DirecTV Could Win Big at AT&T
DirecTV "is now increasingly likely to supplant Dish as AT&T's DBS partner," Sanford C. Bernstein & Co. Inc. analyst Craig Moffett predicted in a note issued Tuesday afternoon. "AT&T has indicated that the termination is 'procedural' in nature. A six-month notice of termination was required under the contract in order to reopen renegotiations between Dish and AT&T, and presumably, DirecTV and AT&T as well."
With negotiation leverage clearly in hand, AT&T isn't closing the door on satellite TV. "We continue to discuss options with DISH," AT&T said in a statement.
AT&T is also pushing ahead aggressively with its own IPTV video service, U-verse. AT&T added 148,000 U-verse subs in the first quarter, giving it a total of 379,000. The telco anticipates signing up more than 1 million U-verse customers by the end of 2008. U-verse presently passes about 9 million homes, and AT&T expects to push that past 30 million by the end of 2010.
AT&T's decision to scuttle the Dish deal pours cold water on earlier speculation that it might strike a merger with Dish, but the telco's decision to scrap the current deal isn't a big surprise. Last month, Dish, in a different 8-K filing, disclosed that AT&T was requiring the DBS company to pay back a $500 million note, rather than convert the debt to equity. (See AT&T Breaking DISHes.)
But the possible long-term loss of an AT&T partnership "strikes a heavy blow to Dish Network, which is already suffering from a steep decline in net additions," Moffett added. Dish added 35,000 net new customers in the first quarter of 2008, off a staggering 89 percent from the prior year period. Dish ended the first quarter with 13.8 million subs.
AT&T has offered a Dish bundle since 2003. Moffett estimates that the deal contributes as much as 15 percent of the satco's gross additions, but news of a forthcoming end to the telco partnership comes as Dish's net-to-gross add ratio is well below the 15 percent mark. "As such, the loss of AT&T would very likely put Dish Network into negative subscriber growth territory in 2009," the analyst surmised.
Once the AT&T deal is done, Dish will be left with one major telco bundling partner: Embarq Corp. (NYSE: EQ). Dish also has a deal with CenturyLink Inc. (NYSE: CTL). (See CenturyTel, EchoStar Re-up.)
Dish shares were down 87 cents (2.99%) to $28.24 each in early trading Wednesday.
— Jeff Baumgartner, Site Editor, Cable Digital News