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AT&T-DirecTV Merger Would Create 'Entertainment Powerhouse'

By Josh Long
May 01, 2014 - News

**Editor's Note: Please click here for a recap of the biggest communications mergers in Q1 2014.**

As Comcast and Time Warner Cable urge U.S. regulators to approve their megamerger, another communications giant is said to be mulling a potential acquisition that could further consolidate the TV business.

“People familiar with the situation" told The Wall Street Journal AT&T has approached DirecTV about a potential acquisition of the satellite-TV company.

The deal would transform AT&T into an entertainment powerhouse whose TV business would nearly equal the size of Comcast if the Federal Communications Commission and U.S. Department of Justice approve Comcast’s $46.2 billion Time Warner Cable acquisition.

AT&T currently serves 5.7 million U-verse video subscribers while DirecTV supports roughly 20 million U.S. customers. By comparison, Time Warner Cable (11.1 million residential) and Comcast (22.6 million total) serve a combined 33.7 million video subscribers, although Comcast said it would divest 3 million subscribers as a concession in order to mitigate concerns that the Time Warner Cable deal would reduce competition in the marketplace.

Dallas-based AT&T and El Segundo, Calif.-based DirecTV declined to comment to the Journal on its report. 

Even if AT&T and DirecTV reached an agreement to combine forces, the FCC would have to find the agreement was in the public interest. The Justice Department also would review the merger under antitrust laws such as the Sherman Antitrust Act and could potentially move to block the deal in federal court, as it did in 2011 stymying AT&T’s $39 billion bid to acquire T-Mobile USA.

But regulatory approval of the Comcast/Time Warner Cable merger could send a signal to AT&T that the FCC and Justice Department are open to a similar deal involving DirecTV, whose video customer base barely budged over the last year.

AT&T, which anticipates generating $11 billion this year in free cash flow, likely has the resources to gobble DirecTV. With consolidated revenues of $128.8 billion (and a market capitalization of $185.1 billion,), AT&T is four times the size of DirecTV ($31.8 billion in consolidated revenues; market capitalization of $41.8 billion).

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