Dish-DirecTV merger rumors – ludicrous and logical all at once

Why in its right mind would Dish Network – an operator in the throngs of acquiring mobile spectrum and talking confidently about its 5G TV ambitions – acquire the freefalling DirecTV Now satellite TV business? Those are the rumors circulating this week as AT&T’s ill-fated recent series of investor-induced events escalate and knock lumps out of DirecTV Now’s value – both financially speaking and as a trustworthy consumer brand.

Combined, Dish Network and DirecTV shed 857,000 satellite TV subscribers during Q2 2019, of which DirecTV’s losses accounted for an overbearing 90.8%. Surely not numbers Dish Network would be eager to inherit, yet a footprint exceeding 30 million pay TV subscribers would offer Dish Network serious opportunities and we would argue Dish is better positioned to manage DirecTV given the assertions made by AT&T activist investor Elliott Management, which sparked this week’s sale rumors. It would take a miracle, but if Dish couldn’t succeed in saving DirecTV, then very few others could.

Dish is dwindling on 12 million total video subscribers, covering 9.5 million Dish TV satellite subs and 2.5 million 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 22.9 million (21.6 million satellite and 1.3 million DirecTV Now), set to drop again substantially as Q3 results loom.

But the key point is that Dish has agreed to pay $3.5 billion for spectrum and $1.5 billion for Sprint’s pre-paid Boost mobile businesses, creating a fourth major carrier and paving the way for T-Mobile and Sprint’s $26.5 billion mega merger. The fear is that with Dish paying $5 billion 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 $5 billion wireless splurge, let alone compete in the OTT 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?

When quizzed at a Goldman Sachs event this week, 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.”