- Associated Press - Monday, May 19, 2014

LOS ANGELES (AP) — Priming itself for the age of Internet-delivered video, AT&T Inc. said it would buy DirecTV for $48.5 billion in cash and stock, or $95 per share.

While DirecTV doesn’t help the telecom company compete in the online video space immediately, cost savings from the merger and the extra cash flow will improve its ability to compete with the cable giant that would be formed by Comcast Corp.’s proposed $45 billion takeover of Time Warner Cable.

With 5.7 million U-verse TV customers and 20.3 million DirecTV customers in the U.S., the combined AT&T-DirecTV would serve 26 million. That would make it the second-largest pay TV operator behind a combined Comcast-Time Warner Cable, which would serve 30 million under a $45 billion merger proposed in February.

AT&T is already the largest mobile service provider in the U.S., serving 116 million customers compared to Verizon’s 103 million.

“What it does is it gives us the pieces to fulfill a vision we’ve had for a couple of years - the ability to take premium content and deliver it across multiple points: your smartphone, tablet, television or laptop,” AT&T’s Chairman and CEO Randall Stephenson said on a conference call with journalists Sunday.

** FILE ** This Aug. 8, 2006, file photo shows the DirecTV building in El Segundo, Calif. (AP Photo/Reed Saxon, File)
** FILE ** This Aug. 8, 2006, file photo shows the DirecTV ... more >

The companies are aiming to eke out $1.6 billion in annual cost savings in an increasingly expensive and maturing pay TV business. Using DirecTV’s cash flow, AT&T has greater ability to invest in its landline and mobile networks for broader reach and faster speeds in an Internet service market where it risks falling behind a bulked up Comcast-Time Warner Cable.

The companies also promised consumer benefits like more economical bundles that tie mobile phone, pay TV and Internet service together on a single bill.

But the deal could face unique regulatory scrutiny from the Federal Communications Commission and Department of Justice. Unlike the cable company tie-up, the AT&T-DirecTV merger would effectively cut the number of video providers from four to three for about 25 percent of U.S. households.

Cable companies operate in regions that don’t overlap, but in comparison, AT&T provides TV service to 22 states, where it is a direct competitor to DirecTV, which is nationwide. Reducing choice in those markets could result in higher prices for consumers and that usually gives regulators cause for concern.

Stephenson said those concerns would be addressed with a number of what he called “unprecedented” commitments. Among them:

• DirecTV would continue to be offered as a standalone service for three years after the deal’s closing.

• AT&T would offer standalone broadband service for at least three years after closing, so consumers could consume video from Netflix and other online services, with download speeds of at least 6 megabits per second where feasible.

• AT&T would expand high-speed broadband access to 15 million more homes — beyond the 70 million that could now get AT&T service — within four years.

• AT&T vowed to abide by the open Internet order from 2010 that the Federal Communications Commission is now in the process of revising after a court struck it down.

• AT&T vowed to sell its roughly 9 percent stake in Latin American wireless carrier América Móvil for about $5 billion.

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