Analyst: AT&T to Pick EchoStar Over DirecTV
Sanford C. Bernstein’s Moffett: ‘Loser’ Will Post Negative Subscriber Growth
By Linda Moss -- Multichannel News, 6/4/2007 8:23:00 AM
With the economic stakes enormous, AT&T is “likely” to pick EchoStar Communications, not DirecTV, when it migrates to just one satellite-TV service for its bundle by the end of the year, a key Wall Street media analyst predicted Monday.
In his report, Sanford C. Bernstein analyst Craig Moffett wrote that AT&T’s planned move “presents a classic zero-sum game: It is clearly bad news for one DBS provider, but good news for the other … We believe the loser will begin posting negative subscriber growth within a year.”
AT&T has deals now to use both direct-broadcast satellite providers to provide video for bundles that also include phone service. But chief financial officer Rick Lindner announced May 16 that the telco would “migrate to one provider” for its video service by year’s end.
Moffett believes EchoStar, parent of Dish Network, is likely to be named the exclusive DBS provider for AT&T.
“We think the two companies are more closely aligned -- operationally and strategically -- than are AT&T and DirecTV,” Moffett wrote. “Just as important, Dish needs this arrangement more than DirecTV does; without it, they would be without a terrestrial broadband partner in fully 90% of the United States.”
However, Moffett couched his remarks, saying that it should “by no means be viewed as a foregone conclusion that AT&T will select EchoStar” and noting that DirecTV has been more successful in BellSouth markets than EchoStar has been in SBC Communications legacy markets.
EchoStar’s service is bundled with AT&T in legacy SBC territory, according to Moffett, while DirecTV’s service is bundled with AT&T in legacy BellSouth territory.
The analyst said the economic stakes at issue are “enormous,” in that “for either player, the difference between winning and losing would be a swing of as many as 3.6 million subscribers by 2010.”
According to Moffett, “Without AT&T’s contribution to gross additions, the ‘loser’ of the AT&T beauty contest would likely quickly tip to net subscriber losses, with at least one quarterly net-subscriber loss arriving in 2008 for EchoStar ex-AT&T and full-year net losses in 2008 for DirecTV ex-AT&T.”
He noted that DirecTV has already “locked up” relationships with Verizon Communications and Qwest Communications International.
Moffett also said that if AT&T did decide to go with DirecTV, it would quash speculation that the telco was looking to buy EchoStar.
“On the other hand, if [a monumental if] AT&T was looking for leverage to encourage Dish CEO Charlie Ergen to consider a sale to AT&T, that is surely it,” Moffett wrote. “That is, if the impediment to a deal turned out to be Charlie Ergen playing ‘hard-to-get,’ then the threat of handing the marketing relationship to DirecTV might offer a powerful incentive.”
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