Investor's Business Daily: AT&T Expected To Choose Dish Over DirecTV As TV Partner
AT&T (T) seems likely to pick EchoStar (DISH) over DirecTV Group (DTV) as its sole marketing partner for satellite TV services, Wall Street analysts say.
AT&T now resells TV services from both EchoStar and DirecTV. At a Morgan Stanley conference in May, Richard Lindner, AT&T chief financial officer, said AT&T would pick one service by year's end. The decision will deal a blow to the loser.
The issue surfaced after AT&T bought BellSouth in December. BellSouth has been a partner of DirecTV, and AT&T has teamed with EchoStar and its Dish network.
As of March 30, AT&T had 977,000 customers getting DirecTV's service in BellSouth's nine-state region. In 13 other states, AT&T had 707,000 customers signed up for Dish service.
While BellSouth has done well with DirecTV, "AT&T has a longer relationship with EchoStar," said Thomas Eagan, an analyst at Oppenheimer & Co.
AT&T, then called SBC Communications, bought a small stake in EchoStar for $500 million in July 2003. Also, AT&T has co-developed a key product with EchoStar called Homezone. That service combines broadband Internet, satellite TV, digital video recording and home networking features.
"We haven't seen that kind of (integration) from BellSouth and DirecTV," Eagan said.
Both DirecTV and EchoStar have been helped by distribution deals with phone companies. Almost 10% of their subscribers now come from phone deals. Phone companies resell satellite TV in order to offer their customers a video-voice-Internet product bundle, similar to what cable firms offer.
AT&T's decision on a satellite TV partner has other implications, some analysts say. AT&T has been viewed as a possible buyer of EchoStar or DirecTV. Whichever satellite TV firm stays on as AT&T's partner remains a possible takeover target, while prospects dim for the other.
AT&T's satellite TV strategy hinges in part on its progress rolling out its own TV service, called U-verse. AT&T might reveal those plans at next week's NXTconn trade show, some analysts say. AT&T has said U-verse will ultimately reach about half of its residential customers. It still plans to resell satellite TV to the rest.
To deliver U-Verse, AT&T plans to spend some $6.5 billion on fiber-optic and Internet technology through the end of 2008. AT&T has said U-Verse should reach 18 million homes by the end of 2008, but that doesn't include the BellSouth service area. AT&T is expected to soon announce plans to expand U-verse into BellSouth's nine-state region.
As of May 31, AT&T had 40,000 U-verse customers in 21 markets.
UBS analyst John Hodulik expects AT&T to expand Homezone into BellSouth's region and drop DirecTV as a partner.
Craig Moffett, an analyst at Bernstein Research, agrees. "EchoStar is likely to be named the exclusive provider for AT&T," he said. He says AT&T and EchoStar have invested heavily in integrating their billing systems and in training salespeople.
Moffett says that EchoStar also might give AT&T better financial terms than DirecTV. One reason is that DirecTV has other phone partners while EchoStar needs AT&T.
Verizon Communications (VZ) and Qwest Communications International (Q) also resell DirecTV's service. Verizon has 618,000 satellite TV customers and Qwest has nearly 500,000.
"We are not going to comment on all the speculation," DirecTV spokesman Jon Gieselman said.
Oppenheimer's Eagan also says AT&T likely would get better financial terms from EchoStar. Liberty Media (LCAPA) will soon get a controlling stake in DirecTV from News Corp. (NWS) Media baron John Malone, a tough negotiator, controls Liberty Media.
"AT&T would rather align with EchoStar because it could probably have a little more control there than with Liberty," Eagan said.
After hitting a six-year high of 49.63 on May 21, EchoStar shares have declined more than 9% despite speculation it'll be AT&T's lone satellite partner.
Some analysts say AT&T's U-verse rollout seems to be going better, making a satellite TV purchase less likely.
Eagan says the stock also could be down because ongoing speculation of an EchoStar-DirecTV merger has cooled off recently.
AT&T (T) seems likely to pick EchoStar (DISH) over DirecTV Group (DTV) as its sole marketing partner for satellite TV services, Wall Street analysts say.
AT&T now resells TV services from both EchoStar and DirecTV. At a Morgan Stanley conference in May, Richard Lindner, AT&T chief financial officer, said AT&T would pick one service by year's end. The decision will deal a blow to the loser.
The issue surfaced after AT&T bought BellSouth in December. BellSouth has been a partner of DirecTV, and AT&T has teamed with EchoStar and its Dish network.
As of March 30, AT&T had 977,000 customers getting DirecTV's service in BellSouth's nine-state region. In 13 other states, AT&T had 707,000 customers signed up for Dish service.
While BellSouth has done well with DirecTV, "AT&T has a longer relationship with EchoStar," said Thomas Eagan, an analyst at Oppenheimer & Co.
AT&T, then called SBC Communications, bought a small stake in EchoStar for $500 million in July 2003. Also, AT&T has co-developed a key product with EchoStar called Homezone. That service combines broadband Internet, satellite TV, digital video recording and home networking features.
"We haven't seen that kind of (integration) from BellSouth and DirecTV," Eagan said.
Both DirecTV and EchoStar have been helped by distribution deals with phone companies. Almost 10% of their subscribers now come from phone deals. Phone companies resell satellite TV in order to offer their customers a video-voice-Internet product bundle, similar to what cable firms offer.
AT&T's decision on a satellite TV partner has other implications, some analysts say. AT&T has been viewed as a possible buyer of EchoStar or DirecTV. Whichever satellite TV firm stays on as AT&T's partner remains a possible takeover target, while prospects dim for the other.
AT&T's satellite TV strategy hinges in part on its progress rolling out its own TV service, called U-verse. AT&T might reveal those plans at next week's NXTconn trade show, some analysts say. AT&T has said U-verse will ultimately reach about half of its residential customers. It still plans to resell satellite TV to the rest.
To deliver U-Verse, AT&T plans to spend some $6.5 billion on fiber-optic and Internet technology through the end of 2008. AT&T has said U-Verse should reach 18 million homes by the end of 2008, but that doesn't include the BellSouth service area. AT&T is expected to soon announce plans to expand U-verse into BellSouth's nine-state region.
As of May 31, AT&T had 40,000 U-verse customers in 21 markets.
UBS analyst John Hodulik expects AT&T to expand Homezone into BellSouth's region and drop DirecTV as a partner.
Craig Moffett, an analyst at Bernstein Research, agrees. "EchoStar is likely to be named the exclusive provider for AT&T," he said. He says AT&T and EchoStar have invested heavily in integrating their billing systems and in training salespeople.
Moffett says that EchoStar also might give AT&T better financial terms than DirecTV. One reason is that DirecTV has other phone partners while EchoStar needs AT&T.
Verizon Communications (VZ) and Qwest Communications International (Q) also resell DirecTV's service. Verizon has 618,000 satellite TV customers and Qwest has nearly 500,000.
"We are not going to comment on all the speculation," DirecTV spokesman Jon Gieselman said.
Oppenheimer's Eagan also says AT&T likely would get better financial terms from EchoStar. Liberty Media (LCAPA) will soon get a controlling stake in DirecTV from News Corp. (NWS) Media baron John Malone, a tough negotiator, controls Liberty Media.
"AT&T would rather align with EchoStar because it could probably have a little more control there than with Liberty," Eagan said.
After hitting a six-year high of 49.63 on May 21, EchoStar shares have declined more than 9% despite speculation it'll be AT&T's lone satellite partner.
Some analysts say AT&T's U-verse rollout seems to be going better, making a satellite TV purchase less likely.
Eagan says the stock also could be down because ongoing speculation of an EchoStar-DirecTV merger has cooled off recently.
