Merger Mania

In Pay-TV Merger Mania, What Will Verizon Do?


Two massive deals in three months involving AT&T and Comcast have the potential to reshape the telecommunications industry, prompting observers to wonder about the response from Verizon Communications (VZ). The answer, according to several analysts, may be that Verizon will continue to do nothing.

AT&T’s (T) $49 billion purchase of DirecTV (DTV), the largest U.S. satellite-TV provider, is engineered around a future where video and broadband Internet service merge into “over the air” transmissions. High-def video will be routed to whichever delivery platform is most cost-efficient for AT&T, Verizon, Comcast (CMCSA), or whoever sends your monthly bill. AT&T executives, for example, clearly expect to carry far more video on the company’s wireless telephone network.

So does Verizon, which has already invested enormously in its wireless business through a series of smaller deals. The company has been building a multi-technology platform on which it can deliver video to customers in several ways, not just with its FiOS system. It also bought out Vodafone’s (VOD) stake in their joint U.S. wireless venture. “We believe the ‘platform’ strategy could potentially be a significant game changer for Verizon,” Cowen & Co. analyst Colby Synesael wrote in a client note last week, predicting that a market for video via Verizon’s high-speed wireless networks probably won’t materialize in a significant manner before 2016.

Federal regulators have yet to say how they view Comcast’s proposed $45 billion acquisition of Time Warner Cable (TWC), the second-largest cable operator, which was announced in mid-February. The even-larger deal in which AT&T would acquire DirecTV’s more than 20 million satellite video subscribers could further delay verdicts for both transactions, given that Washington will probably try to sort out how all the consolidation might affect the competitive landscape and what it would mean for consumers.

Others have speculated this week that AT&T’s move might make Verizon want DISH Network (DISH), which had proposed a merger with DirecTV and had made overtures to T-Mobile (TMUS). According to this line of thinking, if AT&T bulks up on video—where its U-Verse service is now a small player—Verizon may want to bolster its FiOS video footprint with DISH, which also holds valuable wireless spectrum.

That capacity, Citigroup (C) analyst Mike Rollins wrote on Monday, would greatly benefit Verizon, which could use DISH to obtain “scale in the video business and a path to leverage its investments in IPTV and content delivery networks to evolve the DISH video biz into a national over-the-top video provider.” The No. 2 satellite player has about 14 million subscribers.

Verizon doesn’t need to do anything in the wake of the two large deals, says Jonathan Chaplin, an analyst with New Street Research. “However, this opens the door for Verizon to pick up the most exciting asset in the space—DISH,” he wrote in an e-mail. “They have a clear run at a spectrum position that would give them a clear competitive advantage over the other carriers.” Michael Morris, an analyst with Guggenheim Partners, said in a client note that it’s unlikely Verizon will pursue DISH.

Still, it’s wise to bear in mind that  AT&T and Verizon are starting from different places. For one thing, the government will soon auction fresh spectrum capacity—which could make a DISH purchase less attractive. Verizon has focused well on the potential of its cellular networks to handle video. “Verizon is well-positioned to compete under any scenario,” says spokesman Bob Varettoni, declining further comment.

Bachman is an associate editor for Businessweek.com.

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Companies Mentioned

  • VZ
    (Verizon Communications Inc)
    • $47.02 USD
    • -0.03
    • -0.06%
  • T
    (AT&T Inc)
    • $33.54 USD
    • 0.03
    • 0.09%
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