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AT&T Breaking DISHes

Michael Harris
Michael Harris

In a June 17 Securities and Exchange Commission (SEC) 8-K filing satellite TV player Dish Network LLC (Nasdaq: DISH) reported that AT&T Inc. (NYSE: T) is requiring the satco to pay back a $500 million note, plus interest, rather than convert the debt to equity. The note is held by Gateway Rivers Insurance Company, a "captive" insurance subsidiary of AT&T.

The Dish note could have been converted to "DISH" stock on July 21, 2010, at a price of $60.25 per share, double the stock's current trading price. Not exactly an attractive option. AT&T initially made the investment in Dish Network when it inked a satellite distribution deal with the company in 2003.

In a research note this week, Sanford C. Bernstein & Co. Inc. analyst Craig Moffett concluded:

    The announcement throws yet more cold water on the lingering speculation that AT&T may soon acquire DISH Network. Publicly exercising a put option and unwinding a financial interest is more akin to beginning divorce proceedings than it is to the start of a mating dance.

    The big winner here is DirecTV, which now finds itself on an equal footing with Dish in its effort to "win back" the AT&T distribution arrangement in BellSouth at the end of this year (and with it, the distribution agreement in the larger legacy SBC markets as well)... Conversely, DISH Network is doubly the loser here, inasmuch as the announcement not only further dampens M&A speculation, but also materially increases the risk that DISH now loses not only the BellSouth relationship, but also the rest of the AT&T relationship as well.

Nothing more fun than seeing John Malone emerge as a telco video buddy.

Moffett further notes:

    If AT&T were to consolidate its relationship around DirecTV... then DirecTV would have a clean sweep of the RBOC relationships, as it would then have exclusives with AT&T, Verizon and Qwest. Conversely, Dish Network would be left with relationships only with a handful of smaller rural TelCos... at a time when it is already lagging badly behind DirecTV in gross addition share.

Ouch. Maybe DISH's sister company will have better luck selling Slingboxes to Ma Bell. (See Slingin' Hash.)

It could be that AT&T is eager to have another half-billion to spend on deploying its own U-verse IPTV service.

— Michael Harris, Chief Analyst, Cable Digital News

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