AT&T Could Probably Buy DirecTV. But Why?

Comcast and Time Warner Cable? Doable, but rough. Sprint and T-Mobile? Really rough.

But if AT&T wants to buy DirecTV, it has decent odds of getting it done. At least from the regulators’ perspective.

That’s the snap opinion from industry observers today, following the Wall Street Journal’s report that the telco was talking to the satellite TV company about a $40 billion deal.

The basic logic, in terms of getting a deal past Washington:

• Unlike Time Warner Cable and Comcast, AT&T and DirecTV do compete, a little bit: DirecTV sells pay TV, and so does AT&T. But AT&T doesn’t sell much TV — it has about 5.5 million subscribers, and it’s not rolled out across the country.
• So the two companies could tell Washington that when they combine, customers will still have plenty of choice, from both Dish Network’s satellite service, and whatever cable company AT&T was already competing with. Or they could agree to sell off AT&T’s TV subscribers, which aren’t core to AT&T’s operations anyway. Depending on when the deal happens, the two companies might also be able to argue that new pay TV alternatives — from Dish, perhaps, or maybe Sony — are giving consumers more choice than ever.
• Meanwhile, when it comes to the notion of a broadband consolidation — the issue that seems to worry Washington most about Time Warner Cable/Comcast — AT&T and DirecTV are in the clear. DirecTV doesn’t own any broadband pipes, period. That’s one of the reasons it has been talked about as a possible partner for a broadband provider like AT&T for many years.

So let’s say regulators say the deal is ok with them. What does it do for AT&T?

That one is harder to parse. It’s hard to argue, as Comcast and Time Warner Cable can, that the two companies can find operational efficiencies — since maintaining telco/broadband pipes and operating satellite TV networks are two distinct things.

The most obvious answer is that combining the two companies will give them more power when it comes to negotiating licensing deals with TV programmers. But that’s only relevant if AT&T decides or is allowed to keep its pay TV subscribers.

And even then, the combined company may not be able to do much more than it was doing as two separate companies. In a note published today, analyst Craig Moffett estimates that AT&T might eventually end up saving $400 million a year in programming costs.

Lots of people would be very pleased to say that they saved $400 million a year, but in this case, Moffett notes, it’s just “a pretax return of 1% on a $40B price tag. Not nothing, but not close to sufficient.”

Anyone else have ideas? AT&T investors don’t seem to have one. Shares spiked briefly this morning, following the news. But now the stock has flattened out again.

This article originally appeared on Recode.net.

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