TIME The Brief

AT&T Dials Up DirecTv

Welcome to #theBrief, the four stories to know about right now—from the editors of TIME

Here are the stories TIME is watching this Monday, May 19:

  • AT&T will buy DirecTV for $48.5 billion in an attempt to keep up with Comcast.
  • The United States formally charged Chinese military officials of economic espionage. This marks the first time the U.S. has charged state actors for explicitly acting at the behest of a foreign government in cyber crimes.
  • Flooding in the Balkans continues with heavy rains threatening to unearth buried land mines.
  • A holographic Michael Jackson came back from beyond the grave to perform at the Billboard Music Awards.

The Brief is published daily on weekdays.

TIME media consolidation

Critics Are Mercilessly Slamming the AT&T-DirecTV Deal

Public interest groups argue that none of the proposed mega-deals will benefit consumers

Prominent public interest groups criticized AT&T’s plan to buy satellite giant DirectTV in a deal worth about $48.5 billion, calling it an example of out-of-control media consolidation that will do little to benefit consumers.

AT&T’s proposed purchase of DirecTV comes as U.S. broadband leader Comcast is trying to convince federal regulators to let it buy Time Warner Cable in a $45 billion deal. That merger would combine the two largest U.S. cable companies.

“AT&T’s takeover of DirecTV is just the latest attempt at consolidation in a marketplace where consumers are already saddled with lousy service and price hikes,” Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of Consumer Reports, said in an emailed statement. “The rush is on for some of the biggest industry players to get even bigger, with consumers left on the losing end.”

AT&T will add its five million U-verse television subscribers to DirecTV’s 20 million satellite customers, in a deal that will “redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens – mobile devices, TVs, laptops, cars and even airplanes,” AT&T CEO Randall Stephenson said in a statement.

“The captains of our communications industry have clearly run out of ideas,” Craig Aaron, president and CEO of Free Press said in a statement. “Instead of innovating and investing in their networks, companies like AT&T and Comcast are simply buying up the competition.”

Both mergers will face intense scrutiny from the Justice Department, which is charged with ensuring the deal doesn’t violate antitrust laws, and the Federal Communications Commission, which must ensure that the tie-ups don’t harm the public interest.

DirecTV has the second largest pay-TV subscriber base in the country but lacks a competitive broadband Internet offering. AT&T is forging ahead with its own broadband plans but wants DirecTV’s satellite-TV business. “The industry needs more competition, not more mergers,” John Bergmayer, senior staff sttorney at Public Knowledge, said in a statement “The burden is on AT&T and DirecTV to show otherwise.”

Taking a page out of the Comcast-Time Warner Cable playbook, AT&T said it would abide by the FCC’s now-defunct 2010 Open Internet order for three years, in a concession aimed at winning over federal regulators. But that pledge rang hollow for some open Internet supporters.

“I don’t think the open Internet should come with an expiration date,” says Josh Stearns, a veteran public interest advocate. Interestingly, AT&T said it will use the merger to build and enhance high-speed broadband service to 15 million customer locations, in an effort “to be completed within four years after close.”

A combined AT&T-DirecTV would hold a vast swath of wireless spectrum — the public radio signals that make smartphones and tablets work — and would also be better positioned to compete against Comcast, the industry giant.

“AT&T already has overwhelming spectrum holdings relative to most of the wireless industry,” says Bergemeyer. “AT&T will need to explain how this merger wouldn’t harm wireless competition, and how whatever new services it plans to offer by combining with DirecTV would offset any harms to wireless and video competition.”

TIME mergers

AT&T’s $50 Billion DirecTV Buy Is Risky, Probably Not Great for You

The telecom giant will pay $48.5 billion in stock and cash as it looks to keep up with rival Comcast, but it's a risky deal that may not benefit consumers

I’m as guilty as anyone: Readers of business news hunger for big numbers. The bigger, the better. On that front, the $48.5 billion that AT&T said Sunday it will pay to buy DirecTV did not disappoint. Eat your heart out, Mark Zuckerberg.

In its announcement of the deal, AT&T threw out even more mega numbers. Toss in DirecTV’s net debt and the deal’s value rises to $67.1 billion. The combined company will have 26 million customers in the US and 18 million in the growing market of Latin America. AT&T even said it expects “cost synergies to exceed $1.6 billion on an annual run rate basis by year three”—whatever that means, but it has a ten-digit number in it, so it sounds impressive.

But there’s something about AT&T’s big numbers that grow stale quickly. The problem with big spending is, if you don’t put it toward something worthwhile, it’s just a waste. Time’s Sam Gustin noted on Twitter that the sum AT&T is spending on DirecTV could deploy a hell of a lot of gigabit-fiber service to homes that want it. Instead, it’s going to buy one more aging incumbent in the fast-changing TV market.

So once the transitory buzz of the large numbers ebbs, the strategy behind the deal will start to be scrutinized a bit more. And so far, the strategy seems to be: Well, Comcast has gotten big, so AT&T needs to get bigger too. This isn’t AT&T’s only recent big-ticket bid. In 2011, the company tried to buy T-Mobile USA from Deutsche Telekom for $39 billion, but that deal fell through after the Justice Department intervened.

Why is AT&T so keen to buy its way into growth? Because no matter how much blood the company tries to squeeze from its customers, the stock can’t break out of the flatline it’s been in for a while. As this graph shows, AT&T’s stock has risen less than 10% in the past two years. The S&P 500, during the same period, has risen more than four times as much.

Screen Shot 2014-05-18 at 7.20.45 PM

Some people have taken a look at the strategy behind the DirecTV purchase and not been kind in their conclusions. When rumors surfaced last week of a possible acquisition, analyst Craig Moffett suggested that the acquisition could be a distraction from an inevitable decline in AT&T’s growth. “When DirecTV begins to shrink, then the price paid will no longer matter,” Moffett wrote. “It will merely be another liability that AT&T will need to offset by growth somewhere else.”

Aging companies often make big acquisitions when facing a decline in their own businesses. In the best case scenario, the acquired company is snapped up at a discount and revives overall growth for years to come. More commonly, the big buyouts are merely attempts to buy time. Integrating incompatible operations for a couple of years, and providing excuses for large-scale layoffs. The smoke and mirrors works only for so long. Then another expensive deal is required to keep the ruse going.

The DirecTV deal is looking like it will fall into the latter camp–an expensive gambit that may at best offer growth and cost-savings in the short-term. Pay-TV has an uncertain future in an era where over-the-top offerings like Netflix and video consumption on mobile devices are seeing much stronger growth. DirecTV’s stock has quadrupled in the past five years, but there’s little reason to think growth will continue at anything close to that rate.

Moffett, who was a top-ranked analyst at Sanford C Bernstein & Co. before setting up his own research firm, put it more severely. “Like skid row junkies in the final wretched tremens of downward spiral, telecom/cable/satellite investors now appear to need a deal fix almost daily to stave off the messy crisis of incontinence that comes with the inevitable withdrawal.”

Other analysts speculated about AT&T’s motives for the deal, but few of them shared the sunny interpretations of the acquirer. The timing, coming after Comcast’s plans to buy Time Warner Cable, could be an attempt to piggyback on another telecom deal, one likely to win regulator approval. Or maybe Comcast sparked a merger mania in the telecom industry, with DirecTV the first to be snapped up. Sprint may be prompted to buy T-Mobile. Dish Network could also be in play soon.

In other words, no matter how you slice it, this deal has little to do with helping the consumer. Yet in announcing the deal, AT&T referred to the consumers who are its customers (19 times) nearly twice as often as it did its shareholders (10 times).

So far, the consensus is that DirecTV is unlikely to draw the regulatory criticism that T-Mobile did for AT&T. But AT&T isn’t taking any chances. The company took a $4 billion writedown after the T-Mobile deal fell through, most of it related to breakup fees. AT&T made clear today it wouldn’t pay a fee to DirecTV should regulators foil the deal this time.

That’s good for AT&T, but it adds an air of desperation to DirecTV. Another sign DirecTV wanted to sell quickly: Rumors of the deal last week put the price at $100 a share, but the actual deal is only $95 a share. DirecTV’s stock only rose as high as $86.90 on the $100-per-share rumor, reflecting the Street’s skepticism on the price. Some of that skepticism, it seems, was warranted.

For consumers, the bigger question is, when will these telecom mega-mergers end? Benefits from mergers are usually passed on to shareholders in the form of share repurchases or higher dividends. They rarely benefit customers—in fact, reduced competition in telecom has historically meant higher fees.

That’s why consumers should be wary of these big-ticket mergers. Don’t be too dazzled by the big, flashing numbers of the headlines. The more and the merrier the mergers grow, the more the consumer becomes an afterthought.

TIME Companies

AT&T is Buying DirecTV in $48.5 Billion Deal

The company confirmed that it will pay roughly $95-per-share in a stock-and-cash transaction based on AT&T's Friday closing price and officially acquire DirecTV in a deal worth approximately $48.5 billion

AT&T officially will acquire satellite broadcast provider DirecTV in a deal worth approximately $48.5 billion, the company confirmed Sunday, after weeks of rumors about an impending purchase.

AT&T will pay roughly $95-per-share in a stock-and-cash transaction based on AT&T’s Friday closing price, the company said in a release.

The deal will add DirecTV’s 20 million subscribers to the 5 million already signed up to AT&T’s U-verse television service, setting the buyer up to compete with television giants like Comcast. AT&T could also move its existing U-verse subscribers to DirecTV’s satellite network, freeing up precious spectrum for broadband Internet service.

The AT&T-DirecTV deal is sure to get a close look from regulators at the Federal Communications Commission, which would be concerned by media consolidation issues, and the Department of Justice, for antitrust matters.

This announcement comes as AT&T rival Comcast is trying to convince the very same regulators to allow it to buy Time Warner Cable in a $45 billion deal that critics call a blow to competition and consumer choice.

AT&T, however, reportedly plans to cozy up to regulators by framing its DirecTV buy as a move to expand Internet access in underserved areas, a longtime technology policy goal of the Obama administration.

TIME deals

AT&T Aiming at Comcast With Planned $50-Billion DirecTV Merger

A view shows the AT&T store sign in Broomfield, Colorado
Rick Wilking / REUTERS

AT&T wants DirecTV but the proposed $50 billion telecom deal, which would be the largest in years and reshape the television business at a time of rapid change in the industry, would pose headaches for regulators already mulling a Comcast merger with Time Warner Cable

AT&T, the deep-pocketed national telecom giant watching policymakers gnash teeth about the proposed $42-billion merger between Comcast and Time Warner Cable, is close to sealing the deal on a big corporate marriage of its own. It’s soon-to-be partner, according to multiple reports Monday: satellite giant DirectTV

The proposed $50-billion merger between the two tech titans—which would be the largest telecom deal in years—is not unexpected, but multiple reports indicate a deal is closer than ever, perhaps just weeks away. AT&T and DirecTV are aiming to reshape the TV business at a time of rapid change in the industry. The deal would be another example of the decades-long consolidation of the telecom and cable industries.

The Wall Street Journal, citing unnamed sources familiar with the matter, reports the two companies are discussing a deal that would involve a mix of cash and AT&T stock. Executives hope to hammer out an agreement in the next few weeks. DirecTV shares shot up nearly 6% in early trading Tuesday on the deal talk.

DirecTV has the second largest pay-TV subscriber base in the country but lacks a competitive broadband-Internet offering of its own. AT&T is moving ahead with its own broadband plans, but DirecTV’s satellite-TV business would be a major prize. AT&T, which is currently worth $185 billion, can definitely afford the deal.

A combined AT&T-DirecTV would hold a vast swath of wireless spectrum—the public radio signals that make smartphones and tablets work—and would also be better positioned to compete against Comcast, the industry Goliath.

U.S. broadband leader Comcast is currently trying to persuade regulators to let it buy Time Warner Cable in a $42 billion deal. That review will extend into next year, as would a review of a AT&T-DirecTV merger. Comcast’s proposed merger with Time Warner Cable, its smaller rival, already faces intense scrutiny from the Justice Department over competition concerns, not to mention the Federal Communications Commission (FCC), which must ensure the deal advances the public interest. An AT&T merger with DirecTV would face equally intense scrutiny.

If AT&T and DirecTV join forces, the deal could complicate the review of Comcast’s bid for Time Warner Cable, because antitrust regulators might want to consider both deals simultaneously, the New York Times reports. That might throw a screwball into the notoriously understaffed FCC office.

The Times also suggests the deal might be a strategic move to rattle Dish honcho Charlie Ergen, the legendary media operator who is also on the prowl for acquisitions. Industry watchers have been speculating about a Dish-DirecTV merger for years, but most analysts believe U.S. antitrust regulators would not allow the nation’s two largest satellite-TV firms to become one company.

That’s why AT&T wants to buy DirecTV.

AT&T also appears to be taking advantage of the simmering furor about “Net neutrality“—the principle that all Internet users should have open access to the Internet—as well as the Comcast–Time Warner deal, to float a $50 billion deal of its own.

TIME Deal talk

AT&T Mulls $40 Billion Merger With DirecTV

A view shows the AT&T store sign in Broomfield, Colorado
Rick Wilking / REUTERS

AT&T would love to own DirecTV's satellite-TV business. DirecTV wants to bolster its broadband position. The talks were reportedly prompted by Comcast's intention to buy Time Warner Cable, which already faces intense scrutiny from the Justice Department

Consolidation begets consolidation.

Telecom titan AT&T has reportedly reached out to satellite giant DirecTV about a possible merger that would reshape the TV business at a time of rapid change in the industry.

Such a deal would likely be valued at more than $40 billion — DirecTV’s current market value — and would be another example of the decades-long consolidation of the telecom and cable industries. U.S. broadband leader Comcast is currently trying to persuade regulators to let it buy Time Warner Cable in a $45 billion deal.

DirecTV would be open to a merger with AT&T, the Wall Street Journal reported late Wednesday, citing a “person familiar with the situation.” Talks between the two companies have intensified since Comcast announced its intention to buy Time Warner Cable, the paper reported, though it cautioned that the talks may not yet be in an advanced stage.

Given the increasing consolidation in the broadband industry, an AT&T merger with DirecTV would make sense for both companies.

DirecTV has the second largest pay-TV subscriber base in the country but lacks a competitive broadband Internet offering of its own. AT&T is forging ahead with its own broadband plans but would love to get its hands on DirecTV’s satellite-TV business. And AT&T, which is currently worth $185 billion, could certainly afford the deal.

Comcast’s proposed tie-up with Time Warner Cable, its smaller rival, already faces intense scrutiny from the Justice Department over competition concerns, not to mention the Federal Communications Commission, which must ensure the deal advances the public interest. An AT&T merger with DirecTV would face equally intense scrutiny.

News of the AT&T interest in DirecTV comes as the cable industry is meeting for its annual conference in Los Angeles.

On Wednesday, Comcast CEO Brian Roberts made the case that the Time Warner Cable deal would be great for competition because it would strengthen Comcast’s position against the likes of AT&T and DirecTV.

TIME Travel

AT&T Is Building an In-Flight 4G LTE Network

Watch out, GoGo – you’re about to get some serious, big name competition. AT&T plans to launch the first high-speed, 4G LTE-based broadband service for planes flying as high as 35,000 feet, the company announced Monday.

“We are building on AT&T’s significant strengths to develop in-flight connectivity technology unlike any other that exists today, based on 4G LTE standards,” explains AT&T Chief Strategy Officer John Stankey. “We believe this will enable airlines and passengers to benefit from reliable high speeds and a better experience.”

Currently, the state of in-flight wireless is a mixed bag. Industry leader Gogo is launching a new 60Mbps high-speed network on Virgin America planes later this year, while rival ViaSat is launching high-speed service on select United flights. On the other hand, in-flight wireless is still painfully slow on most U.S. airplanes (if you can even find it at all).

Hopefully, the presence of a new big name in the market will bring more connected flights and better prices. We’ll find out if AT&T has what it takes when the new service launches in late 2015.

This article was written by Fox Van Allen and originally appeared on Techlicious.

More from Techlicious:

TIME Media

Spotify Aims for U.S. Expansion Through Sprint Deal

Sprint customers will be able to take advantage of lengthy free trials and discounted subscriptions to the streaming music service, in a deal that could see Spotify broaden its user base

Spotify has finally nailed down a key partnership that could help it reach a larger audience in the United States. The music streaming service announced today that it is offering extended free trials and discounted subscriptions to Sprint customers.

All of Sprint’s nearly 30 million postpaid customers will qualify for a three-month free trial to Spotify. Customers on Sprint’s multi-line “Framily” plans will get six months of free Spotify, then pay a discounted rate of $7.99 per month or $4.99 per month depending on how many people are on the plan. Spotify regularly costs $9.99 per month.

Partnerships with telecoms providers are a holy grail of sorts for streaming services, which are used heavily on mobile devices. With the Sprint deal, Spotify will be able to slide its fees directly into customers’ cellphone bills, making for a more seamless payment process. The deals are also an opportunity for exposure to a broader market of customers who may not be familiar with on-demand streaming apps. Beats Music, for instance, launched a high-profile campaign with AT&T earlier this year that offers discounts to AT&T’s wireless subscribers and features television commercials with stars like Ellen DeGeneres and Run-DMC.

Spotify remains the leader in the music streaming space, with recent reports indicating that its paying subscriber base is approaching 10 million. Beats, a similar service from Dr. Dre and Jimmy Iovine, is the newcomer with the deepest pockets and the highest pedigree. However, the service is reportedly off to a modest start since its January debut, with Billboard reporting a subscriber count in the “low six-figures.”

The Sprint deal takes effect online on May 2 and in stores on May 9.

 

TIME Media

AT&T’s $500 Million Plan to Crush Netflix and Hulu

New AT&T Store Aims to Outshine Apple on Chicago's Magnificent Mile
Bloomberg—Bloomberg via Getty Images

AT&T is forming a new online video business with the entertainment company The Chernin Group that will use both subscription-based and ad-supported monetization models, placing it in competition with YouTube and Amazon Prime as well

AT&T announced Tuesday that it is forming a new online video business with the entertainment company The Chernin Group. The new initiative will place AT&T in direct competition with premium online video services such as Netflix and Hulu.

The venture will include multiple video services that use both subscription-based and ad-supported monetization models, according to a company release. The Chernin Group, started by longtime News Corp. executive Peter Chernin, will contribute its majority stake in anime streaming website Crunchyroll to the new venture. (News Corp. is one of Hulu’s owners.)

AT&T will enter a crowded market that includes not only Hulu and Netflix, but also Amazon’s Prime Instant Video service and Google’s YouTube platform. Yahoo is also reportedly prepping a Netflix rival, and Microsoft is developing several original shows for its Xbox console. The new AT&T venture will be more similar to Netflix and other online video services than the Internet-based cable competitors being developed by Verizon and Sony, an AT&T representative told Variety.

Further financial details and release timing for specific video services were not disclosed; The release pegged the companies’ investment in the venture at $500 million.

[Variety]

TIME Internet

This Is AT&T’s Plan to Smother Google Fiber

A view shows the AT&T store sign in Broomfield, Colorado
Rick Wilking / REUTERS

AT&T says it wants to explore ways to offer gigabit broadband service to 21 U.S. cities -- in a direct challenge to Google Fiber -- but some skeptics aren't buying it

AT&T’s plan to examine ways to deliver gigabit Internet service to 21 U.S. cities was greeted with skepticism on Monday, as some prominent critics accused the broadband giant of misleading consumers.

AT&T’s initiative is the latest evidence that Google’s Fiber project is spurring major broadband providers to at least pay lip service to gigabit speeds, which are 100 times faster than regular U.S. Internet connections.

AT&T’s announcement, which did not actually contain a pledge to build out gigabit service anywhere, comes two weeks after the company said it wants to offer super-fast Internet service to six North Carolina cities, and two months after Google said that it was considering expanding its gigabit initiative to the North Carolina communities of Charlotte, Chapel Hill and Raleigh-Durham.

“Communities that have suitable network facilities, and show the strongest investment cases based on anticipated demand and the most receptive policies will influence these future selections and coverage maps within selected areas,” AT&T said in a press release.

Not everyone is convinced. Shortly after AT&T’s announcement, three veteran tech policy journalists, Stacey Higginbotham at Gigaom, Jon Brodkin at Ars Technica, and Karl Bode at DSL Reports, urged skepticism about the broadband giant’s plans. Each reporter used some variant of the phrase “before you get too excited” to emphasize that AT&T hasn’t actually promised to build anything.

“Hey AT&T, enough with the gigawashing!” Higginbotham wrote. She pointed out that in her home market of Austin, Texas, AT&T isn’t even delivering on the gigabit promises it’s already made. Given that fact, “Ma Bell should have some explaining to do before these 21 cities get too excited about their hoped-for gigabit service,” Higginbotham wrote.

Brodkin, at Ars Technica, pointed out that AT&T — by its own admission — says that the “expanded fiber build is not expected to impact AT&T’s capital investment plans for 2014.” That seems odd, because laying fiber lines — or buying them from existing dark fiber owners — is very capital-intensive. It also raises the question of why AT&T hasn’t moved to boost broadband speeds earlier, if the necessary investment is so trivial.

Bode, at DSL Reports, was even harsher, calling AT&T’s announcement a “big fat bluff” that constitutes another example of what he calls “fiber to the press release.” In other words, AT&T is using the groundswell of national interest in gigabit broadband speeds to promote its existing service, despite the fact that the broadband giant has yet to deliver what it previously promised.

“We’re in the heart of the age of ‘fiber to the press release’ and 1 Gbps mania, where all you need to do is simply mention 1 Gbps and you get a ticker-tape parade and a statue in the town square without having to deliver a single byte,” Bode wrote. “AT&T’s certainly counting on that reaction from the press and public.”

For years, major broadband companies have insisted that consumers neither need nor want gigabit Internet speeds. Now that Google has demonstrated that there is intense demand for super-fast broadband service, AT&T is singing a different tune. But until AT&T actually delivers on its existing gigabit promises, it’s worth taking the company’s announcements with a dose of skepticism.

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