AT&T Merger Sets Up Godzilla-Sized Showdown With Comcast

source: http://www.flickr.com/photos/mrvjtod/

Source: http://www.flickr.com/photos/mrvjtod/

As had been speculated, AT&T (NYSE:T) pulled the trigger on a merger with satellite television provider DirecTV (NASDAQ:DTV) in a $48.5 billion acquisition that is set to see the two companies combine to become a telecom powerhouse. DirecTV is the country’s top satellite television provider, with 20 million subscribers, and gives AT&T a new avenue for growth in the face of stagnating cellular subscribers and a limited television distribution reach. Pending regulatory approval, the merger would rival only Comcast (NASDAQ:CMCSA) and Time Warner Cable’s (NYSE:TWC) recently-announced merger in both scope and scale.

With two mega-mergers announced as of late, all signs are pointing towards an era in the television and broadband industries in which survival looks to hinge on consolidation. By adding diversified services across different mediums, both AT&T and Comcast are taking measures to ensure their long-term survival in the face of shifting consumer demand and technological advances.

AT&T’s move is an attempt to broaden its bases in order to better meet those shifting customer demands, as CEO Randall Stephenson explained on a conference call, according to Reuters“It gives us the parts to fulfill a vision we have had for a couple of years — that is, the opportunity and the ability to take premium content and deliver premium content over multiple points for the customer, whether it be through a smartphone, through a tablet, or television, or laptop,” he said.

So by bringing DirecTV into the fold, how does the AT&T-DirecTV hybrid match up with a merged Comcast and Time Warner Cable? It puts them both in similar positions, easily making the two the big players on the block in the telecom industry. Both companies would have strong television distribution reach, with Comcast probably having an upper hand thanks to its ability to produce content through subsidiaries like NBC Universal. Conversely, AT&T is still one of the two biggest cellular service providers, going head-to-head with Verizon (NYSE:VZ) and T-Mobile (NYSE:TMUS). AT&T’s phone service may prove to be an area of great strength in coming years, as more and more content becomes aimed towards mobile consumers. At this point, it’s hard to say which company would gain the upper hand in the market if the acquisitions are able to tiptoe through regulatory oversight.

If the Federal Trade Commission actually allows the mergers to pass, and by all indications if one does then there is little reason to stop the other, then a huge segment of the country’s subscribers would be forced to choose of one of the two for its broadband or television service. This has been the major point of contention for consumer advocacy groups, with fears of monopoly and potential antitrust violations sparking worry that the mergers could mean lousier service and higher prices with little or no competition. In a political climate that has been undeniably big business friendly, critics of the mergers shouldn’t hold out hope that the government will stop the acquisitions from occurring.

Another important question in wake of the acquisition announcement is whether or not bringing DirecTV under AT&T’s wing is a wise decision, given declining subscriber figures and shifting content distribution methods. As “cordcutting” starts to take its toll, the exodus of subscribers is going to have an effect on many telecom companies’ bottom lines, a partial catalyst behind the recent merger activity. So how does DirecTV actually help out AT&T if the satellite provider is seeing slowed growth of its own? Besides broadening AT&T’s service options, it looks to be a move to set up for a future of taking on the likes of Netflix (NASDAQ:NFLX) and Google’s (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube. Both of those service can already be accessed by a myriad of devices as well as by mobile users, and by boosting its distribution capabilities, AT&T may be looking to take both on and reclaim some of its customer base. Of course, depending on how the net neutrality laws are finally settled, Netflix may have a disadvantage to AT&T and Comcast by default.

Looking at what’s left on the table, it’s hard to say what may become of companies like Dish (NASDAQ:DISH), which might not be able to keep up with the combined resources of AT&T, DirecTV, Comcast, and Time Warner Cable. The same concerns also plague other telecom companies, including CenturyLink (NYSE:CTL), T-Mobile, and Sprint (NYSE:S). Could we see these companies also become gobbled up by larger corporations, or perhaps band together to mount an offensive? T-Mobile has been playing smashmouth ball as of late, but going up against two giants would most likely be too much to fend off.

The announcement of another mega-merger between telecom companies is not welcome news to most consumers, as fears of price hikes and eroding service start to take hold. It’s also hard to chart a course for the industry as whole, for if the FTC doesn’t put its foot down to block some of these acquisitions, it may inspire reckless business activity from lack of oversight.

A number of changes on the way — including net neutrality regulations or a lack thereof — can also have a huge impact on the state of the industry in a few years. Right now, with two giant mega corporations gestating, consumers have every reason to be concerned that competition and innovation may take the backseat to widening profit margins.

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