When rumors refuse to go away, no matter how silly they may seem to some, then there is probably some truth in there somewhere, and that’s the case with the one that the Wall Street Journal flew about AT&T about to buy either DirecTV or EchoStar.
The DirecTV deal is just a blind, designed to make it look like the leak to the Wall Street Journal is not high enough up the chain to know the real dirt, because despite the fact that John Malone may have touted the idea that he wants to complete the purchase of DirecTV, merge it with EchoStar and sell the whole shooting match to AT&T, there’s the small issue of the ink not even being wet on the contract to buy the 39% and control of DirecTV that News Corp owns. That deal won’t complete until early next year.
So this is really about AT&T getting in before the DTH market merges into a single company, and the reason for that is that it can see a huge error in its IPTV strategy, a case of taking too long because it bet on a system that just wasn’t ready for prime time.
AT&T’s Homezone service, built around EchoStar is supposed to be going great guns, and was about to get the decision over DirecTV, which was being marketed by Bellsouth, to become the single service sold by the combined RBOC. In effect one of them was about to be dropped.
The truth is that AT&T will probably find that either deal will take at least 6 months to approve, and the Wall Street Journal may have hit the nail on the head when it said that AT&T was moving now because it wanted the deal to be approved before the current administration is out of office.
It would be interesting if permission for the merger was only granted on the basis that it gave up its IPTV service, or that it must divest itself of everything in EchoStar except DISH (which we have been saying is primed for separation early next year ‘ see separate article today)
Whatever, the news is bad for DirecTV, so bad that there is a small chance that John Malone’s Liberty Media may call off the purchase of control. He will certainly have to think long and hard about whether or not the price he has agreed to pay is still value for money if an AT&T deal goes through.
From the point of view of Comcast and the other major cable operators, it will mean a fiercer rival in pay TV markets and an almost overnight ability for AT&T to defend itself from the incursions into its fixed voice base by triple play offerings from the cable operators.
It has to be said that the smart market money agrees with us that the target is EchoStar, because its price jumped 4% today to $22 billion while the DirecTV share price slid slightly.
If such a deal does emerge it will also play hell with the relationship between the DTH suppliers and Clearwire, and between Clearwire and Sprint.
EchoStar would have to immediately drop out of the deal with Clearwire, and then Clearwire will not be able to get the same revenues out of a partnership entirely based on supplying broadband and voice to DirecTV customers. That would make it want to slow its spending down, and in turn put pressure on Sprint in their agreement to jointly build out a single US wide WiMAX network.