AT&T Inc. (NYSE:T), the second largest wireless carrier in the United States contacted DIRECTV (NASDAQ:DTV) regarding the possibility of entering an acquisition agreement, according to report from Wall Street Journal based on information from people with knowledge about the matter.

AT&T

Potential acquisition price

The report indicated that a transaction between the wireless carrier and the satellite TV service provider will likely worth $40 billion. DIRECTV (NASDAQ:DTV) currently has a market capitalization of approximately $39.5 billion while AT&T Inc. (NYSE:T) has around$185. 5 market cap.

DIRECTV is the second leading satellite TV service provider in the United States with approximately 20 million customers. AT&T Inc. (NYSE:T) is currently offering a landline-based TV service with around 5.7 million customers.

Combining the company will create a huge pay television service with nearly 26 million customers, which is nearly similar to the size of Comcast Corporation (NASDAQ:CMCSA) when combined with Time Warner Cable Inc (NYSE:TWC). Comcast’s proposal to acquire Time Warner Cable is still in the process of getting regulatory approvals.

DIRECTV open to a deal

According to one of the sources of the Wall Street Journal, DIRECTV (NASDAQ:DTV) is open to a potential transaction, but it uncertain whether it has a serious negotiation with AT&T Inc. (NYSE:T).

The players in the U.S. satellite TV industry are facing challenges particularly in increasing its subscribers. The industry is already mature and around 90% of households in the country are already cable or satellite TV, or phone company-delivered television service subscribers. Another challenge confronting satellite TV service providers is their lack of competitiveness in terms of providing a fast and reliable internet access

AT&T mulls acquisition for years

For years, there had been speculations that AT&T Inc. (NYSE:T) is interested in acquiring a satellite television service provider to expand its business. Acquiring DIRECTV (NASDAQ:DTV) will allow AT&T to bundle its wireless and TV services, and deliver video to its mobile and broadband customers in new ways.

AT&T Inc. (NYSE:T) has an existing partnership with DIRECTV (NASDAQ:DTV) in certain areas to offer its broadband service only. Many believed that a merger between the companies will definitely face tough regulatory scrutiny. More than ten years ago, DIRECTV and DISH Network Corp (NASDAQ:DISH) tried to merge, but it was rejected by regulators.