AT&T Catches a Wave
May 22, 2014 6:36 AM PT
Change is good. Industry consolidation seems to come in waves, and the next wave seems to be starting. Together, AT&T and DirecTV will be a strong new competitor in the pay-television space. That's great. Unless traditional cable-TV companies get their act together, this merger could be another nail in their coffin.
This is a busy time in the industry. If we pull the camera back and take a longer-term look, however, we see a much clearer picture. In the 1990s, cable television companies, telephone companies and wireless companies were smaller, and they competed in different sectors. There were many companies, and they all had different footprints. Competition among them was not robust at the time.
Then, in the mid-2000s, we saw a wave of consolidation begin when Comcast acquired AT&T Broadband and went from being one of the smallest cable television companies to becoming one of the largest -- even bigger than Time Warner Cable.
We saw other mergers -- like SBC, a small local phone company from San Antonio, Texas, acquiring AT&T, Bellsouth and Cingular. It grew from one of the smallest to the largest on the telephone side, almost overnight. There were several other mergers of small and large players that reshaped the industry.
The Heat Is On
This time around, the wave began with last year's acquisition of Sprint by Softbank. Next, Softbank would like to merge Sprint with T-Mobile. Then came the Comcast, Time Warner Cable deal. Now AT&T is merging with DirecTV -- and more are coming.
Which companies will merge is the question? Another question is will all of these mergers be approved? We don't know yet. However, typically when there is this kind of wave, approvals are given, if for no other reason than to level the playing field.
The question is always whether a particular deal will be good for the marketplace, customers, investors, prices, innovation and so on. That's what the regulators will be mulling over the next year.
Mergers do put pressure on the existing framework. While that is a challenge to traditional competitors, it is also a good thing. That pressure typically results in better quality, happier customers, lower prices and more competition.
The companies under the most pressure going forward seems to be the cable television companies like Comcast, Time Warner Cable and Cox.
The latest American Customer Satisfaction Index, released earlier this week, shows that in the customer service area, the cable television industry's performance is pretty darn bad.
Companies like Comcast and Time Warner Cable are improving, but they still have a very long way to go in order to make customers happy.
That means this AT&T-DirecTV merger could put significant pressure on the traditional cable television industry. While the companies might not like it, customers will.
A National Platform
One of the main reasons for this merger is to keep investors happy. It will be another growth engine, which will keep stock prices high. That's all investors care about -- and this, in fact, is one of the main reasons any merger is undertaken. Growth keeps investors happy.
This will be a real growth opportunity for AT&T. DirecTV is a satellite television company, but it has no real broadband operation, so it can't compete moving forward into a broadband-centric world.
AT&T has broadband and is a successful marketer of a variety of different service platforms. It already sells U-verse television, which is IPTV. In the markets where it competes with traditional cable television, it is very strong. In the Dallas area, for example, AT&T U-verse has captured roughly 50 percent of the market.
I hope that is what we can expect going forward with DirecTV in many more markets nationwide.
The problem is that U-verse is not available to all AT&T customers. DirecTV may be. DirecTV will open up a national marketplace to AT&T, which is a huge growth opportunity.
I expect to see DirecTV's traditional service continue for those who want it. However, I also expect to see AT&T supercharge its service offerings with DirecTV as part of a bundle for those who want more.
Customers like to buy in bundles -- deal with one company and pay one bill. DirecTV will help AT&T build its bundle and make it even more attractive to customers.
The race is not over, however. This merger will help AT&T compete on a national scale in some service areas. However AT&T -- and in fact, all telephone companies like Verizon and CenturyLink, and all cable television companies like Comcast, Time Warner Cable and Cox -- are still not national companies.
So I expect to see more mergers and more waves of change in coming years. The industry looks very different today than it did 10 years ago, and it will look just as different 10 years from now.