Any AT&T/DirecTV Deal Seen Getting Antitrust OK if Perceived as Horizontal Acquisition
The likelihood of any AT&T takeover of DirecTV finding favor with antitrust authorities rests with its potential as a horizontal acquisition, experts said in interviews this week. Its potential to remove a pay-TV provider and to move AT&T’s U-verse service onto satellite dishes also are factors, some said. An AT&T/DirecTV deal probably has a better chance of being approved by the FTC or Justice Department than Sprint/T-Mobile or Comcast/Time Warner Cable, said some analysts and antitrust attorneys.
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AT&T has shown interest in buying DirecTV for $40 billion (CD May 2 p2), following Comcast’s deal to buy Time Warner Cable for more than $45 billion and Sprint’s interest in T-Mobile (CD Dec 17 p1). The antitrust theories driving the Comcast/Time Warner Cable investigation are different than for any AT&T/DirecTV deal, because the latter two firms compete for video customers, said an antitrust attorney who has worked on telecom deals and who might work on any Sprint/T-Mobile deal. AT&T/DirecTV likely falls within the analytical framework that the antitrust agencies have established for the horizontal merger guidelines, he said. Comcast/Time Warner Cable would be more complicated if the horizontal merger guidelines are applied, and it may be seen mainly as a vertical combination, the antitrust attorney said.
There’s no guarantee that an AT&T/DirecTV deal will be perceived as a horizontal takeover, said Bert Foer, American Antitrust Institute president. “Comcast is mostly vertical,” he said of its buying Time Warner Cable. “If DirecTV is perceived as a totally different channel of communication from anything that AT&T can do, then you've got a merger that arguably is not horizontal.” AT&T and DirecTV had no comment.
It appears AT&T/DirecTV would be approved, but “it’s not a lock,” said Paul Gallant, a Guggenheim Partners analyst. “It would take a serious competitor out of the market, which in pure antitrust terms, makes it more problematic than Comcast-Time Warner Cable.” Sprint/T-Mobile likely would face an uphill battle, he said. “There are probably solid arguments for the merger, but I think regulators would be reluctant to disrupt what looks like real pro-consumer momentum in wireless."
An AT&T takeover of DirecTV is more complementary than the other two deals, said Francesco Radicati, an Informa Telecoms & Media analyst. Regarding Comcast/Time Warner Cable and Sprint/T-Mobile, “it really is one competitor absorbing a very similar player, despite how Comcast has been positioning TWC as not directly competing with it in any markets.” The AT&T deal is about strengthening its offering in an area where it’s weak, he said. It likely will be much easier to convince antitrust reviewers to approve the deal, “because the merged company would actually be a better counterweight to players like Comcast” and would result in consumers in more states having more TV and broadband options, he said. AT&T and DirecTV don’t own content subsidiaries, “so there are fewer questions about the merged entity’s bargaining leverage against other TV companies,” he added.
With other deals present, the timing is good for an AT&T/DirecTV deal, another antitrust attorney said. Comcast has “the most deal risk,” among the three deals, he said. If Comcast/Time Warner Cable is approved, AT&T and DirecTV can argue that they have fewer video subscribers than the new Comcast, and so their deal should be approved, he said. Antitrust agencies will probably focus more on the horizontal aspects when analyzing the AT&T deal, he added: “AT&T isn’t gobbling up a huge direct competitor like it was when it pursued T-Mobile” in 2011.
A deal between AT&T and DirecTV is, at best, an adjacent combination rather than a horizontal one, said Chadbourne & Parke antitrust attorney David Evans. The markets are similar “in that they allow communication and delivery of content to consumers, but do so in very different ways with different content,” he said. The deal could bring communications and content, he said. It “could be a play to be more like Apple, although I don’t think they have the savoir faire to create a competitor to the iTunes environment,” he said of AT&T.
Where AT&T and DirecTV compete, there’s most likely Dish Network and an incumbent cable operator also selling video in the same geographic markets, said the antitrust attorney who may work on any Sprint/T-Mobile deal. Still, a competition issue could remain, Evans said. It’s unknown what AT&T plans to do, “or to what extent AT&T’s new ’system’ will actually compete with cable,” he said. “I don’t think the agencies look at cable and satellite competing significantly when they analyze cable mergers, and so would be skeptical about this particular argument.”