AT&T Inc. said it would buy DirecTV for $48.5 billion in cash and stock, or $95 per share, priming itself for the age of Internet-delivered video.
While DirecTV doesn't help the telecom company compete in the online video space immediately, cost savings from the merger and the extra cash flow will improve its ability to compete with the cable giant that would be formed by Comcast Corp.'s proposed $45 billion takeover of Time Warner Cable.
AT&T is already the largest mobile service provider in the U.S.
''What it does is it gives us the pieces to fulfill a vision we've had for a couple of years - the ability to take premium content and deliver it across multiple points: your smartphone, tablet, television or laptop,'' AT&T's Chairman and CEO Randall Stephenson said on a conference call with journalists Sunday.
But the deal could face unique regulatory scrutiny from the Federal Communications Commission and Department of Justice. Unlike the cable company tie-up, the AT&T-DirecTV merger would effectively cut the number of video providers from four to three for about 25 percent of U.S. households.
Cable companies operate in regions that don't overlap, but in comparison, AT&T provides TV service to 22 states, where it is a direct competitor to DirecTV, which is nationwide. Reducing choice in those markets could result in higher prices for consumers, and that usually gives regulators cause for concern.
The deal is also subject to regulatory approval in Latin America, where DirecTV has more than 18 million customers. To facilitate approval there, AT&T said it will divest its interest in wireless provider America Movil.
AT&T and DirecTV expect the deal to close within 12 months.
Analysts have questioned the strategic benefits of a deal, particularly because it would give AT&T a larger presence in the mature market for pay TV.
Last year, pay TV subscribers in the U.S. fell for the first time, dipping 0.1 percent to 94.6 million, according to Leichtman Research Group.
While AT&T and DirecTV are doing better than cable companies at attracting TV subscribers, DirecTV's growth in the U.S. has stalled while AT&T is growing the fastest of any TV provider.