July 24, 2015 / 6:34 PM / 2 years ago

AT&T, DirecTV complete merger to form biggest pay-TV company

An AT&T Logo is pictured as a U.S. flag flutters in the foreground in Pasadena, California, January 26, 2015.Mario Anzuoni

WASHINGTON (Reuters) - The No. 2 U.S. wireless carrier AT&T Inc and the biggest satellite-TV provider DirecTV became the country's largest pay-TV company on Friday, completing their $48.5 billion merger after receiving final regulatory approval.

The newly expanded AT&T leapfrogs the biggest U.S. cable company Comcast Corp. The company said it will serve more than 26 million U.S. customers and more than 19 million in Latin America, making it the world's biggest pay-TV company.

After more than a year of review, the Federal Communications Commission finalized its vote to approve the deal with conditions, imposed for four years and enforced by an internal and an external compliance officers.

The requirements from the FCC, which ensures that deals are in the public interest, include protections for rival video and pledges to expand high-speed Internet services to schools, low-income Americans and other customers.

The Justice Department gave its nod to the merger on Tuesday, saying that its antitrust review found no significant risks to competition.

"The conditions imposed by the Commission address potential harms presented by the combination," the FCC said in a statement. "The conditions also ensure that the benefits of the merger will be realized."

With the merger, DirecTV gets the broadband product it previously lacked, and AT&T gets new avenues of growth beyond the maturing wireless service.

AT&T shares were up 1.1 percent at $34.29 and DirecTV shares were up 1.5 percent at $93.55 at the market close.

"We'll now be able to meet consumers' future entertainment preferences, whether they want traditional TV service with premier programming, their favorite content on a mobile device, or video streamed over the Internet to any screen," AT&T Chairman and CEO Randall Stephenson said in a statement.

A DirecTV satellite dish is seen on a residential home in Encinitas, California November 5, 2014.Mike Blake

As the U.S. wireless market reaches saturation, AT&T hopes to tap into DirecTV’s business and has been expanding its footprint in Mexico after buying the third and fourth largest wireless carriers in that country recently.

When the deal was first announced, analysts questioned the move. DirecTV's satellite TV business was hit by stagnation affecting the broad pay-TV market as viewers increasingly shift to watching videos on mobile devices.

Since then, they have warmed to the idea that AT&T could benefit from DirecTV’s robust cash flow and customer base of 20.4 million. The company has said it expects annual cost savings from the deal of at least $2.5 billion by the third year.

The success of the deal in passing regulatory muster is in sharp contrast to rival telecom mega-merger of Comcast and Time Warner Cable Inc, which was rejected in April largely over the combined companies' reach into the broadband market.

Video companies Netflix Inc and Dish Network Corp, traffic company Cogent Communications Holdings Inc and others had fought for the FCC to reject the $45 billion Comcast merger, but took a more lenient tack with AT&T.

The companies pushed for limitations to AT&T’s power to slow down or charge fees for the web traffic traveling through its networks, as well as protections for competing video services.

The issues are addressed by the FCC's conditions with requirements for AT&T to count its own affiliated video services toward any data caps on fixed broadband connections and to share with the FCC all traffic exchange agreements it strikes with content and web transit companies.

AT&T also pledged to the FCC's to build out high-speed Internet connections to 12.5 million customer locations and to sell affordable broadband access to low-income Americans without bundling it with TV services.

And in a first for the FCC, the agency will require AT&T to establish an internal and an independent external compliance officers to ensure AT&T abides by the conditions.

Reporting by Alina Selyukh; Additional reporting by Malathi Nayak in New York; Editing by Sandra Maler and David Gregorio

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