Is it crazy to hope a broadband merger could increase competition?

by Steve Blum • , , ,

For the umpteenth time, AT&T is said to be in talks to buy a major U.S. direct broadband satellite (DBS) company, in this case DirecTv. The first time I heard this rumor was in 1995, when DirecTv and the company I was working for, U.S. Satellite Broadband (later merged together), did a joint marketing deal with what is now AT&T (but was SBC back then).

In fact, SBC’s later acquisition of the business and brand was partly due to the failed cable ambitions of the old AT&T. CEO Michael Armstrong – who had been the CEO of Hughes, DirecTv’s then-corporate parent – bought TCI, the original mega-MSO. The attempt to merge cultures and networks was a disaster. AT&T was a relentlessly politically correct organisation with exquisitely gold-plated engineering. TCI, on the other hand, embraced a Colorado cowboy ethic, in its dealings with staff, industry and consumers, and in its upkeep of a largely ad hoc and, even then, decaying coaxial cable plant.

Armstrong skated away, the cable systems went to Comcast and SBC got the name and the phone network. And like clockwork, every couple of years AT&T is said to be in hot pursuit of either DirecTv or DISH.

The original argument in favor of a DBS purchase was that AT&T had millions upon millions of existing subscriber relationships and limitless marketing resources. My counter argument back then was, yes, AT&T is huge, but that’s not enough. It would be like slotting a sumo wrestler into the San Francisco 49ers offensive line: big is good, but the sport demands different skills, endurance and attitudes.

Today’s AT&T is no longer a lumbering rikishi. Over the years, the PC sensitivity has dulled and its competitive appetite has gained a bit of an edge. So a DBS play seems less unlikely. If it happens, it’ll be a decisive step away from the traditional deference incumbents show towards each other’s territory. Both DirecTv and AT&T Wireless have a national footprint and together can start attacking Verizon’s and CenturyLink’s wireline revenue. That would make it a more competitive market in much of the U.S. Perhaps we can hope that Verizon and Century – or a now-small independent telco – will return the favor in California.