Will An AT&T-DirecTV Merger Fly?

[Commentary] AT&T finally pulled the trigger on an acquisition of DirecTV. The merger creates a 26-million subscriber rival for the television business.

But as AT&T and DirecTV tout the benefits of the merger, analysts and observers are split as to the deal’s benefits. On the plus side, it could allow AT&T to free up bandwidth for its U-verse broadband service -- it currently allocates 15 Megabits per second for video and 10 Mbps for high-speed Internet service in about 25% of the country, and could give the telephone giant the incentive to upgrade its digital subscriber line plant (which maxes out at around 1.5 Mbps) to fiber.

Critics of the deal point to the merger as a temporary fix -- DirecTV’s video business is basically flat, adding just 12,000 net new customers in the first quarter -- and though the business is well run, operating DirecTV as a separate entity would require AT&T to support two cost structures in 25% of the country with just a one-product offering in the other 75%.

Here’s a look at some of the reasons for DirecTV to sit this one out.

• The price could be too “frothy” or too pricey for what is at best a stable business.
• The merger will solve AT&T’s cash problem, but only temporarily.
• On the surface, it doesn’t look much better from a DirecTV perspective.
• The broadband benefit to the deal is questionable.
• AT&T gets a national video footprint in a slow-to-no growth business.