecTV service: AT&T will offer standard nationwide pricing to satellite TV-only customers for three years after the deals close. The implication, though, is that after three years AT&T would start bundling terrestrial broadband with satellite TV, potentially making it more difficult or more expensive for consumers to buy broadband as a standalone service.
This, of course, would have a big impact on the growing number of cord-cutters that are using over-the-top video services such as Netflix(s nflx) and Hulu for their premium content. It smacks of the same strategy mobile carriers use in mobile communications: they require consumers to buy a big bucket of traditional voice and SMS services even though consumers are moving over to over-the-top messaging apps and VoIP is becoming a viable alternative.
AT&T can’t bundle DirecTV with its broadband services everywhere, only within its own territory. That means that after three years, AT&T could start pricing satellite TV differently depending on geography. AT&T, however, has committed to building out broadband access to 15 million more people using fiber-to-the-premises and fixed wireless technologies if the deal is passed.
AT&T, like other ISPs and mobile carriers, doesn’t want its networks to become a set of dumb pipes. They want to monetize the traffic traversing those networks, and as the raging net neutrality debate shows, they’re looking for multiple avenues toward that monetization. On the one hand, AT&T wants to charge companies to prioritize their content on its pipes, and on the other it could use DirecTV to expand on U-Verse TV’s strategy of selling the content itself and then favor that content over any other competing source.