AT&T outlines DirecTV cost-savings
June 5, 2014
By Chris Forrester
AT&T has raised $4.9 billion in bonds over the past few days as it gears up to fund its purchase of DirecTV. The telco giant is also spelling out where it sees the financial benefits and synergies from the deal.
AT&T issued an 8K document with the SEC on June 4th, saying that it sees cost synergies to “exceed $1.6 billion annually within 3 years” of the deal closing. “These savings will begin in the first year after closing, ramp up over four years and grow with the addition of video subscribers thereafter. It is anticipated that at least 40 per cent of these total synergies will be realized by year two after closing. These synergies are conservative and derived from items such as programming cost reductions, operational efficiencies and reductions in redundant broadcast infrastructure. Programming cost reductions are the most significant part of the expected cost synergies. At this time, AT&T’s U-verse content costs represent approximately 60 per cent of its subscriber video revenues. With the scale this transaction provides, we estimate AT&T’s U-verse content costs after the completion of the transaction will be reduced by approximately 20 per cent or more as compared with our forecasted standalone content costs,” says the 8K.
Key to the overall strategy is the offering of – at least – a ‘triple play’ set of services to at least 70 million customer locations, and a pay-TV and wireless service to approximately another 45 million customer locations.
“DirecTV gives AT&T the ability to bundle all its Project VIP footprint with video and broadband – 24 million more locations than originally planned.
“The economics of this transaction will allow the combined company to upgrade 2 million additional locations to high speed broadband with Gigapower FTTP (fibre to the premise) and expand our high speed broadband footprint to an additional 13 million locations where AT&T will be able to offer a pay TV and high speed broadband bundle.”
The deal provides significantly greater scale in video, affording us the ability to offer programmers better value and therefore the opportunity for us to obtain correspondingly better per subscriber content costs. We will be able to have a more competitive bundle of pay TV and high speed broadband for our customer locations where our current plans give us the double-play bundling opportunity today.”