AT&T Revamping the Satellite TV Sales Relationship

Implications: AT&T first terminating DirecTV and now Dish might not be intended to drop satellite-television from bundled marketing, but instead to adopt mutual-selling roles in the relationship.

Analysis:

AT&T’s follow-up to terminating DirectTV with the six-month cancellation notice to Dish indicates that satellite-television is being reviewed for the overall positioning with wireline, mobile, Internet and TV.  AT&T has to resolve how a satellite partner can help offset the 5 million access lines lost last year and also retain the 15 million DSL connections.  Similarly, Qwest terminated Sprint Nextel and selected Verizon as a better partner to cross-sell high speed Internet. 

For AT&T, the challenge is solving the problem of penetration in the home market.  T-Mobile USA just upgraded its dual-mode Wi-Fi home service to an Internet-calling capability through a broadband router.  T-Mobile is porting existing wireline numbers and includes voice mail.  T-Mobile claimed that 97% customers in the test markets who selected @Home had canceled their wireline.  And instead of waiting for a femtocell standard, Sprint Nextel is going nationwide on July 15^th with the home Airwave gateway from Samsung.  The MSOs also continue to advance the triple-play with IP Democracy reporting that the top three MSOs of Comcast, Time Warner and Cox added about 3.4 million cable telephony subscribers during 2007.

AT&T’s 2007 U-verse goal of 1 million subscribers will not be significant in the immediate competition for home penetration of services.  To react quickly, AT&T needs to exploit the strength of mobile demand from cellphone-only users and the multi-cell households.  The National Center for Health Statistics shows that wireless substitution for wireline is running at 3 out of 10 households.  The satellite providers Dish and DirecTV have gained subscribers from the cellphone-only users that do not need the VoIP capability of the cable triple-plays.  AT&T needs a satellite partner that promotes DSL as well as mobile services.  But this mutual-selling relationship could be difficult to negotiate.  For the last quarter, Dish’s high subscriber acquisition costs were caused by 95% of the acquisition being churn replacement.  DirecTV’s superior HDTV might make a difference.  AT&T has to penetrate the home with multiple services, including TV.  AT&T’s next satellite deal could be more of a mutual-selling relationship of mobile, Internet and TV.