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What FCC approval of AT&T-DirecTV means for bond investors?

Posted July 25th, 2015 in AT&T and tagged , by Alton Drew

We saw a big regulatory event last week when the Federal Communications Commission approved DirecTV’s request to transfer its spectrum licenses to AT&T, clearing the path to AT&T’s acquisition of the satellite service provider.  For debt holders their concern may be how does approval impact yields on the bonds that they hold.

Consolidation in the telecommunications industry may cause event risks to run high where that risks is an increase in the debt burden of the company doing the acquiring.[1]  The telecom industry is plagued right now with declining consumer spending, falling profits, rising expenses, and heavy debt loads.[2]

AT&T will assume $18 billion of DirecTV’s debt.[3] In light of the impact on debt consolidation may have in the telecommunications industry, investors may be happy with the FCC’s decision because of the increase in earnings AT&T is expected to enjoy as a result of enhanced video offerings and reduced programming costs. [4]

1. Harper, David. “Corporate Bonds: An Introduction to Credit Risk.” Investopedia.

2. Sorensen, Brad. “Telecommunications Sector Rating: Underperform.” Charles Schwab. 11 June 2015.

3. Lindenberger, Michael A. and Gary Jacobson. “FCC Approves AT&T Merger with DirecTV, with Conditions.” Dallas Morning News. 24 July 2015.

4. Zack’s Equity Research. “AT&T (T) Q2 Earnings Beat as Wireless Subscribers Increase.” 24 July 2015.

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Al Franken up in arms about the false concept of competition

Posted July 22nd, 2015 in Department of Justice, economy, edge providers, Facebook, Government Regulation and tagged , by Alton Drew

Multichannel News‘ John Eggleton today reported that Senator Al Franken, Democrat of Minnesota, is up-in-arms about Apple’s streaming service.  He believes that Apple is preventing competitors to its streaming service from communicating with consumers about similar streaming products.  According to the Multichannel News:

“Apple’s licensing agreements have prevented companies from using their apps to inform users that lower prices are available through their own websites, to advertise the availability of promotional discounts, or to complete a transaction directly with a consumer within their app,” he said. “These types of restrictions seem to offer no competitive benefit and may actually undermine the competitive process, to the detriment of consumers, who may end up paying substantially more than the current market price point.”

Subject to check, if the alleged snub is the result of a licensing agreement, then tough cookies for the app developers.  They didn’t have to sign the agreements. If terms agreed upon included a “no informing customers of your service because we are afraid of the competition clause, then the app developers are obligated to follow the agreement.

I’ve discussed before how unnerving the “it’s not fair. I can’t compete” argument is.  Unless you are admitting that consumers are pieces of capital just like land, labor, and air is, then competition for consumers needs to be a mantra that goes the way of the dodo bird.  Competing for the finite resources that go into making products for end-user consumption is a valid argument.  You need financial capital in order to purchase the labor and land resources necessary for creating and distributing a product so pushing against the bottlenecks to these resources is expected.

Applying the argument to end-users gets no points with me, however.  If your product is whacked and you can’t convince the consumer to buy it in an open market as we have here in the United States, then belly-aching how unfair it is that you can’t sell said product is noise wasted on closed ears.  America’s antitrust concept is weak for this reason.  No one is guaranteed success in our economic environment.