AT&T Deal Could Spur Cable Buys
According to UBS Research analyst Aryeh B. Bourkoff, in a note sent to clients on Sunday, the war to be the preeminent full service communications company was stepped up considerably with the AT&T/BellSouth announcement Sunday afternoon.
"As the telcos become increasingly consolidated, we view Comcast Corp. (Nasdaq: CMCSA, CMCSK), Verizon Communications Inc. (NYSE: VZ), AT&T, and Time Warner Cable Inc. (NYSE: TWC) as the leaders among the full-service U.S. communications players, Bourkoff writes. "However, as the smallest of the four, TWC could be poised to spark a wave of consolidation in the cable sector, and we believe potential candidates include Cablevision and Insight Communications."
Bourkoff writes that as soon as Time Warner Cable finishes its purchase of part of Adelphia's assets, the company will be publicly traded and "could be in an acquisitive position." The $17.6 billion sale of Adelphia's assets by Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable are expected to close in the second quarter.
But cable consolidation isn't going to be the only immediate change in the competitive landscape following a combination of AT&T and BellSouth. Satellite TV providers will also find themselves in a predicament – especially DirecTV Group Inc. (NYSE: DTV)
"We believe that this announcement is fundamentally more of a positive for EchoStar, while somewhat negative for DirecTV," Bourkoff writes in his Sunday note to clients. He points out that EchoStar Satellite LLC 's DISH Network has a deal with AT&T, while BellSouth -– along with Verizon and Qwest Communications International Inc. (NYSE: Q) –- have deals with DirecTV.
Both satellite providers run some risk of being a stopgap until the RBOCs figure out a way to deliver TV services across their own networks. (See SBC Disses the Dish.) But as AT&T is the lead dog in its merger with BellSouth, DISH seems the early favorite to benefit more.
Bourkoff writes that as many as "50% of DTV's [DirecTV's] net sub adds over the next 3 years are estimated to originate from the Telco partnerships." He adds, "We believe there could be downside pressure to DTV sub growth targets, in the likely event that the BLS/DTV migrates to the broader AT&T/DISH deal."
Time Warner Cable and DirecTV officials weren't immediately available for comment.
— Phil Harvey, News Editor, Light Reading