Adding to a trend of mergers between telecom and video providers, T-Mobile US Inc. intends to purchase internet TV company Layer3 TV Inc. While few details are available about an offering from the companies that T-Mobile CEO John Legere promises would "bring together the best of home and mobile" video, experts generally expect a highly competitive strategy from the combined entity.
The move will see T-Mobile join a growing internet TV space, directly challenging integrated offerings from AT&T Inc., namely its DIRECTV NOW digital platform, as well as platforms like DISH Network Corp.'s Sling TV and Alphabet Inc.'s YouTube TV.
T-Mobile's best chance to get a foothold in digital TV was to buy an establish operator like Layer3, which has existing relationships with essentially "every major cable and broadcast channel," SunTrust Robinson Humphrey analyst Greg Miller said in a Dec. 13 note on the deal. For Layer3, the deal provides a vertical boost into mobile operations.
The CEO of digital TV network operator Zone TV and former AT&T executive Jeff Weber said Layer3 will certainly benefit from being a part of a corporation that can bring its own customer base, marketing clout and new distribution opportunities. Meanwhile, for T-Mobile, "aggregators matter," Weber said, adding that a video strategy is much more likely to succeed if it includes a platform for aggregation like Layer3's product.
Weber went a step farther to speculate that DISH could combine with the beefed-up T-Mobile. Such a deal would potentially add scale to the Layer3 platform, in traditional and digital TV. Further, DISH's massive spectrum holdings would allow T-Mobile to grow its carrier and mobile content businesses.
"What we're seeing is a lot of vertical mergers where these big conglomerates want to have a wireline network, a wireless network, and they also want to have their own content," Kagan analyst Ian Olgeirson said in an interview. AT&T's integration of DIRECTV and the addition of DIRECTV NOW and its move to buy Time Warner Inc. are clear examples of the trend, he said.
AT&T agreed in October 2016 to purchase programmer Time Warner in a cash-and-stock deal with a total transaction value of more than $100 billion, including Time Warner's net debt.
While Layer3 does not bring content directly into the T-Mobile business like the Time Warner deal, its catalog of content distribution partnerships is not dissimilar to DIRECTV, which brought its own catalog of content relationships to carrier AT&T.
The existing content deals helped DIRECTV's platform grow faster than some of the other digital TV platforms. Recently, DIRECTV NOW reached 1 million subscribers. But more than just its range of content, it achieved that milestone through promoting the service "aggressively," Olgeirson said, even potentially at the expense of its other lines of business, such as its fiber TV service U-verse.
Both T-Mobile and Layer3 declined to comment.
