AT&T Renews Interest in EchoStar
Echostar is up $8.92, more than 22 percent, to $48.75 in early afternoon trading. AT&T's stock is down $1.75, about 4.4 percent, to $37.80.
Barron's reports that AT&T's interest in its TV service partner was rekindled after EchoStar's stock fell 24 percent during the last month, giving the satellite TV company a more attractive valuation. (See AT&T Hits Homezone.)
On Friday, Citigroup upgraded EchoStar from Hold to Buy based on the valuation, noting there is now, in its view, a 65 percent chance that a deal would get done in the next 12 months.
AT&T is believed to have previously put forward a $55 per share bid for EchoStar, with the satellite firm holding out for $65. (See AT&T-EchoStar Rumor Returns .)
Both parties are thought to be anxious to seal a deal before the U.S. Presidential election, as there is concern that the election of a Democratic president would likely increase the regulatory scrutiny on such mega-mergers.
AT&T's interest in buying a satellite company raises a number of questions about the state of its IPTV service, U-verse. While it is currently adding U-verse subscribers at a healthy rate, AT&T has faced numerous deployment setbacks and criticism over whether it has enough bandwidth to keep up with future demand. (See Carrier Scorecard: Ma Bell Mania and AT&T Readjusts U-verse Forecast .)
AT&T currently resells EchoStar satellite TV service in areas where U-verse is not available, raising a question, perhaps, about the carrier's confidence in the long-term viability of the new fiber-delivered service.
AT&T would not comment on the situation, saying only that it is "very happy with how U-verse is performing."
Regardless of U-verse uptake, there is logic for a marriage between the two companies. "U-verse is going to take a while to build out, and even then it will leave a lot uncovered," says Heavy Reading senior analyst Alan Breznick. EchoStar would give AT&T "the whole country in one fell swoop."
Additionally, with EchoStar's recently announced VIP TV headend service, AT&T could also deliver content to any video provider in the country, including itself, according to Breznick. (See EchoStar's IPTV Play.)
Buying EchoStar would also give AT&T greater control over an existing joint service bundle, called Homezone, that is currently not performing to expectations. Homezone, which combines EchoStar's DISH Network TV service with high-speed Internet and wireless gateway features, hasn't met with much customer demand, and, according to one analyst, who requested anonymity, is actually losing subscribers.
An AT&T acquisition would also raise questions about EchoStar's relationships with small rural carriers such as Windstream Communications Inc. (Nasdaq: WIN) that rely on the satellite TV provider to bring video to their subscribers. Would AT&T ownership have any effect on those channels?
"A lot of the ad revenues for DISH come from these carrier relationships," says UBS AG analyst Guarav Jaitly. "I don't see why AT&T would not want to [continue with] those contracts unless they really developed a solid out-of-region strategy, in which case there could be some risks."
— Raymond McConville, Reporter, Light Reading