AT&T to buy DirecTV for $49 Billion

WASHINGTON — AT&T announced Sunday that it was acquiring DirecTV in a deal worth about $49 billion that would create a new telecom and television behemoth to rival cable companies, while raising fresh concerns over competition and options for consumers.

AT&T would gain DirecTV’s 20 million US subscribers, a company with strong cash flows, and an ability to fatten its bundle of offerings. The combined company would be able to offer phone, high-speed Internet, and paid television subscriptions to more customers, packages cable companies such as Comcast have sold most successfully.

AT&T has agreed to acquire DirecTV for $95 a share, made up of $28.50 a share in cash and $66.50 a share in AT&T stock. AT&T says it expects to close the acquisition within 12 months.


The deal is the latest megamerger to be announced this year in a dramatically shifting telecommunications industry. The titans of the industry have recently rushed to bulk up — in overall size and in diversity of service offerings — as their legacy phone and television businesses have frayed and consumers have turned to the Internet for communication and entertainment.

The deals, which need approval from federal regulators, have prompted new concern that consumers could be left with fewer options and even higher prices after years of creeping increases in monthly bills. In 2012, US cable television prices increased 5.1 percent, to an average of $64, triple the rate of inflation, according to a government report.

‘‘The industry needs more competition, not more mergers,’’ said John Bergmayer, a senior staff lawyer at Public Knowledge, a consumer group. ‘‘We’ll have to analyze this one carefully for potential harms both to the video programming and the wireless markets.’’

After a failed attempt three years ago to buy wireless provider T-Mobile, AT&T was searching for alternatives. But its choices were limited, with regulators concerned the wireless and Internet markets were not competitive enough.


The Dallas company said it would gain broad strategic benefits from buying the nation’s second-largest paid-television provider. The phone giant would have greater power with television programmers to bring down licensing costs. And it could use its new prominence in the TV industry to bring videos to mobile customers.

DirecTV has exclusive contracts with programmers, including NFL Sunday Ticket, which allows football fans to watch their favorite teams even if they live outside the local TV markets serving the teams.

AT&T’s chairman, Randall Stephenson, said the deal would create a national wireless, video, and broadband powerhouse that would bring valuable television content to any device for its consumers.

‘‘This is very, very unique,’’ Stephenson said Sunday evening. The deal ‘‘fulfills a vision that we’ve had for a couple years . . . to take premium content and deliver it over multiple points for the consumer.’’

AT&T would buy a business that is not a significant, direct competitor. AT&T’s cablelike television service, U-Verse, has 5.7 million subscribers.

A rush to supersize has been driven by low interest rates — allowing acquisitions to be financed more cheaply — and the realization that the most successful telecom companies will have the greatest scale. With more subscribers, telecom and cable operators are able to control costs with programming partners and invest in improvements that allow for faster broadband Internet speeds, analysts say.

In February, Comcast announced a $45 billion bid for Time Warner Cable. The deal, being reviewed by regulators, would combine the nation’s top two cable and broadband Internet providers.


Though no deal has been announced, the owners of Sprint have expressed interest in buying T-Mobile in a merger that would combine the third- and fourth-largest national carriers.

‘‘It’s a counterpunch to Comcast-Time Warner Cable,’’ said Paul Gallant, at Guggenheim Securities. ‘‘DirecTV and AT&T both felt new urgency to scale up and find new ways to compete. I expect they’ll find a way to differentiate against Comcast by melding pay TV with their wireless service.’’

Some analysts doubt the deal would significantly improve AT&T’s competitive position against Verizon and Comcast. AT&T is expected to shift its U-Verse subscribers to satellite, freeing up space on its land-line network for improvements in high-speed Internet.

‘‘The logic that AT&T could boost broadband speeds in U-Verse markets if it could take video off its network and send it via satellite is fine as far as it goes,’’ wrote Craig Moffett, a senior analyst at Moffett Nathanson research, in a recent note. ‘‘But that is purely a defensive benefit and in only 25 percent of the country.’’

Because AT&T and DirecTV do not significantly compete in the television market, analysts say, regulators may be more willing to approve the deal.

AT&T said it would volunteer to bring high-speed Internet services to 15 million homes in rural areas within four years if the deal is approved. It has also promised to abide by Net neutrality principles for three years by, for instance, agreeing not to block any sites.


The proposed AT&T deal may complicate the federal government’s review of Comcast’s bid for Time Warner Cable.

Although AT&T’s deal represents more consolidation in the media world, Stephenson said its entry into the video space could also provide a stronger competitor to Comcast.

Critics of Comcast’s deal say they are concerned that the resulting company would by far be the dominant cable and broadband Internet services provider. Comcast would control 30 percent of the paid television market and 40 percent of the arguably more important market for growth: broadband Internet.

Comcast and Time Warner Cable say they do not compete in the same markets, but critics say that if they combine, they will have too much power. Consumer advocates fear they will be less inclined to improve service or make prices affordable.

‘‘All these dominant companies want to consolidate and bundle as much as they can get away with,’’ said Cathy Sloan, vice president of government relations for the Computer and Communications Industry Association, which represents Internet firms, including Google and Facebook.