AT&T More Likely to Buy EchoStar This Time Around

Implications: 1.The original article is correct in reporting the fairly clear-cut indications that serious negotiations are underway between AT&T and EchoStar about a buyout. 2.The mindset of the corporate leadership at AT&T has significantly changed from six months ago in that it no longer wishes to be just a reseller. 3.EchoStar’s motivation in selling out seems to be pretty obvious.

Analysis: Previous considerations in the past by AT&T to buy a satellite TV company have fallen by the wayside. Now the seriousness of purpose is at a much greater level. With AT&T’s video business gaining some momentum, the stakes surrounding its satellite offering are getting higher.

The large percentage of AT&T employees using U-verse for video services points out the restrictive nature of its FTTN approach. As noted in previous articles, it will ultimately shift to an FTTP architecture. In the meantime, a sudden change in market availability of satellite service would be a big blow to the RBOC.

AT&T wants to take full control of DISH because it is fearful that another entity could make a deal for the satellite TV firm. The carrier would receive a guaranteed source of programming and would be provided with a permanent outlet to get broadband to many subscribers that are unlikely to receive fiber in the foreseeable future.

With the stroke of a pen, AT&T can add millions of video customers and gain a credible business in this space overnight. Critics will assert that this kind of move would be just an unwise, knee-jerk action because AT&T has no expertise in running a satellite business and that it would gain relatively limited capabilities outside of providing little more than basic video service. They will also argue that it should stick to a type of network that is knows how to operate, FTTP, that can handle any type of application that comes down the pike in the future. However, unlike Verizon, AT&T has no immediate intention to get rid of any of its properties. AT&T’s major metropolitan areas are spread out all over the country with huge gaps between them. Verizon’s increasingly compact territory makes it easy to limit the number of headends required. In buying a satellite TV company, AT&T can reduce the cost of building a large number of expensive headends – while having the luxury of constructing its FTTP network in a more deliberate manner.

While there have been no evident for-sale signs from DISH, the perspective of its shareholders on a buyout is likely to be positive. Along with the potential premium, they appear to be getting a little tired of constantly being the number-two player in the market.