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30 September 2019

AT&T denies plans to offload DirecTV, to Dish or anyone else

AT&T’s COO John Stankey has insisted the operator has no plans to sell DirecTV, contradicting reports that the satellite broadcasting unit might be up for sale, perhaps to rival pay-TV company Dish Network.

The executive told the Wall Street Journal that DirecTV remains an integral part of AT&T’s future plans, and talked about plans to launch a new video streaming service next year, which integrates the telco’s Time Warner assets. He also said that DirecTV is important for the data it provides for AT&T’s targeted advertising effort.

Stankey said regular asset reviews were standard practice, and “not unique to DirecTV”.

The reports that DirecTV was up for sale sprang from ongoing reviews that are said to have been sparked by activist investor Elliott Management increasing its stake in AT&T, and criticizing the telco’s purchase of the satellite TV unit in 2015 (as well as some other acquisitions). AT&T also faces a class action lawsuit, alleging that it artificially inflated DirecTV’s subscriber numbers.

From Dish’s viewpoint, it also seemed illogical that the company would want to buy the free-falling DirecTV and distract its management from its 5G TV plans.

Combined, Dish and DirecTV shed 857,000 satellite TV subscribers during Q2 2019, but 90% were at the AT&T subsidiary. Of course, Dish might want its rival’s 30m pay-TV subscribers and it would be better positioned to manage DirecTV well – it might take a miracle, but if anyone could save DirecTV, it would be Dish.

When quizzed at a Goldman Sachs event earlier this month, Ergen described a Dish-DirecTV merger as “certainly having synergy and economics,” while questioning whether the deal would pass regulatory muster. Indeed, AT&T CFO John Stephens said only last week that this precise merger scenario has already been “tried and rejected.”

Dish is dwindling on 12m total video subscribers, covering 9.5m Dish TV satellite subs and 2.5m on Sling TV, which gained 48,000 subscribers to offset satellite losses of 79,000 in the second quarter – making it a net decline of 31,000 video subs. As of the last quarter, AT&T had a video base of 22.9m (21.6m satellite and 1.3m DirecTV Now), set to drop again substantially as Q3 results loom.

But the key point is that Dish has agreed to pay $3.5bn for spectrum and $1.5bn for Sprint’s prepaid Boost mobile business, creating a fourth major carrier and paving the way for T-Mobile’s and Sprint’s $26.5bn mega-merger (assuming that now gets regulatory clearance). The fear is that with Dish paying $5bn all-in, the operator has less in the bank to support its own struggling satellite TV business and even less in the tank to persevere with the live streaming service Sling TV. That’s before we’ve even discussed building out 5G infrastructure.

That said, further down the line and potentially more disruptive to the market, Dish plans to enter the market as a facilities-based 5G broadband wireless provider by June 2023, by which time it aims to provide 70% of the US population with access to its 5G broadband network. However, as we have highlighted in previous coverage, the fear is that Dish will struggle to finance its 5G network build out without assistance from a partner company following its $5bn wireless splurge, let alone compete in the over-the-top video market while supporting a shrinking satellite TV business.

In fact, Dish chairman Charlie Ergen wants Dish to become bigger than AT&T and Comcast in the mobile sector, after becoming the industry’s third largest MVNO – bigger than Cox, Charter and Cablevision. So, in that sense, why would AT&T be obliged to sell DirecTV to a growing competitor in the mobile scene?