(Repeat for additional subscribers)
May 22 (The following statement was released by the rating agency)
AT&T's agreement to buy DirecTV is the latest in a wave of deals that
highlight the growing appetite for content and pay-TV acquisitions among telecom operators,
Fitch Ratings says. AT&Ts deal gives it the opportunity to capitalise on growth in mobile video
and diversify its revenue stream, but deals in the more competitive European market are largely
defensive to stabilise
fixed and mobile market shares, rather than generating profits from TV services.
Telecom companies are using a variety of strategies to acquire this content.
Telefonica has offered to buy the struggling Spanish satellite operator
Digital+, while Telecom Italia has agreed a content-distribution deal with Sky
Italia and BT is going a more direct route by bidding aggressively for sports
AT&T's acquisition strengthens the company's position in the evolving video
market and diversifies AT&T's revenue stream, but the longer-term strategic
benefits are less clear, while the expected increase in leverage from the
transaction led us to place AT&T's 'A' IDR on Rating Watch Negative.
The European pay-TV industry is under-penetrated compared with the US at around
40% of households covered. In particular, Southern European markets like Italy
and Spain have some of the lowest levels of pay-TV penetration in Europe.
Under the agreement with Sky Italia, TI will distribute all Sky's content over
its fixed line and LTE mobile networks under a revenue-sharing model. This
approach means that TI does not have to invest significant amounts of capital.
The deal will help TI defend its market share by differentiating its offering
from rivals Vodafone and Wind and could accelerate the take-up of fibre.
However, TI's fibre network footprint remains small with a relatively slow
roll-out target. Combined with the low margins in content distribution for
telcos and the potential for increased competition from free-to-air broadcaster
Mediaset, this is likely to limit TI's ability to improve profitability via its
Telefonica's offer to acquire control of Digital+ would allow TEF to access
Digital+'s 1.6 million subscribers and its exclusive video content, including
Spanish football rights. The deal would support the company's key strengths of
fibre-to-the-home and premium TV content, helping to defend it against
competition from Vodafone/Ono, Jazztel and other regional cable operators.
While Telefonica is investing more than TI in its home market, its potential
gains are also likely to be higher. This is due to better cross-selling
opportunities, a more aggressive investment plan in fibre network and direct
content acquisition, as well as potential savings on programming costs from the
distribution of Spanish language content within its Latin American footprint.
Competition for premium programming and subscribers is also less intense in