AT&T is treated as the inevitable playground bully by US analysts, and they assume that when the giant speaks that it is with both a determined mind and a clear voice, but on the announcement that it has given notice on its reseller deal with Dish Networks and is calling in its $500 million loan, our impression is that it is ‘mostly bluff.’
The biggest cost here is that billing has been integrated between Dish and SBC (which became AT&T) since 2004, and the company is also joined at the hip over its Homezone network, which is a bundle of broadband services, plus Dish and including offerings from the now bankrupt Akimbo.
Dish felt it had to disclose the news this week that AT&T has exercised an option to terminate their relationship, which will become effective December 31. Given the harsh negotiating positions often taken by DISH CEO Charlie Ergen, this could simply be AT&T reminding him that it can swallow him whole, and getting him to toe the line for a lower price. It could also mean that AT&T is pushing not to continue reselling Dish, but that it is pressurizing the Dish share price and margin with bad news, so that it can make a basement bid for the company.
Dish has been under the cosh of late, with multiple layers of bad news. It has had two declining quarters of customer acquisition, due to the superior offering of DirecTV in its HD channel line up; it has had one satellite fail to reach the correct orbit and had to use fuel to get it there that will reduce the satellite’s useful life, and last week fell into a row with the Chinese SARFT over whether or not its mobile TV satellite, set to go up late this year, was in a good enough condition to qualify on all criteria.
As a result the share price has suffered from its 52 week high of $50, to last week’s price of $35, down now to $28, and a market capitalization of just $12.7 billion.
It is fairly common in negotiations of this type to file cancellation notices ‘just in case’ you cannot reach a deal, otherwise the incumbent has an edge in discussions. Naturally John Malone’s Liberty Media, with its new DirecTV property, will be ringing up old friends at AT&T to try to turn the tide in favor of AT&T taking a reseller deal with DirecTV, but that would have to be sweetened incredibly given the tightly integrated billing arrangements that have been going on now for four years at Dish.
The big threat to Dish is that if it loses AT&T as a reseller, then it will overnight lose around 15% of its subscriber additions, which would take it net negative. On the other hand if it lowers its price by a similar amount, it is in the same position financially.
The only issue for AT&T really is whether or not it wants a satellite TV reseller deal at all, given that its U-Verse IPTV service has finally begun to pick up speed, and that customers for that service have a higher average spend than with Dish. If AT&T just took the view that it could spend all that extra effort on U-Verse marketing and get back more income in the long term, that would be a really adverse outcome for both Dish and DirecTV.