AT&T could spin-out DirecTV and divest the company, with Dish Network viewed as a likely suitor, top industry analyst John Hodulik with UBS speculated in a report issued Thursday.

A spin-out of DirecTV, a company that AT&T acquired for $49 billion in July 2015, would help AT&T put some distance between itself and its declining pay-TV business.

"We believe the weakest piece in the AT&T puzzle is DTV," Hodulik wrote, adding that the current outlook for the company is 2.8 million video sub losses in 2019.

He surmised that transaction involving DirecTV could, in part, give AT&T substantial tax benefits and narrow the valuation gap against Verizon, and boost AT&T shares by 10% to 20%.

And while video makes up less than 10% of AT&T's total EBITDA, the attention that part of AT&T's business gets tends to get too much attention and weigh down the company's shares. That's the primary reason why AT&T trades at a 28% discount to Verizon, Hodulik explained.

But how would a DirecTV transaction benefit Dish, which has also seen its pay-TV base erode an accelerating rate?

Hodulik believes Dish could benefit from scale and synergies, including reduced programming costs as well as an assumed 5% cut in the combined company's cash operating cost, which would equate to $1.5 billion to $2.5 billion annual synergies.

Hodulik would also expect Dish's 700MHz holdings to be monetized in such a deal, with free cash flow from its satellite TV business enabling Dish to focus on a wireless strategy that's initially focused on narrowband-IoT and, later, a standalone 5G network.

"For DISH, such a transaction would create a larger, more stable cash flow machine to fund its wireless ambitions," the analyst wrote.

A merger of Dish and DirecTV might give some a sense of déjà vu -- the companies tried to combine back in 2002 but regulators blocked it over concerns that it was anti-competitive.

Hodulik doesn't see regulatory approval being an issue this time around, as the pay-TV landscape has been forever altered in an age of cord-cutting, subscription VOD services and a multitude of OTT video options.

And a combined Dish/DirecTV could provide a foundation that's solid enough to withstand today's pay-TV storm. After taking a serious run at cable's hold on pay-TV, Dish and DirecTV are now poised to lose 14% of their sub base this year, according to UBS estimates.

If combined with DirecTV, Dish would have 29 million video subs -- 25 million traditional pay-TV, and about 4 million from their own OTT-delivered, virtual MVPD offerings (Sling TV and DirecTV Now).

If a deal were to be consummated, Hodulik sees AT&T taking a minority stake in the combined company, and that Dish's 700MHz spectrum could be tied in, given AT&T's control of adjacent bands.

But it's unclear if AT&T would seriously entertain the idea, despite the potential benefits outlined by Hodulik. AT&T seems to think that it's got a plan to turn its video fortunes around.

Just this week, for example, AT&T Communications CEO John Donovan touted plans underway at DirecTV that, he claims, will "radically reshape" the TV business.

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— Jeff Baumgartner, Senior Editor, Light Reading