How Will AT&T’s Acquisition of DirecTV Impact Leaseholders?
On Sunday, May 18th, AT&T announced it’s bid to acquire DirecTV, the country’s second largest provider of paid-TV services (after a combined Comcast – Time Warner Cable) and largest provider of satellite TV. AT&T stated in its press release that it will pay DirecTV $48.5 billion, in addition to assuming debts of ~$18.5 billion, is expected to close in about a year.
DirecTV generated about $2.6 billion in free cash flow in 2013, which will be a nice addition to AT&T’s capital resources, as it has stated that it will bid at least $9 billion for wireless network spectrum in next year’s auction.
AT&T’s current TV service “U-verse” has about five million subscribers, but with the addition of Comcast’s 20 million subscribers, AT&T will control more than half of the paid-TV market. As part of its effort to gain FCC approval, AT&T has pledged to enhance broadband communications in rural areas across the U.S. and has stated that the new coverage would include approximately 15 million locations where coverage currently does not exist.
AT&T states that this will be done through a combination of fiber to the home (FTTH) and fixed wireless local loop capabilities. Essentially, the technology allows customers to get home phone and broadband data service by accessing a wireless connection that transmits to the nearest cell tower, rather than using a wire connected to the house. Antennas installed in homes will allow higher transmission speeds. As the networks themselves improve, so will the data speeds. The investment from DirecTV will enable AT&T to make good on its commitment to building out more cell towers in rural areas so that they can set up wireless internet services to the home. We have already noticed from client inquiries to our website that AT&T is proposing upwards of 40% more cell site leases in rural areas. However it’s yet to be determined whether AT&T is actually committing to a more comprehensive nationwide rural build-out or just “remarketing” existing efforts in order to persuade the FCC and DOJ that this merger will indeed benefit rural areas – as it has promised.
DirecTV does not have any significant holdings in cellular spectrum (nor does it have any cell towers), which means that the combination of these two companies is unlikely to affect any existing AT&T towers or cell sites as far as redundancy goes. One ancillary impact of the merger is that it might increase the demand on existing AT&T towers in the future. One of the stated goals of the merger is to provide a more ubiquitous TV experience for DirecTV and AT&T’s U-verse users. This would occur by allowing users to access TV no matter where they are either by fiber to the home, a fixed wireless connection to the home, via smartphone or tablet that uses AT&T’s wireless network, or even by satellite in rural areas with no other access. Since video requires a significant amount of bandwidth when streamed wirelessly, AT&T will need to substantially build up its network to accommodate users wherever they are and on whatever device they use. This will result in a heightening of the importance of existing AT&T sites, as well as an increased demand for new AT&T cell sites. In other words, the merger will be good for tower owners, building owners with rooftop cell sites, and landowners who are currently party to a lease with AT&T.
