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3 Reasons Why AT&T’s Merger Will Succeed While Comcast’s Failed

By Jamal Carnette, CFA – May 2, 2015 at 9:21AM

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AT&T appears to be on its way to buying out DIRECTV, while Comcast abandoned its Time Warner Cable bid.

Source: AT&T

Last week, Comcast (CMCSA -2.34%) abandoned its takeover attempt of rival Time Warner Cable (NYSE: TWC). Addressing the abrupt change of plans on April 24, Comcast CEO Brian Roberts stated, "today, we move on,"  thanking employees of both companies for their "tireless efforts." Federal Communications Commission Chairman Tom Wheeler issued a statement as well, saying "Comcast and Time Warner Cable's decision to end Comcast's proposed acquisition is in the best interests of consumers."

This week brought better news for another large media merger, with The Wall Street Journal reporting that neither the FCC nor the Department of Justice have significant issues with the tie-up between AT&T (T -1.90%) and DIRECTV (DTV.DL). Furthermore, the Journal cited AT&T tapping the bond markets for $17.5 billion to complete the deal as proof the company believes approval is fait accompli.

While it might seem the two deals are rather similar, they are not. Here's why AT&T's merger with satellite-TV provider DIRECTV will probably be approved while Comcast was forced to abandon its deal with Time Warner Cable.

Net neutrality awareness hurt Comcast and Time Warner Cable
Like many things in life, Comcast and Time Warner Cable simply had bad timing. In 2005, the FCC drew up rather light-touch principles on Internet regulation, but stopped short of an actual order. In 2010, the FCC voted on the Open Internet Order amid consumer concerns about net neutrality. Verizon made what is now widely considered a strategic error by getting the order vacated and forcing the FCC to apply Title II designation in order to enforce any net neutrality rules on Internet service providers. The FCC approved the new rules February 2014.

Unfortunately for Comcast and Time Warner Cable, this put the merger in the spotlight for foes as the combined entity would have over 50% broadband market share and be the largest ISP in 26 states. Meanwhile, DIRECTV and AT&T don't have anywhere near the combined ISP market share and have been mostly spared from the larger ISP conversation.

People don't like Comcast or Time Warner Cable
The differences between the two mergers in terms of customer satisfaction is rather stark. Last year's American Consumer Satisfaction Index found that AT&T and DIRECTV were the most-liked pay-TV providers, both with a 69% satisfaction rating. That's not great, but the overall subscription TV industry finished 30th out of 33 industries surveyed for overall satisfaction, with only ISPs and social media coming in lower.

On the other end of this spectrum were Comcast and Time Warner Cable. Of eight named providers, Comcast finished second from the bottom with a 60% satisfaction score. That title of worst-rated provider went to Time Warner Cable with a 56% rating. Both were well below the total average of 65%. Meanwhile, Comcast won Consumerist's "Worst Company" award in 2014 (Time Warner Cable made the quarterfinals) as another sign of the antipathy toward the company.

Content appeared to play a role as well
Perhaps the most shocking revelation about the failed Comcast-Time Warner Cable deal was reported by Variety. Apparently, the FCC wanted Comcast to spin off NBCUniversal, an entity Comcast has only owned outright for two years after buying General Electric out in early 2013. Variety reported Comcast execs viewed that requirement as a "non-starter." In Wheeler's comments, he specifically noted Comcast's "significant programming interests" as a reason for the merger not being in consumers' interests. Until now, opponents of the merger had not focused as much on content and programming as on cable TV and Internet service concerns.

In the end, however, it appears ISP and programming concerns might matter to the FCC more than pay TV. The combined AT&T and DIRECTV will be the largest U.S. pay-TV entity and would have rivaled the combined Comcast-Time Warner Cable behemoth, so if the surviving merger plan is approved, it will be hard to argue pay TV was a large factor in the FCC's decision.

Jamal Carnette owns shares of Apple, AT&T, and Verizon Communications. The Motley Fool recommends Apple, Google (A shares), Google (C shares), Netflix, and Verizon Communications. The Motley Fool owns shares of Apple, General Electric Company, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$15.53 (-1.90%) $0.30
Comcast Corporation Stock Quote
Comcast Corporation
$30.43 (-2.34%) $0.73
DIRECTV, LLC Stock Quote
Apple Inc. Stock Quote
Apple Inc.
$142.48 (-4.91%) $-7.36
General Electric Company Stock Quote
General Electric Company
$62.73 (-2.68%) $-1.73
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$38.64 (-1.90%) $0.75
Alphabet Inc. Stock Quote
Alphabet Inc.
$97.42 (-2.63%) $-2.63
Netflix, Inc. Stock Quote
Netflix, Inc.
$239.71 (-2.24%) $-5.49
Alphabet Inc. Stock Quote
Alphabet Inc.
$98.09 (-2.63%) $-2.65

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