AT&T is in advanced talks to acquire DirecTV, the U.S.’s largest satellite television provider, for about US $50 billion, according to a report. Under the plan being discussed, the current management of DirecTV will continue to run the company as a unit of AT&T, while DirecTV CEO Mike White plans to retire after 2015. The two companies are still negotiating a price, which could come close to US $95 a share, depending on the proportions of cash and stock in the transaction. Also on the table is the size of the termination fee to be paid in the event that regulatory approval is not granted. An agreement between the two companies is said to be one to two weeks away from completion. DirecTV’s rival Dish Network had previously considered a merger, but Dish chairman Charlie Ergen recently said he thought DirecTV was too expensive to pursue.

Tarifica’s Take

This deal would have a substantial impact on the pay-TV landscape in the U.S., comparable to that of the pending Comcast–Time Warner Cable merger. It certainly underscores the fact that combined services (phone, broadband internet, TV and mobile services) are the wave of the future for telecom providers and entertainment content providers alike. AT&T has already made a foray into TV with its IP-based U-verse streaming TV service; now, by acquiring the country’s largest satellite-TV provider, it would gain a national footprint, placing itself in a very strong position to take advantage of the public’s growing appetite for pay-TV and the increased range of choices it offers. Furthermore, because DirecTV is already operating in Latin America, the deal would extend AT&T’s TV range beyond the U.S. As for DirecTV, we believe it would gain significant competitive advantage for the future by being combined with internet services instead of offering a stand-alone product.

Of course, everything depends on whether this deal receives regulatory approval, a process that could take up to a year. The FCC will be considering the Comcast–Time Warner and AT&T–DirecTV deals simultaneously. If both deals are approved, the two combined entities will go head to head in competition, and it does seem more likely that both or neither will go through than that the FCC would allow one and not the other.