The AT&T/DirecTV wedding is complete and the carrier wasted little time in consummating the deal. Almost immediately, AT&T launched a new TV/wireless bundle offering a 10 percent monthly discount that leverages either U-verse or DirecTV. Of course, the ‘bundle’ is not a new concept in the wireless industry or across telecom and broadband, and indeed the major wireless carriers have often tried to bundle TV and wireless together. But this one is a more serious attempt with a single billing package and, of course, it is the first time a carrier has been able to offer its own TV service on a nationwide level. Indeed, the DIRECTV merger now makes AT&T the largest TV provider in the U.S., surpassing Comcast.
While the offer does not initially appear to veer to far from more traditional telecom/broadband bundles, with consolidated billing and a service discount, the TV portion of the bundle is where things get more interesting. AT&T is including the charges for up to four receivers as part of the bundle, as well as DVR and HD charges. As a result, when including the 10 percent service discount, an AT&T TV and wireless bundle customer has the potential to save between $600 and $850 in the first year (depending on the number of set top boxes purchased). These cost savings will help make AT&T more competitive on the TV front by removing many of the cost barriers associated with the set top box and HD/DVR fees that many consumers perceive as nickel and diming. Removing these costs was a necessary move, as much of the TV content value chain is now moving OTT and is being decoupled from the set top box.
By removing much of the cost around the set top box and the associated fees, AT&T is looking to get ahead of some of this OTT decoupling. From a wireless service perspective, there are no changes beyond the service discount. However, this offer will ultimately lead to increased loyalty and lower churn among wireless subscribers, while also opening up the entire AT&T wireless customer base to a much more aggressive TV offering.
AT&T has also proven that it is also one of the more aggressive TV providers when it comes to embracing OTT content by offering Amazon Prime as part of select service offerings. It is not a stretch to imagine that AT&T will look to expand on this OTT bundling strategy and look to bundle in other OTT content from providers like Netflix as well as Amazon. These types of offers would fit well with the overall combined bundle strategy. In addition, due to its new size with an integrated DIRECTV, AT&T will now have more ability to negotiate with programmers as content deals come up for renewal. This new negotiating clout will also help AT&T reduce content costs moving forward, which will give the carrier more pricing flexibility with its bundles moving forward.
But OTT is also where there remain some questions over the AT&T strategy. Yes, the carrier now has a nationwide footprint, but it is satellite based, and these consumer dishes are beginning to look a little quaint on rooftops and chimney stacks. With the world moving towards Internet-based TV services, the satellite solution could perhaps be pushed into a more rural strategy only. Not that there is anything wrong with that strategy, but we can expect to see AT&T (perhaps) looking to provide an OTT service of its own based on DirecTV services as it looks to strengthen the TV component in the bundle.
While the new AT&T TV/wireless bundle is less threatening to competing wireless carriers than it is to TV service providers like Comcast, Time Warner, and Dish, it still has the ability to increase competitors’ churn among customers who already have DIRECTV or U-verse TV service and are looking to leverage the new bundle for increased savings. Verizon can, and probably will, ultimately react as it too has focused on entertainment services with FiOS. T-Mobile has little play at this point and has not made (or needed to make) TV a focus of its strategy. However, we can expect that if AT&T gains considerable traction with this new bundle, rumors of a cable-led acquisition/merger with T-Mobile will re-emerge.