Undue Excitement Over AT&T-DirecTV

 | May 19, 2014 | 11:47 AM EDT
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Why is everyone so gaga about this DirecTV (DTV)-AT&T (T) merger? Why is everyone thinking that AT&T got a good deal shelling out $48.5 billion for an also-ran technology company whose most valuable property, the NFL Sunday Ticket package, is hanging in the balance after this year's season?

It's no wonder that, per a little-talked-about clause, AT&T can walk away from this deal if DirecTV loses the NFL to another network or, possibly, to Google (GOOG), which has much more money to spend than any current or potential NFL purveyor. I think many customers would walk away, too, without the package. I know I sure would. Without it, I wonder how many new sign-ups there would be and how much cash flow from existing customers would be maintained.

I subscribe to DirecTV because I, like many other people in this country, follow out-of-market teams, and I play fantasy football. There is simply no other reason I would ever take this monstrosity of a network with a dish that goes down during every storm, and which has disconnected me endlessly for no good reason. Don't even bother asking me about how often my high-def channels go down.

Believe me, if this satellite technology were at all up to snuff, Apple (AAPL), Google and Facebook (FB) would be bidding for it -- not AT&T. As it is, Comcast (CMCSA) and Verizon (VZ) offer so many interactive features in their broadband offerings that I would disconnect DirecTV in a heartbeat if it weren't for the football package. Satellites are relics. Anyone in the computing business would tell you that.

Oh and, believe me, the NFL knows this package is now make-or-break for AT&T. It also knows that fantasy football has changed the equation, because so many fantasy people watch games that they otherwise wouldn't bother with. The NFL's numbers were up nicely this past year, even as every other sport had much weaker audience growth, if they saw growth at all.  

Now, there are some other potential reasons for the deal. First, AT&T might think it can cross-sell its phone service to DirecTV subscribers, especially in areas where there is no cable competition. Maybe they'll give away phone service to start? I don't like this reason, because cross-selling is a very difficult task, and I don't know how AT&T would be able to succeed without big price discounts. Nobody really cares about the "one-bill" advantage. They just want better pricing.

The second motivator could be Latin America. Through the deal, AT&T could gain a nice foothold in Argentina, Venezuela, Chile, Colombia, Mexico and Puerto Rico, where DirecTV has 18 million subscribers altogether. Reuters says 95% of DirecTV's growth comes from Latin America, which is pretty fantastic. At the same time I think that, among American companies, Latin America has become a notoriously difficult place in which to do business. In particular, Argentina has been squeezing American companies that do business there, and venturing into Venezuela is a nightmare that leads to perennial estimate cuts for most.

Still, Latin America has growth, and AT&T desperately needs growth to appeal to all but those who like the stock for its bond equivalence.

Nevertheless, if there weren't issues involving technology and regulation in Latin America, I do not think Mike White, the terrific CEO of DirecTV, would be all that anxious to sell. Remember, it takes two to tango. I keep hearing how motivated AT&T is to do the deal. But I come back and say that White seems pretty anxious to sell, too. Perhaps he's gotten all he can out of this franchise. I don't want to buy from Mike White. I want to sell with him. If you own DirecTV, you should, too.

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