AT&T Has Approached DirecTV About Possible Acquisition

AT&T has approached DirecTV about a possible acquisition of the satellite-TV firm, say people familiar with the situation, the latest sign of a possible shake-up in the television industry.

A combination of AT&T with satellite-TV firm DirecTV would create a pay television giant close in size to where Comcast will be if it completes its pending acquisition of Time Warner Cable. DirecTV is the second biggest pay TV operator, serving about 20 million customers, while AT&T's landline-based TV business serves about 5.7 million. The nearly 26 million subscribers served by the combined company would compare with Comcast which -- with TWC -- would serve close to 30 million subscribers. A deal would likely be worth at least $40 billion, DirecTV's current market capitalization, a fraction of AT&T's $185 billion market capitalization. Acquisition of DirecTV would give AT&T a national footprint in pay television at a time when the telecom company sees video delivery as core to its future. An acquisition would allow AT&T to offer bundles of wireless and TV services, and could give AT&T new ways to deliver video to its mobile and broadband customers.

Whether regulators would agree to a DirecTV-AT&T merger is a major question. Any acquisition would likely be evaluated by the Justice Department for its impact on competition and would require approval by the Federal Communications Commission. The companies would have to prove to the FCC that the transaction would be in the public interest and the combined company would be able to offer consumer benefits not possible outside the merger. However, a person familiar with the FCC's thinking predicted the merger would have a solid chance at approval because offering video or voice service alone is viewed as a dying business and the combined company would be in a position to compete with Comcast, the leading cable and broadband provider. Competition in the broadband market is likely to be the central issue in any review.