Dish and AT&T’s new wireless partnership potentially foreshadows DirecTV deal

Tech

Dish’s Charles Ergen
Andrew Harrer | Bloomberg | Getty Images

AT&T is replacing T-Mobile as Dish Network’s primary network services partner, bringing the wireless company closer together with the satellite TV provider it nearly acquired almost 15 years ago and potentially increasing the likelihood of a Dish-DirecTV merger.

According to people familiar with the matter, Dish founder and billionaire Charlie Ergen reached the final stages of selling his company to AT&T in 2007. When he pushed for a last-minute change in terms, the deal fell apart.

Since then, AT&T has acquired — and subsequently agreed to divest (at least partially) — DirecTV and WarnerMedia for more than $167 billion, including debt. This year, AT&T sold a 30% stake in its pay-TV operations, including DirecTV, to private equity firm TPG and formed a new company. Three months later, AT&T announced its plans to spinoff WarnerMedia, which it paid more than $100 billion in 2018.

Dish has discussed offering wireless service to compete with AT&T, Verizon and T-Mobile for more than a decade. Founder Charlie Ergen capitalized on an opening to get government support as a fourth competitor when T-Mobile and Sprint merged last year.

Dish needs a partnership with an existing nationwide wireless provider because it doesn’t have a national network of its own. Dish owns billions of dollars of wireless spectrum, which will be used in conjunction with AT&T’s network. It had previously agreed to use T-Mobile’s network as its mobile virtual network operator (MVNO) and roaming partner. Arguments over T-Mobile’s decision to shut down its CDMA network may have pushed Dish to seek a new deal, even though AT&T also doesn’t have a CDMA network. Dish’s agreement with AT&T lasts 10 years — longer than its prior deal with T-Mobile, which expired in 2027.

“With an MVNO deal past 2027, Dish can focus on denser markets and leave rural to AT&T,” said MoffettNathanson analyst Craig Moffett. “Dish desperately needs an MVNO to fall back on past 2027, because the economics of building to rural are awful, and a network that doesn’t have rural isn’t tenable.”

Dish-DirecTV merger chances

Choosing AT&T brings the companies closer together and further increases the likelihood that Ergen and AT&T Chief Executive John Stankey attempt a Dish-DirecTV merger down the road, according to Jonathan Chaplin, an analyst at New Street Research.

Chaplin said in a note to clients one of the biggest obstacles to a merger has been the notion that “AT&T hates Dish.” Some of those bad feelings stem from the botched 2007 merger, when AT&T felt Ergen had reached a handshake deal and negotiated in bad faith, according to people familiar with the deal who asked not to be named because the discussions were private.

But the telecommunications world has dramatically shifted from 2007. AT&T is no longer run by Randall Stephenson, who stepped down last year. The wireless giant is reorganizing itself around 5G and can use the $5 billion Dish will give AT&T over the next 10 years to pay down debt from its two enormous acquisitions of WarnerMedia and DirecTV.

While AT&T’s MVNO pact allows Dish to be a stronger competitor to AT&T, “getting access to Dish’s spectrum could help improve AT&T’s competitive position,” noted Chaplin, and facilitating a merger between DirecTV and Dish will help both companies.

Bringing together two competing satellite-TV providers — especially as both companies lose pay-TV customers each quarter as the world shifts to digital television — would unlock billions in synergies, as satellites can be retired, duplicative jobs eliminated and competitive costs eradicated.

Still, regulators would need to feel comfortable that a Dish-DirecTV would be beneficial for consumers. While that remains uncertain, “it is a hurdle, not a barrier,” wrote Chaplin.

WATCH: Cramer says he would want to own AT&T less after Discovery deal

Products You May Like

Articles You May Like

U.S. Energy Department Awards Over $5 Million To Small Solar Businesses
Falcon Heavy to launch Europa Clipper
Start-ups will suffer from antitrust bills meant to target Big Tech, VCs charge
DeepMind AI Says Will Release Structure of Every Protein Known to Assist Researchers Better
Elon Musk says Tesla Supercharger network will be open to other cars this year

Leave a Reply

Your email address will not be published. Required fields are marked *