Saturday, May 03, 2014

LA Times offers flawed analysis of AT&T interest in DirecTV

Pay-TV field could shrink again with AT&T interest in DirecTV - For AT&T, the value and implications of a DirecTV acquisition are enormous.
First, DirecTV's signal and quality are considered far superior to AT&T's U-Verse television service. This could allow AT&T to rely on DirecTV for broadcast, and free up its fiber lines to increase broadband speeds to U-Verse customers.
This last sentence in this LA Times analysis of AT&T's interest in acquiring DirecTV is rubbish. Fiber lines offer enormous carrying capacity; AT&T does not need to offload video to increase it. The likely reason AT&T is eying satellite for TV distribution is because most of the telco's connections to customer premises are twisted pair copper that can't offer a comparable high definition experience that cable companies can deliver. That gap will only grow wider as ultra high definition TV adoption grows and gobbles up more bandwidth, forcing AT&T to compress it even more to squeeze video content over twisted pair and potentially degrading its quality even further. AT&T is reaching the point of technological obsolescence with its existing copper cable plant and is unable to quickly migrate it to fiber to the premise.

Another major reason is programming costs. AT&T already spends nearly $4 billion a year for programming on U-Verse, and it has just 6 million subscribers. DirecTV pays substantially less per-subscriber for channels than does AT&T.
Unlike the first rationale, this one actually makes sense. AT&T is being squeezed on the consumer side by outmoded delivery infrastructure that requires costly upgrades and on the programming side by TV program cartels that have substantial market power vis Internet service providers.

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