AT&T said Monday that the leadership of the International Brotherhood of Electrical Workers (IBEW) has notified the company that IBEW-represented former DirecTV employees have voted to ratify two contracts.

AT&T noted that one agreement covers over 1,600 employees in AT&T's field services group, located in 14 states, with the other covering about 1,300 AT&T employees working in call centers in Boise, Idaho; and Missoula, Mont.

The former DirecTV employees covered by the contracts joined AT&T as part of its acquisition of DirecTV that was closed in July 2015.  

AT&T said the agreements, reached on July 16, focus on wages, health care, pension, and work rules, and represent the first with this group of employees. 

AT&T is the latest ISP to introduce packages tailored for qualified low-income homes.

It’s a move that satisfies a condition of AT&T’s merger with DirecTV, which closed last July. Among those targeted conditions, the FCC called on AT&T to provide discounted standalone broadband offerings to low-income consumers in its wireline service area.

The new program, called Access from AT&T, supports three different speed tiers – 10 Mbps down/1.5 Mbps up, 5 Mbps down/1.5 Mbps up, and 3 Mbps down/1 Mbps upstream. The 10-meg and 5-meg options will cost $10 per month, while the 3 Mbps tier will sell for $5 per month.

Per a Web site about the program, service availability and speed will vary by address, though AT&T said it will assign customers the fastest of the speed tiers available at their particular address.

Access to the program is limited to homes within AT&T’s 21-state wireline high-speed internet footprint with at least one resident participating in the U.S. Department of Agriculture Supplemental Nutrition Assistance Program (SNAP).  AT&T has set up a Web site where consumers can access a SNAP application.

AT&T said it will also waive installation and Internet equipment fees to homes participating in the program. The program includes an in-home WiFi modem and access to about 30,000 AT&T WiFi hotspots.

Per the fine print, the services will also be subject to AT&T’s monthly data policy (150 gigabytes or 250 GB depending on the speed tier. If users exceed those ceilings during the month, they’ll be charged $10 for each additional bucket of 50 GB.

Update: Starting May 23, monthly data allowances for U-verse customers will increase. At that time, Access from AT&T speeds will include a monthly data allowance of either 150 GB, 300 GB or 600 GB of data per month, depending on the type and speed of service those customers receive, said the company, which is also set to launch new unlimited data plans.  

“We’re making it easier for more people to connect to friends, family, their communities and the possibilities of the Internet,” said Cheryl Choy, vice president wired voice and broadband products at AT&T, in a statement. “Access from AT&T is an affordable Internet option available to millions of Americans with limited budgets.”

Update: AT&T's launch was also praised by FCC Commissioner Mignon Clyburn. “Our noble goal of connecting communities with affordable broadband alternatives, will ultimately be realized through targeted and innovative initiatives, both public and private," she said, in a statement. "This is why I am pleased to witness the launch of Access from AT&T, an affordable broadband option open to any member of a household that participates in the U.S. Department of Agriculture Supplemental Nutrition Assistance Program, or SNAP.  I look forward to seeing how this program helps to close the opportunity divide by getting more consumers and communities connected to high speed Internet services.”  

AT&T joins other ISPs that offer similar programs.

For example, Comcast has Internet Essentials, a voluntary commitment linked to its acquisition of NBCUniversal, provides high-speed Internet service (up to 10 Mbps downstream)  to those who qualify for $9.95 per month, plus computer equipment (less than $150) and free Internet training. Last month, Comcast announced that the program connects more than 600,000 low-income families.

Cox Communications has more than 160,000 people on board with Conenct2Compete, its offering for qualified low-income homes that also costs $9.95 per month.

AT&T has stopped making set-tops for its U-verse TV service as the telco focuses video efforts on the lower-cost DirecTV platform and looks to head down a technology path that could eventually phase out its current IPTV platform, Bloomberg reported Tuesday.

Bloomberg noted that AT&T, which closed its acquisition of DirecTV last July, is working on a  centralized home gateway platform that, within the next three years, will consolidate all of the company’s services, but stressed that AT&T isn’t shutting down U-verse and is letting currently U-verse TV subs stay on the platform. But new customers are being steered to the DirecTV platform.

Update: AT&T said U-verse isn’t being phased out, and provided this statement: "To realize the many benefits of our DirecTV acquisition, we are leading our video marketing approach with DirecTV. However, our first priority is to listen to our customers and meet their needs, and if we determine a customer will be better served with the U-verse product, we offer attractive and compelling options." 

Of late, AT&T has been placing a bigger emphasis on the lower-cost DirecTV platform.

AT&T added 214,000 U.S. satellite TV subs but shed 240,000 U-verse TV subs in Q4 2015 as the company “focused on profitability and increasingly emphasized satellite sales.” At the time, AT&T chairman and CEO  Randall Stephenson said he expected  U-verse TV churn to improve as the company shores up its newly combined sales channels.

Arris is among the vendors that have been feeling the brunt of shifting video strategies at some of its largest telco customers, including AT&T and Verizon Communications. Arris, which recently expanded its global set-top market share lead after acquiring Pace plc, is scheduled to report Q4 2015 results on Wednesday (February 17). Cisco Systems, another maker of U-verse TV receivers, recently sold its CPE division to Technicolor.

AT&T has been dropping hints about its video future. Last fall, AT&T announced it had picked Ericsson to “enhance” its TV platform and evolve its satellite and wireline TV platform. AT&T’s current U-verse TV service runs on Mediaroom, the IPTV middleware platform that Ericsson acquired from Microsoft in 2013. Prior to that, AT&Tannounced (subscription required)that it would use a derivative of DirecTV’s gateway-client architecture to establish a more uniform, cloud-based video platform for the combined company.

Last fall, AT&T hired Enrique Rodriguez, a former Cisco Systems and Microsoft exec, as executive vice president and chief technical officer, where he’s now overseeing both U-verse and DirecTV and heading up the technical integration of those services.

AT&T said the monthly rate on some U-verse products will rise in early 2016 in the wake of higher costs of programming and service delivery.

AT&T, which wrapped up its acquisition of DirecTV in late July, announced that the monthly price for U-family and U-family All In tiers will rise by $2.

The following will see an increase by $3 per month: U100, U200, U200 All In, U200 Latino and U200 Latino All In.  And the following offerings will go up by $4 per month: U300, U300 All In, U300 Latino, U300 Latino All In, U400, U450, U450 All In, U450 Latino and U450 Latino All In.

Among other changes, each billed non-DVR TV receiver will rise $1 per month, and the Regulatory Video Cost Recovery Charge will increase by 1 cent per month.

AT&T U-verse TV’s Broadcast TV Surcharge will also go up by $1 per month in all markets, except for Detroit, Mich.; Biloxi, Miss.; and Wilmington, N.C., where it will go up by 46 cents per month. “This charge is to recover a portion of the amount your local broadcasters charge AT&T to carry their channels,” the company said.

AT&T tied to soften the blow by noting that it has made some improvements, including TV Everywhere products that now offer more than 270 live channels on mobile devices in the home and more than 205 when subs are on the go.

AT&T shed 92,000 U-verse TV subs in Q3 2015, ending the period with 5.85 million subs in the category, while DirecTV added 26,000.  Of note, AT&T is currently focusing on the lower-cost DirecTV platform as its first choice for net adds.

AT&T also noted that the monthly price for its Voice 1000 plan will be $30 for all subs, and the Voice 250 plan will increase by $2, to $27 per month.

All new rates (save for those being paid by customers on U-verse promotional rates) will appear on customer billing statements starting Jan. 28, 2016. 

AT&T’s third quarter results delivered a mixed bag as earnings beat Wall Street expectations, but revenues came up short.

AT&T, fresh off its acquisition of DirecTV, posted Q3 earnings of 74 cents per share on revenues of $39.09 billion, up from $32.96 billion in the year ago quarter. Analysts were expecting 69 cents on revenues of $40.42 billion. Yesterday, AT&T warned that Q3 revenues could fall short of expectations because of “inflated” estimates that did not properly factor in its acquisition of DirecTV.

"With our DirecTV merger having closed on July 24, 2015, we want to make an important clarification for investors heading into our earnings announcement on Thursday," AT&T said yesterday, per CNBC. "It is clear many revenue estimates for DirecTV include the full month of July."

Update: John Stephens, AT&T’s SVP and CFO, reiterated on Thursday’s call that the company’s Q3 results excluded the first 24 days of DirecTV operations in July. "If you add those revenues to our GAAP number, consolidated revenues for the quarter would have been more than $41.2 billion," he said.

AT&T shares were up 60 cents (1.77%), to $34.56 each in after-hours trading Thursday.

On the video front, DirecTV added 26,000 subs, extending its total to 19.57 million. U-verse TV lost 92,000 subs in the third quarter, versus 212,000 adds in the year-ago quarter, and currently has about 5.85 million subs in the category. With both U-verse and DirecTV factored in, AT&T now has about 25.42 million video subscribers.

AT&T wireline broadband lost 106,000 subs in the quarter, ending with a total of 25.42 million. Broken into specific categories, AT&T added 172,000 “IP” broadband subs (which includes business customers), and shed 278,000 DSL subs.

On the wireless side, AT&T Mobility scored 2.5 million domestic net sub ads, including 466,000 prepaid net ads, which was its best result in the category in nearly eight years, the company said

“We now have integrated solutions that are unlike any competitor in the market,” said Randall Stephenson, AT&T chairman and CEO, in a statement. “With our national wireless and video capabilities, as well as our extensive broadband network, we now have assets that make us a unique competitor and the first scaled, fully-integrated U.S. service provider.

“We turned in outstanding financial results in the quarter. Our early integration efforts with DIRECTV are going very well and we’ve just begun to scratch the surface on the video, wireless and broadband cross-selling opportunities.

AT&T also revised its outlook for full year 2015, and now expects adjusted EPS of $2.68 to $2.74, and free cash flow of at least $15 billion.

It’s DirecTV’s turn to mock the cable industry over its recent M&A moves aimed at achieving more scale across the board.

DirecTV, now part of AT&T, has launched a humorous ad about the fictitious merger of Cable Corp Inc. and CableWorld, seemingly a jab at the failed Comcast-Time Warner Cable, the pending deal between Charter Communications, TWC and Bright House Networks, or Altice's proposed deals for Suddenlink Communications and Cablevision Systems…or just maybe all of them in one fell swoop.

“We all know that DirecTV’s better at this whole TV thing, so to beat ‘em, we’re going to get bigger, we’re going to merge with CableWorld,” proclaims the Cable Corp. chief, played by Jeffrey Tambor.

 “That company stinks,” another Cable Corp. exec (John Michael Higgins) chimes in later. “And I mean they smell. I used to work there. I had to breathe through my mouth the whole time.”

And then Fred Willard, playing the big cheese at CableWorld, delivers the punchline. Well, we don’t want to blow it…just see it for yourself:

Update: And here's the ad about how things are going at CableWorld, post-merger, which will start airing later this month (other ads in the campaign will also air this fall):

The DirecTV ads, which are revival of the company's “Empty Cable Suit” commercials from 2008 that also featured Higgins, comes in the wake of recent ads from Comcast that jabbed at the AT&T-DirecTV merger and Charter Communications’ anti-satellite TV campaign.

http://www.multichannel.com/news/content/charter-ads-take-jabs-satellite-tv/393896

Comcast’s campaign, which was initially launched in markets such as Chicago, Miami before spreading to other MSO markets and complemented by radio, print and digital ads, starts out: “This is the dawn of an old day, because AT&T and DirecTV are offering yesterday’s technology…today.” Then proceeds to talk up satellite TV’s problems in rainy, windy and even “branchy” conditions.

See it here:

Charter, meanwhile, has enlisted Saturday Night Live alum Kevin Nealon to play Captain Telstar, commander  of the aging Satellite TV Headquarters vessel that launched in 1994:

Who says advertising’s dead? 

Enrique Rodriguez, a former Cisco Systems and Microsoft exec who most recently was with Sirius XM, has been named executive vice president and chief technical officer for AT&T, the company confirmed.

In that role, he’ll oversee both U-verse and DirecTV and help to lead up the technical integration of those services,Variety first reported, noting that former DirecTV CTO Rômulo Pontual left after AT&T closed its merger with DirecTV in July. AT&T also confirmed Pontual's departure. 

Regarding integration, AT&T has tapped Ericsson to help out, selecting the vendor to “enhance” the telco’s TV platform and work with AT&T to evolve its satellite and wireline TV platform. Last month, AT&Tannounced (subscription required) that it would use a derivative of DirecTV’s gateway-client architecture to establish a more uniform, cloud-based video platform for the combined company. AT&T's U-verse platform is currently powered by Ericsson Mediaroom (Ericsson acquired Mediaroom from Microsoft in September 2013). 

Rodriiguez, formerly the EVP of operations, products and connected vehicle at Sirius XM, left in July, and was replaced by James A. Cady.

Before that, Rodriguez ran Cisco’s Service Provider Video Technology Group as SVP and GM, but left in August 2011, about year after taking on that post. He joined Cisco in June 2010 after running Microsoft’s TV, video and music business. Before joining Microsoft in 2003, Rodriguez spent more  than 20 years at Thomson/RCA.

It’s Sprint’s turn to get in on the AT&T-DirecTV action.

Just weeks after AT&T and DirecTV closed their merger and launched a campaign led off by a $200 per month mobile-TV service combo, Sprint has followed up with a promo that offers a free year of service to DirecTV subs who switch to the Overland Park, Kan.-based mobile carrier. 

The offer, which runs from August 28 through September 30, requires that  consumers qualify by uploading a recent DirecTV bill for Sprint’s offer, which includes unlimited voice and text and 2 gigabytes of data per month per line (up to five lines). Then also have the option to visit a Sprint store and verify that they’re eligible by logging on to their DirecTV account.

Customers who take advantage are on the hook for a one-time $36 activation fee and monthly taxes and surcharges, said Sprint, which is also offering to pay off old phone contracts. Sprint’s also offering to buy back current working smartphones for up to $300 per line.

Update: AT&T shot back with this statement: "This ranks right up there with a desperate Hail Mary pass to a petite defensive lineman. With Sprint's network and the many asterisks on this deal, we're feeling good about our offers."

In reviewing most media coverage of AT&T’s $49.5 billion purchase of DirecTV, approved by the FCC late last month, it seems few have seen and discussed the implications of the new company. Indeed, it is a new entity that is truly worthy of respect and, for some, concern.

This new 1,000-pound gorilla in the telecom and media jungles carries a few new and enhanced body parts that none before it could claim. For one, the new AT&T market cap (with DirecTV’s roughly $17.7 billion  market cap included) is $180 billion. This equates to some pretty big (and deep!) pockets. These financial reserves, in turn, can buy and finance many items that DirecTV alone would never have pursued. It can also lose money on a project and still easily write it down, and then readily carry on with something else.

Also, in number terms, the combination of DirecTV’s 20+ million subscribers with AT&T’s nearly six million now makes it – with approximately 26 million video subs -- larger than the other huge player in the jungle, i.e., # 2 Comcast, at 22.3 million subs, by nearly 20%.

But there are several more parts that are worth examining, as well.

DirecTV Latin America

Another of this remarkable new creature’s huge body parts is that of DirecTV Latin America.

Recall that decades ago direct broadcast satellite (DBS) services were commenced competitively in the Southern American Hemisphere, by both News Corp and by DirecTV. Then, in the early part of the current millennium, News Corp (owner of rival Sky Latin America) bought DirecTV and merged the LatAm duopoly into a southern telecom monopoly. That today is called DirecTV Latin America. By itself, DirecTV Latin America is a juggernaut; add the size, scope, history, and seriousness of AT&T, and that juggernaut morphs into something much bigger.

Analysts state that the short-to-medium-term subscriber growth prospects might currently be limited. However, with nearly half a billion sets of potential eyeballs, and current statistics show the 22-country south-of-the-border service with about 17+ mil. subscribers…that’s a lot of upside. Moreover, unlike continents like Africa, Asia, and/or Europe, each with many regional languages and cultures, the southern hemisphere consists almost entirely of Portuguese and Spanish-speaking viewers. That helps plenty with costs and logistics, and especially with program negotiations.

Yaveo

Also linked to the Latin play, DirecTV has created a rather unique over-the-top streaming service that has remained somewhat under the radar. Called Yaveo, it is aimed at bicultural and bilingual Spanish-speaking audiences. Yaveo costs $7.99/month; plus, it is Internet-delivered, which means no satellite hardware and no DirecTV subscription is required.

Partners in the Yaveo venture include not only DirecTV (and now AT&T), but also Spanish-language programming powerhouses (and also rather heavy and powerful jungle gorillas), Televisa and Azteca.

Thus far, the Yaveo line-up of programming includes wide swaths of exclusive-to-the-U.S. shows, including novelas, live sports, music, movies, TV shows, and children’s programming. Many believe the U.S. Spanish audience to be both underserved and concurrently in rather high demand vis-à-vis advertisers.

Quad Play

Another new – and totally pivotal – appendage that many have overlooked is the new AT&T’s first and only true major U.S. quad play of telecom services. AT&T-DirecTV is officially the only creature in the jungle with all four limbs to battle with. Put another way, none of AT&T’s other peers can realistically claim a dominant position in each of the four significant telecom service areas that drive today’s business: land line phone, video, Internet, and mobile. Just look at how badly Charlie Ergen and DISH Network have worked to get into the Internet-wireless business, if you want to measure how important most parts of that quad play still are.

Adds Steve Symonds, managing director of Symonds Associates, and a frequent media and telecom project collaborator with The Carmel Group, “Initially ‘quad play’ was kind of a quaint notion that meant you get all your phone, Internet, mobile, and television services from a telephone company. I doubt anyone ever expected a Baby Bell to outstrip the ‘MVPD Goliaths’ Comcast and TWC in the pay television sector. A Quad Play operator – like the new AT&T-DirecTV -- that is dominant in three of the four sectors, moves the marketplace into unchartered waters.”

National Footprint

The pre-merger AT&T proudly claimed operations in 22 states. That’s a lot of jungle territory. The new AT&T-DirecTV video service claims more than 50 states, with a satellite footprint that extends into Canada, Mexico, and many other foreign jurisdictions. The overall domestic coverage is an important tool for marketing, financing, and software and hardware negotiations. Importantly, with far shallower pockets, and a far slimmer scope of service, DISH Network is the only other network provider with a true national footprint.

Interestingly in this regard, even compared to its next biggest video pay TV rival size wise, i.e., Comcast, not only does the new DirecTV-AT&T have millions more subscribers, but it now offers a much larger service area.

Program Negotiations

Yet another piece of the new force that will become AT&T, is the muscle it flexes when it comes to dealing with other big players in the jungle, such as the big programmers.

This is a biggie!

Being the biggest distributor in the business, with roughly a score and six million subscribers on the video side alone, puts the new AT&T-DirecTV-UVerse into a position where it will, presumably, negotiate the industry’s best deals. It’s almost as though this jungle creature took a weight-lifting class and gained twice, thrice, four times its mass (or more).

Being the biggest market force in this jungle means the best pricing, but as importantly, AT&T will now have superior leverage over every other operator to secure rights for the distribution of top shelf video content for “Internet Television” distribution: TV Everywhere (TVE) and OTT. Those are pending battles yet to be waged by the Dallas, Texas-based folks.

Particularly interesting here will be whether (or, more accurately, when) AT&T uses this leverage to negotiate expanded rights for mobile video distribution of channels that are currently restricted to “living room” TV-type viewing. Prior to the DirecTV acquisition, Comcast was the Multichannel Video Programming Distributor (MVPD) with the “whip hand” to negotiate the most favorable prices and distribution rights. That advantage now shifts to AT&T. But unlike Comcast, AT&T has a huge mobile business and the distribution of video-to-mobile users is the fastest growing segment in media and entertainment today.

In short, this depth, breadth, and scope of distribution gives the new AT&T-DirecTV-UVerse entity unprecedented programming negotiation rights and power.

Symonds also adds here, “As the #1 company in the video business, they actually do have the leverage now to acquire such rights (assuming they are available) on terms and conditions that Verizon would never be able to get (because Verizon is not sending checks to the major programmers each month for 26 million subs).”

OTT/Broadband/Streaming + Mobile Plays

As noted above, being able to envelope and merge the pay TV video side with the mobile and OTT/broadband/streaming elements of the video world may be the single most important gain of AT&T’s entire purchase of DirecTV. This is where the word “synergy” starts to blossom. The only question that appears to remain here: How long will it take before AT&T is able to use its mobile biz to truly grow the business?

Bundles and Outlets

Straight from the AT&T website is this pronouncement from earlier in the year: “The transaction enables the combined company to offer consumers bundles that include video, high-speed broadband and mobile services using all of its sales channels -- AT&T’s 2,300 retail stores and thousands of authorized dealers and agents of both companies nationwide.”

Indeed, last week, just days after the official FCC/DOJ approval of the ATT-DirecTV merger, ATT announced a new bundled package combining video and vide-to mobile.

Summary

All this said, some still seriously doubt the wisdom of Randall Stephenson’s new body building of the corpus corporata known as AT&T.

Recently, an article in Fierce Cable, highlighting a report from Evercore Partners, critiqued the folks in central Texas on the basis of poor strategic answers to OTT/broadband/streaming threats, and overall to an ever-more-competitive overall marketplace.

Further, who among the other creatures out there have to beware, and perhaps go to sleep a bit later, and wake up earlier , because of the new threat?  

Probably first would be AT&T telecom-media peers, such as DISH Network, Comcast, Time Warner, Chart, Cox, and Verizon, as well as the rival cellular carriers Verizon, T-Mobile, and Sprint. Big programmers are another threatened species. Plus, consumer advocates can make strong arguments that allowing all of the leading media-telecom companies these days to think that “merger-to-bigger is the only way to survive,” means the big simply get steadily greedier and less consumer friendly.

Indeed, everyone, welcome to the new jungle.

Jimmy Schaeffler is chairman and CSO of The Carmel Group a Carmel by the Sea, Calif.-based streaming/broadband, broadcast and pay TV/video consultancy; he writes about telecommunications and media.

AT&T’s proposed $48.5 billion acquisition of DirecTV is a step closer to the finish line after the FCC blessed the deal with a host of conditions. 

The FCC announced the approval on Friday, coming  three days after FCC chairman Tom Wheeler confirmed that the order had been circulated for approval.

The FCC said the Order detailing the decision and the conditions for the merger will be issued shortly.

Chairman Tom Wheeler and Commissioners Mignon Clyburn and Jessica Rosenworcel voted in favor of the deal; Commissioner Michael O’Rielly concurred in part, and Commissioner Ajit Pai dissented in part.

The Commission, based on its review, blessed the deal with a host of conditions will generally remain in effect for four years after the deal closes:

-The combined company will be required to expand its deployment of high-speed, fiber optic broadband Internet access service to 12.5 million customer locations as well as Gigabit service to  E-rate eligible schools and libraries. The FTTP component,  the FCC said, “responds to the harm of the loss of a video competitor in areas where AT&T and DirecTV had directly competed before the merger,” creating a “pathway for increased competition from services that rely on broadband Internet to deliver video.”

-AT&T-DirecTV is prohibited from using discriminatory practices to disadvantage online video distribution services and will submit its  Internet interconnection agreements for Commission review. The FCC noted that AT&T is currently the only “major ISP” that uses data caps for fixed broadband (Comcast is testing such policies in select markets), and that the merger “increases the incentive of AT&T-DirecTV to use strategies that limit consumers’ access to online video distribution services in order to favor its own video services.”

On the interconnection issue, the FCC said monitoring is needed to determine whether the combined company is denying or impeding access to its networks in anti-competitive ways.

-The combined company will offer broadband services to low-income consumers at discounted rates.

-The company must also retain an internal company compliance officer and an independent, external compliance officer that will report and monitor the imposed conditions of the merger. 

Following news reports that the AT&T/DirecTV deal approval order had been circulated, Federal Communications Commission chairman Tom Wheeler confirmed the stories and outlined the key conditions in the deal, including disallowing data cap carveouts for affiliated online video services and requiring AT&T to submit interconnection agreements to the FCC for perusal.

In a statement, Wheeler said that the conditions included expanded high-speed broadband buildouts, as well as conditions related to broadband speeds and interconnections. It had been clear from the outset that broadband speed and access issues were key to the deal-vetting.

“An order recommending that the AT&T/DirecTV transaction be approved with conditions has circulated to the Commissioners. The proposed order outlines a number of conditions that will directly benefit consumers by bringing more competition to the broadband marketplace," Wheeler said. "If the conditions are approved by my colleagues, 12.5 million customer locations will have access to a competitive high-speed fiber connection. This additional build-out is about 10 times the size of AT&T’s current fiber-to-the-premise deployment, increases the entire nation’s residential fiber build by more than 40 percent, and more than triples the number of metropolitan areas AT&T has announced plans to serve."

The deal approval has been expected for several weeks, with network neutrality and interconnection-related conditions said to have been part of the holdup.

Wheeler said that AT&T won't be allowed to exempt affiliated fixed broadband video services from data caps and will have to submit its interconnection agreements to the FCC.

Wheeler also said the FCC will require that an independent compliance officer will oversee those and other conditions. "These strong measures will protect consumers, expand high-speed broadband availability, and increase competition.”

EARLIER:Arris Stock Drops on Q2 Warning

Raymond James analyst Simon Leopold kept his “Strong Buy” rating on Arris but tweaked his revenue estimates and stock price target after the supplier of broadband and video gear lowered second quarter guidance due to greater than anticipated "headwinds” caused by industry consolidation and the strengthening U.S. dollar.

“Although we would have preferred better news, we continue to be confident that cable spending remains healthy over the long term, driven by a number of factors including a structural shift in the architecture towards IP and continued traffic growth,” Leopold wrote. “Faster adoption of IP networks would alter ARRIS' mix, driving faster growth of high margin CMTS [cable modem termination system[ offset by slowing low margin STB [set-top box] sales. We see long-term sales growth of 3-6% and expect the company to provide strong cash flow and likely delever and buy back shares.

Leopold recently trimmed his estimates on Arris due to expected lumpiness in customer spending driven by ongoing consolidation (Charter’s proposed acquisitions of Time Warner Cable and Bright House Networks; and the pending AT&T-DirecTV merger), and did so again following the company’s Q2 warning issued late last week. Arris now forecasts sales of $1.25 billion to $1.26 billion, below prior guidance for $1,27 billion to $1.31 billion, with non-GAAP earnings per share of $0.51-0.55, off from prior guidance of $0.53-0.58.

Raymond James is now forecasting 2015 sales of $5.13 billion to $5.22 billion, with EPS of $2.40, from $2.52. The firm also lowered its price target from $43, to $42, “which still offers significant upside potential.”

Leopold also noted that Arris shares still reflect uncertainty with respect to the proposed merger of Arris and Pace plc. “The market values Pace shares about 8% below the implied offer,” he wrote. “We believe the deal gains approval and provides at least $0.45 of EPS accretion.”

The word Friday from a host of industry sources tracking government vetting of the $48.5 billion merger between AT&T and DirecTV is expected to get the green light from the FCC and the Department of Justice soon, with negotiations over deal conditions wrapping up and a decision coming likely within "days" or at most a couple of weeks.

While it's never over until it's over, multiple sources said the deal would be approved, perhaps as early as next week.

The proposed merger never drew the kind of pushback from anti-consolidation activists that the failed Comcast/TWC merger did.

The FCC stopped its informal shot clock on the deal and is not expected to restart it until it is about ready to decide.

The clock is currently on day 170, though the deal has had months of stoppage time while the FCC collected more documents and waited for a court decision on third-party access to contracts.

The deal was actually struck in May 2014, but after the document and court delays on the deal vetting, the companies moved their break-up trigger from May to August.

The merged AT&T-DirecTV entity will almost certainly have to abide by net neutrality conditions. Likely they will have to adhere to the three bright-line rules against blocking, throttling and paid prioritization, and perhaps agree to fair and reasonable interconnection deals rather than having to swear allegiance to the Title II regime, though one industry attorney thought the optics of getting a major ISP to commit to Title II might be tempting for the commission.

AT&T and other ISPs who have sued the FCC over Title II reclassification have said they are not challenging those bright-line rules, just the way the FCC arrived at them.

The FCC has yet to restart its informal 180-day shot clock on the AT&T-DirecTV merger.

It stopped the clock on March 13 in day 170 of that review, saying it was doing so to give a federal court the chance to rule on the FCC's decision to make programming contract information in the deal available to third parties, a move challenged by programmers though not AT&T or DirecTV.

"At this time, we believe it is prudent to pause the informal 180-day transaction clocks because the Commission would be advantaged by knowing the resolution of the pending Petition for Review before the transaction clocks reach the 180-day mark," the FCC said in announcing the stoppage.

It has been over a week since a three-judge panel of the court unanimously rejected the FCC decision for insufficient justification, but the FCC could theoretically appeal the decision to the full court if it chose.

The FCC may just be trying to collect more input on possible conditions on the deal, many have been offered up in the docket, before restarting the clock so it is closer to being done when the clock strikes 180 days. That is only an informal target, however, and has been honored in the breach as well as the observance (Comcast-TWC was in day 234 when the clock was stopped and the Sinclair/Allbritton station deal took 327 days).

The FCC pointed out in stopping the clock that it "reserves the right to restart the clock as it believes will best serve the public interest and it intends to provide further guidance as it becomes appropriate."

FCC spokespeople were unavailable to provide any guidance at press time.

Dish and Cogent have teamed with Public Knowledge, Free Press and the New America Foundation to ask the FCC for a laundry list of broadband conditions, including network neutrality, on the proposed AT&T-DirecTV merger tied primarily to what they say would be the combined companies incentive and ability to "thwart" over-the-top video.

They point out that the deal has been pitched as allowing the combined company to offer an integrated package of broadband and video (which AT&T and DirecTV point out would make them a stronger competitor to Comcast, Time Warner Cable and other players), and say their asks are the "minimum" the FCC must do to resolve potential competitive harms if it decides to approve the deal.

They want the combined company to agree to adhere to new Title II-based open Internet rules for seven years no matter what happens in court, similar to the condition agreed to by Comcast in the NBCU deal, and which Comcast would likely have agreed to in the Time Warner Cable merger that was withdrawn.

Among the other conditions they say would be necessary on such a deal include 1) offering stand-along broadband, of speeds of at least the FCC's new 25 Mbps benchmark (or more if the FCC raises the stakes) for high speed where possible— at a set price of $29.95 for seven years; 2) agreeing not to exempt any video services from any usage-based pricing; 3) and nondiscriminatory bill and keep (free interchange of traffic) interconnections, with AT&T agreeing to upgrade its ports to avoid congestion or package loss at certain capacity thresholds.

Reports have the FCC and Justice nearing the end of their vetting process, and has always been considered an easier ask than Comcast-TWC. Some strong opponents of the Comcast-TWC deal — Sen. Al Franken (D-Minn.), for example — have declined to weigh in squarely against the AT&T-DirecTV deal, saying only they have concerns, with some offering conditions.

One thing that could please regulators looking for broadband buildouts at higher speeds is AT&T's promise to extend fiber and speeds of up to 1 Gbps to millions more customers.

Netflix has told the FCC not to approve the AT&T-DirecTV merger as it is currently constituted, saying the new company would have the incentive and ability to slow competing over-the-top video offerings and unbundled offerings.

In a letter to the FCC dated Monday (May 4), Netflix counsel Markham Erickson pointed in part to the collapse of the Comcast-Time Warner Cable deal, saying that now made a potential AT&T-DirecTV the "largest multichannel video programming distributor" in the country, and possibly largest broadband provider given "projected" AT&T broadband investments.

"AT&T already has a demonstrated ability to harm OVDs by leveraging its control over interconnection to degrade its own customers' access to Netflix's service," Netflix told the FCC. "Comcast degraded Netflix's service in late 2013 and early 2014.  AT&T presumably could have used this episode to take customers from Comcast. Instead it engaged in a similar long-term degradation of its customers' access to Netflix," said the company. Comcast has disputed that characterization.

"AT&T also has shown an interest in using data caps and usage-based pricing methods, which it can apply discriminatorily to advantage its own services," Netflix said. "If AT&T is able to slow the development of the OVD industry, either by foreclosing access to broadband customers or imposing discriminatory data caps, AT&T would be able to preserve its market advantage by slowing or even reversing the shift toward competitive online video offering and away from bundled video/broadband offerings."

AT&T declined comment, but said in its own filing to the FCC last month:

"[I]t is clear that this transaction creates no economic incentive for the merged firm to harm OVDs. While Netflix mischaracterize[s] their commercial peering disputes as evidence of such an incentive, the record does not support those claims."

"As one network analyst has explained, 'Netflix chose to create, and use paths that [it] knew were congested, simply because they were cheaper than using paths that were less congested. This strategy apparently overwhelmed Netflix's chosen low price providers, causing congestion and impacting service quality for its customers," AT&T said.

Netflix has already told the FCC what conditions the deal would need to make it approvable, notably allowing it to charge for interconnection and excepting any AT&T service from fixed or mobile data caps.

AT&T U-verse added subs in the TV and broadband categories in the first quarter of 2015, but at a slower rate than the year-ago, numbers that were partially affected by the sale of AT&T’s Connecticut wireline operations to Frontier Communications, which wrapped in October 2014.

AT&T said it added 440,000 U-verse Internet customers in Q1, extending that total to 12.6 million, but below the 634,000 subs it added in the category a year earlier.

On the video side, AT&T tacked on 50,000 U-verse TV subs in Q1, versus 201,000 adds in the year-ago quarter.

U-verse TV penetration at the end of Q1 was 22%, while U-verse broadband penetration was 21%.

AT&T pulled in U-verse residential revenues of $5.7 billion in Q1, noting that U-verse (high speed Internet, TV and voice over IP) now represents 69% of the company’s wireline consumer revenues, up from 59 percent in the year-ago period.

AT&T also noted that it expects to gain final approval of its proposed DirecTV merger in the second quarter of 2015.

“We expect the DirecTV transaction will close this quarter,” John Stephens, AT&T’s CFO and SVP, said on Wednesday’s earnings call. He expressed confidence that the combo of AT&T and DirecTV will exceed their original $1.6 billion in expected cost synergies, now seeing them exceed a $2.5 billion run rate by year three.

Stephens attributed that improved view in part to efficiency opportunities such as combining broadband and video installs on one truck roll, getting customers on a single bill and the utilization of a unified customer care operation, getting better pricing on set-tops and other equipment, and combined advertising.

Those cost-savings, he said. “will build starting in 2015, but build really in 2016, and…move toward significant amounts in 2017.”

Stephens appeared unworried about competition posed by Google’s new Project Fi, which will use WiFi and Sprint’s and T-Mobile’s 4G networks to deliver services initially to one device, the Motorola Nexus 6, and start at $20 per month.

“It’s got a very limited number of devices,” Stephens said. “That's not generally the way we like to present options to customers. We like to provide a lot…My understanding also is that there's going to be very limited distribution and customer care.” 

Cox executives met with FCC officials this week to hammer home their point that the proposed AT&T/DirecTV poses threats to competition and should only be granted if the FCC addresses that anticompetitive potential through targeted conditions, including holding them to the same basic service tier requirements that apply to cable ops.

Citing a "troubling and unprecedented combination of wireline, wireless, and satellite assets," Cox said that the deal would need "narrow conditions" but also "strict limits" on the combined company's ability to "use its nationwide scale and massive size to engage in unfair competitive practices."

Those conditions would include removing some of the regulatory advantages Cox says AT&T and DirecTV have enjoyed as "putative upstart competitors to established rivals."

Read more at B&C. 

Arris posted solid third quarter results Wednesday, but paired that with weaker-than-expected guidance for the fourth quarter as the supplier braces for slower spending among some telco and cable customers and potential challenges linked to ongoing operator consolidation.

Arris posted earnings of 81 cents per share on revenues of $1.4 billion, up 32% year-over-year, beating Wall Street’s expected earnings of 72 cents per share on revenues of $1.39 billion. Looking ahead, Arris said it expects fourth quarter sales in the range of $1.23 billion to $1.27 billion, with earnings in the range of 58 cents to 63 cents per share, versus an expected $1.33 billion and 62 cents.

Analysts took that in stride, as Raymond James analyst Simon Leopold maintained his “Strong Buy” rating, and National Alliance Securities analyst Bryan Coyne reiterated his “Buy” ranking on the stock.

Despite the weaker guidance, “[w]e argue that this presents an opportunity for investors waiting for an entry point because a favorable mix shift enables it to deliver good earnings in 2015,” Leopold wrote.

“As surprising and deep as the Q4 guidance miss was, we believe its release lifts a major overhang on the stock, allowing investors to turn their focus on growth catalyst following carrier M&A,” Coyne wrote.

Arris announced that four customers represented greater than 10% of revenues in the third quarter, but no longer identifies them. Along with Comcast and Time Warner Cable, other operators that have historically been in this 10%-or-greater group include Charter Communications, AT&T and Verizon Communications.

While weak spending by AT&T, which is in the process of merging with DirecTV, “should not come as a surprise,” progress by Pace in the U.S. market “is an issue in the near term,” Leopold noted. “We are not as concerned about a pause when Comcast, Time Warner, and Charter eventually complete their transaction.”

Banking On DOCSIS 3.1

Despite the expected Q4 hiccup, Arris said it remains bullish about the future.

“Once we get through the upcoming industry M&A activities, I believe we'll see a robust increase in capital spending,” Arris chairman and CEO Bob Stanzione said on Wednesday’s earnings call, adding later: “There's still considerable investment going on in the network. But I believe that spending will accelerate once all these things settle down.”

One area the company is banking on is DOCSIS 3.1, the emerging platform that will enable operators to deliver multi-gigabit speeds on their HFC networks. Arris, which demonstrated D3.1-based capabilities at the recent SCTE Cable-Tec Expo, expects product trials to be underway by next summer.

“But we think that 2016 is really where we start to see the volume,” Bruce McClelland, president of Arris’s Network & Cloud and Global Services unit, said.

“It's important to note that we believe DOCSIS 3.1 will result in another wave of upgrades across both the network and the homes,” Stanzione said.

During the third quarter, Arris said cable modem termination system (CMTS) shipments hit record levels, aided by a 33% increase in downstream channels versus the second quarter.

Set-top box unit volumes were up 27% year-over-year, with Arris recently eclipsing a shipment milestone of 1 million video gateways, which includes the DCX3600 device that TWC is starting to offer in New York City and Los Angeles.

The FCC's Media Bureau has stopped the clock on both the AT&T/DirecTV and the Comcast/Time Warner Cable merger reviews, citing a series of objections filed by content companies who don't want their contracts accessed by third parties.

The FCC modified the joint protective orders in the deals earlier to try and accommodate those content companies, which included CBS, Scripps Networks Interactive, Disney, Time Warner, Twenty First Century Fox, Univision and Viacom.

They had asked that contracts be reviewed at Justice, not the FCC, but the Commission denied that request and modified the order to add what it said were a unique combination of protections to exclude "competitive decisionmakers" from accessing the information.

On October 15, the companies, joined by Discovery and TV One, began challenging individually all those who sought to review highly confidential info, including those video programming contracts, under the FCC's modified order.

The bureau says most of those objections were not specific to the individual requests--more than 100 of them--but were instead a blanket effort to prevent any access to carriage deals.

Some commenters have accused the companies of trying to nullify the protective order by filing the multiple objections and say not having access to the contracts would hamper their evaluations of the applications.

The bureau said it agreed, and has stopped the informal 180-day shot clock on the review of both deals and suspended the pleading cycle until it rules on the programmer objections.

After that it will issue a new pleading cycle. The bureau took the action on delegated authority, which means the commissioners did not vote.

The FCC stopped the clock on Comcast/TWC earlier this month to get more info from the company.

"As we noted previously, it is routine for the FCC to pause the review of significant transactions as it works to create a full record," said Sena Fitzmaurice, Comcast VP, government communications, in a statement. "The Commission is working to hear the concerns of various parties. In the meantime, review of information and evidence already in the docket will continue.  We are confident that the Commission will quickly resolve these issues while continuing its work so that review will be completed in early 2015."

"The FCC’s decision to stop the clock has nothing to do with the merits of our deal or the information we’ve provided them on the significant public interest benefits," said an AT&T spokesman. "As the FCC’s order makes clear, this relates to content companies’ concerns about the confidentiality of the information they provide the FCC.

"We’re confident in the FCC’s rigorous procedures for keeping information confidential and we’re ready to provide them with the information they have requested.

"The FCC stopping the clock on merger reviews is fairly common and today’s decision does not change our expectation to close our deal in the first half of 2015."

Less than a week before it announced its $67 billion merger with AT&T, DirecTV continued to hold talks with an undisclosed competitor, according to documents filed with the Securities and Exchange Commission Tuesday.

DirecTV first held talks with the competitor, identified only as Company A, back in 2011, but broke off discussions in September of that year without an offer being made. DirecTV chairman Mike White and his counterpart at Company A met briefly when both attended a conference in Washington D.C, in December of 2013, discussing operational challenges and the potential for a combination. Those talks heated up in February 2014, in the wake of Comcast’s announcement that it would buy Time Warner Cable in a deal valued at about $69 billion in stock and assumed debt.

DirecTV and Company A continued to hold discussions at a dinner meeting the evening of the Comcast/TWC announcement, with the DirecTV board requesting further information on Company A’s spectrum holdings, its strategic alternatives and further analysis into the likelihood of receiving regulatory approval for a deal.

While Company A was not identified in the SEC filings, Dish Network chairman Charlie Ergen was said to have contacted White about merger possibilities shortly after the Comcast/TWC deal was announced, according to several published reports. Dish also owns a large swath of wireless spectrum, which it plans to use for a wireless broadband service.

In March, while it was still holding preliminary discussions with Company A, White had a brief meeting with AT&T CEO Randall Stephenson while both were attending an unrelated Washington D.C. conference, where the possibility of a merger was brought up.

In the meantime, DirecTV and Company A began assessing regulatory options concerning a possible deal, while at the same time holding talks with AT&T officials. On April 22, AT&T made a preliminary offer for DirecTV for $85 per share, which the satellite company rejected as too low. On April 29, White advised Stephenson that stockholders would need a price in the mid-$90 per share range. Five days  later on May 4, Stephenson said AT&T would increase its proposed price to between $93 and $95 per share, subject to other terms and separate due diligence of DirecTV’s Latin American operations. White, according to the SEC filing, told Stephenson that a price below $95 per share likely would not be accepted by his board.

By May 12, Company A had dropped out of the picture – it said the relative price levels of both companies made a deal a “non-starter,” according to the SEC filing – and less than a week later AT&T almost blew the deal by offering too low a price.

According to the filing, AT&T increased its offer to $93.50 per share on May 16, after which DirecTV told its advisors to cease contact with AT&T and to terminate the telco’s access to its due diligence data room. Shortly after, Stephenson contacted White, telling him the ante had been raised to $95 per share. The deal was announced on May 18.