Diverging Fortunes for Comcast and AT&T Deals

By Thomas Gryta and Joe Flint 

Two big media deals were announced in the first half of 2014. Only one is likely to survive.

While Comcast Corp. is on the brink of dropping its $45.2 billion takeover of Time Warner Cable Inc. under pressure from regulators, AT&T Inc.'s $49 billion acquisition of DirecTV is moving through the pipeline.

At its core, the AT&T deal presents fewer problems for regulators than Comcast's combination, which would create a company that is at once a giant Internet service provider, a dominant seller of cable television and a significant content company. AT&T's deal, meanwhile, would join its regional pay-TV business with DirecTV's satellite operation, which lacks a robust broadband offering.

The divergence in fortunes signals that regulators are more worried about providing choice in Internet access and new, online video options than they are about concentration in pay TV.

The Federal Communications Commission sees the AT&T deal as helping competition and aiding the spread of broadband into rural areas that lack service, people familiar with the matter said.

The regulator hasn't sat down with AT&T to finalize the concessions for the deal, something that needs to happen before an order is written up and sent to the commissioners to vote, according to people close to the situation. But the commission's staff is inclined to recommend the approval of the deal, people familiar with the matter said.

The Justice Department is also reviewing the deal. It has yet to raise any significant issues, people familiar with the matter said.

AT&T tapped the bond market Thursday to raise $17.5 billion needed to help pay for the deal. The company also said late Wednesday that it expects to eventually save at least $2.5 billion a year in costs as a result of the merger, more than the $1.6 billion it forecast previously.

Traders read both moves as signals the company has grown more confident the deal would close. Shares of DirecTV rose 3.3% to $90.12 Thursday, hitting their highest level ever. AT&T, whose shares climbed 4.2% to $34.23, says the deal will close by the end of June.

To get ahead of regulators, AT&T made several commitments when making the deal last year including expanding its high-speed broadband to 15 million locations, mostly in rural areas, guaranteeing prices for customers seeking only broadband connections, and committing to certain net-neutrality policies.

Additional concessions could include assurances around how the company deals with online video distributors, people close to the situation said.

Convincing regulators and investors that the combination made sense was important to AT&T. The deal is its first major acquisition since the government squashed its 2011 $39 billion attempt to buy wireless rival T-Mobile.

In searching for opportunities after the T-Mobile debacle, AT&T was looking to Europe and a possible deal for Vodafone Group PLC. The Comcast deal for Time Warner Cable reset AT&T's plans, because it would have created a massive new broadband rival and also provide a window for approval of a DirecTV takeover, an idea that had long interested AT&T.

Part of AT&T's reasoning in restarting talks with DirecTV was to get the transaction in front of authorities while they were considering the Comcast deal, a person familiar with the matter said.

Wall Street has warmed to the deal. Some analysts have expressed doubts about the wisdom of owning a satellite broadcaster, a business many feel has peaked, but think DirecTV's cash flow will help AT&T cover its expensive dividend.

Write to Thomas Gryta at [e-mail] and Joe Flint at [e-mail]

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