AT&T is all set to acquire Time Warner for $US85.4 billion in a deal that will lead the next wave innovation for the combined entity, as the phone company transforms into a media giant.

The deal is expected to close before year-end 2017, with AT&T chief executive Randall Stephenson to head the new business (subject to review by the US Justice Department and approval from Time Warner shareholders.

The companies believe the synergies that will result from the transaction will disrupt the traditional entertainment model and push the boundaries on mobile content availability for the benefit of customers.

The new company hopes to become the first US mobile provider to compete nationwide with cable companies in the provision of bundled mobile, broadband and video.

In the statement released on the merger, the companies said the deal combines Time Warner’s vast content library and ability to create new content that connects with global audiences with AT&T’s extensive customer relationships, world’s largest pay TV subscriber base and leading scale in TV, mobile and broadband distribution.

AT&T said the new company is positioned to create new customer choices — from content creation and distribution to a mobile-first experience that is personal and social.

The merger is set to deliver more innovation with new forms of original content built for mobile and social, which builds on Time Warner’s HBO Now and the upcoming launch of AT&T’s OTT offering DIRECTV NOW, according to the statement.

By owning content, AT&T believes it will also be able to innovate on new advertising options. It will create a two-sided business model – advertising and subscription-based – that will help pay for the cost of content creation and provide customers with the largest amount of premium content at best value.

“It’s an integrated approach, and we believe it’s the model that wins over time,” Stephenson said.

“With great content, you can build truly differentiated video services, whether it’s traditional TV, OTT or mobile.

“Our TV, mobile and broadband distribution and direct customer relationships provide unique insights from which we can offer addressable advertising and better tailor content.”

Stephenson said the combined company would solve a big customer pain point by giving them enhanced access to premium content on all their devices and providing a new stronger competitive alternative to cable TV companies.

The AT&T-Time Warner deal is the latest media and telecom merger, and comes after mobile carrier Vodafone merged with Sky TV NZ in June this year, Verizon’s acquisition of AOL in 2015, and Comcast’s merger with NBC in 2011.

It follows the now familiar pattern of the big telecom-internet providers acquiring content rather than just delivering it, in an attempt to reclaim market share as customers cut the cable TV cord in favour for streaming services like Netflix, Stan, Hulu, and YouTube.

The strategic deterioration for cable TV operators globally is based on declining subscriber numbers, downward pressure on existing subscriber pricing, and the increasing competition for content driving content prices up.

This merger is yet another signal that cable TV’s competitive position has been eroded by the increased consumer uptake for OTT video-on-demand services delivered via high-speed broadband internet.