Summary
On face value, there is only an outside chance of Verizon purchasing a satellite TV operator. Yet, it might have some interest in acquiring DirectTV from the standpoint of not wanting to expand its FiOS network anymore than is absolutely necessary. It seems that the RBOC is feeling pressure from both the FCC and local regulatory commissions in terms of feeding broadband to other areas within its incumbent territory.
Analysis
These government agencies are also concerned about increasing cable TV competition in those places. Their argument will be that Verizon is offering cable TV to a large portion of its customer base, but not to the rest. A purchase of a satellite TV company would provide a way to expand into those communities. It all depends on how much hot water Verizon gets itself in with the government as to whether it pulls the trigger on such a purchase. The service provider will do what is necessary to avoid building out FTTH into the boondocks.
It might make more sense than ever for AT&T to buy DirecTV. AT&T is just so far behind on the terrestrial video piece of its business. On the other hand, the reason AT&T is trailing is that there are two many ex-Bell-head types of people in an authoritative position. With that mentality, do they allow for a satellite TV purchase? So, it is almost like a Catch-22 situation.
While this speculation about DirecTV continues, it appears that the company is working with other firms in terms of providing high-speed Internet services. It is not clear whether AT&T and/or Verizon are in these types of discussions. With that activity seeming to take place, it would make DirecTV that much more attractive to Verizon. It would also obviously remove a major competitor. However, with the current administration and Congress, it could be a difficult sell in terms of excess concentration for either Verizon or AT&T. Clearly, if one RBOC buys DirecTV, the other purchases Dish Network.
The residential market for Verizon, once again, has to be kept in perspective. Consumer video is not the “core product for its fixed line business.” The large enterprises are the main target. Certainly, video conferencing for these Fortune 2000 companies will increasingly become a major application. It is still hardly out of the question that within five years, Verizon will sell off its cable TV business. It would still keep the fiber and lease it out.
If Verizon was truly committed to its residential video business then it would be a much different situation. Purchasing DirecTV would be a no-brainer. There seems little doubt that if Verizon could wave a magic wand and get out of the residential space (excluding wireless) right away – it would not hesitate to do so.
Samuel Greenholtz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
