Broadband Cable Association of Pennsylvania


May 8, 2014

DirecTV is working with advisers including Goldman Sachs Group Inc. to evaluate a possible combination with AT&T Inc., people familiar with the matter said, a sign the satellite broadcaster is seriously considering a deal with the telecom giant. The two companies are in talks following an approach from AT&T to acquire DirecTV, people familiar with the matter said. A deal would create a pay-television giant that would serve more than 25 million subscribers and rival a combined Comcast Corp. and Time Warner Cable Inc.

On a conference call with analysts Tuesday, DirecTV Chief Executive Mike White noted recent media reports speculating "about possible transactions that might involve DirecTV." He said the reports weren't "based on official sources of information and we don't view it as productive to speculate about alternative business combinations which may or may not occur." He said he wouldn't comment further or take questions on the reports. DirecTV stock, which had fluctuated last week after The Wall Street Journal reported the approach by AT&T, has rallied in the past two days. On Wednesday the stock was up 8%, having risen 2.4% Tuesday. At its current price of $88.25 a share, DirecTV has a market capitalization of about $45 billion. Mr. White and AT&T executives have each said previously that Comcast's $45 billion deal to acquire Time Warner Cable has changed the competitive landscape, and both companies have said they are looking at how to strengthen their positions.

A deal with DirecTV would bolster AT&T's ability to distribute movies and television shows at a time when it increasingly sees video as central to its future. The telecom company is pursuing a dual approach, expanding its U-verse pay-TV service while also building over-the-top services to deliver video content over broadband and wireless connections. The combined company would have annual revenue of about $160 billion and may be better positioned to negotiate for the needed rights to TV shows and movies. For AT&T, a deal with DirecTV could deliver significant financial benefits at a time when Wall Street is concerned about the amount of cash needed to fund AT&T's dividend. UBS analyst John Hodulik said in a recent research note that the deal would provide AT&T the free cash flow needed to pay its dividend for the next decade. "The deal would provide financial and operational synergies that appear to fit AT&T's historic game plan," Mr. Hodulik wrote.

The world has become a much tougher place for DirecTV in recent years as subscriber growth has slowed sharply while programming costs are rising and cheap online video alternatives are multiplying. Satellite rival Dish Network Corp. has invested billions of dollars in trying to diversify into wireless broadband and launch its own online video service. DirecTV, in contrast, has spent $29.7 billion on buying back its own stock in the past eight years, according to regulatory filings. As competitors move to gain scale and offer bigger bundles of service, the chief weakness of satellite TV becomes apparent: the lack of an Internet-access broadband service competitive with cable and phone companies. Wall Street Journal

More than 100 Internet companies and two of five commissioners of the Federal Communications Commission are taking issue with Chairman Tom Wheeler's plan to regulate broadband providers. Mr. Wheeler's proposed Internet rules would allow broadband companies to charge content providers for access to the fastest lanes. The proposal has angered proponents of network neutrality—the concept that all Internet traffic should be treated equally.

"If these reports are correct, this represents a grave threat to the Internet," said Inc., Google Inc., eBay Inc., Yahoo Inc. and Facebook Inc., among others, on Wednesday in a letter to Mr. Wheeler. "Instead of permitting individualized bargaining and discrimination, the Commission's rules should protect users and Internet companies on both fixed and mobile platforms against blocking, discrimination, and paid prioritization, and should make the market for Internet services more transparent," the companies said in the letter. "The rules should provide certainty to all market participants and keep the costs of regulation low."

The FCC plans to vote May 15 on whether to move forward the proposal by opening it up for public comment, setting up for a final vote later this year. A spokeswoman for Mr. Wheeler said he supports a "robust public debate" on the issue, which is why he intends to put the proposal out for public comment next week. Democratic commissioners Jessica Rosenworcel and Mignon Clyburn, in statements released on Wednesday, suggested they are not in favor of Mr. Wheeler's proposed Internet rules, which would allow broadband companies to charge content providers for access to their fastest lanes.

At a speech in Washington, Ms. Rosenworcel said she has "real concerns" about the proposal as well as the process being used to formulate the new rules. She said the proposal has "unleashed a torrent of public response," including tens of thousands of emails and hundreds of phone calls. "For this reason, I think we should delay our consideration of his rules by a least a month. I believe that rushing headlong into a rulemaking next week fails to respect the public response to his proposal," Ms. Rosenworcel said. Ms. Clyburn published a blog post reiterating her commitment to net neutrality, noting that, four years ago, she supported stronger net-neutrality rules than those ultimately adopted by the FCC in 2010. A federal court threw out those rules in January, prompting Mr. Wheeler's latest attempt.

Ms. Clyburn, in her post, noted her past support for rules that banned preferential treatment altogether and covered wireless carriers, and linked to a previous statement that expresses support for reclassifying broadband as a utility, which would subject it to much greater regulation. "There is no doubt that preserving and maintaining a free and open Internet is fundamental to the core values of our democratic society, and I have an unwavering commitment to its independence. My mind remains open as I continue to evaluate how best to promote these fundamental, core values," Ms. Clyburn wrote.

Mr. Wheeler has tried to push back against some of the furor generated by his proposal by promising that the FCC won't allow the Internet to be divided into fast and slow lanes. However, many net-neutrality advocates argue that, unless the FCC reclassifies broadband as a utility, any attempt to limit paid arrangements would be vulnerable to another legal challenge from the broadband providers. Mr. Wheeler recently stated that he is willing to reclassify broadband as a utility if needed to protect the open Internet. Wall Street Journal; more in Politico and Washington Post

Dish Network Corp. said first-quarter profit fell 18% as the satellite-television provider's higher expenses offset a rise in revenue. The results come at a time of significant potential for consolidation in the pay-TV market, with the two largest cable companies – Comcast Corp. and Time Warner Cable Inc. – looking to merge in a $45 billion deal, and AT&T Inc. recently approaching DirecTV for a possible tie-up. Dish more than a decade ago attempted the merge with DirecTV, and Dish CEO Charlie Ergen recently signaled that his company could consider engaging DirecTV again. Dish posted earnings of $175.9 million, or 38 cents a share, down from $215.6 million, or 47 cents a share, a year earlier. Revenue rose 6.5% to $3.59 billion, but total costs rose 7.7%. Analysts polled by Thomson Reuters had projected earnings of 44 cents a share and revenue of $3.58 billion. Dish, which has struggled to boost its subscriber numbers, added 40,000 net pay-TV subscribers, versus a net gain of 36,000 during the same period a year earlier. The company ended the period with about 14.1 million pay-TV subscribers, nearly flat from a year earlier. The company also added about 53,000 net broadband subscribers in the quarter, versus additions of 66,000 in the previous year's quarter. Wall Street Journal