Possibly, but the smart money today is betting that AT&T would prefer Dish. DirecTV shares are up 5.5% in mid-day trading following a Wall Street Journal report that the telco giant initiated conversations about a deal that could be worth $40B. But Dish Network is up even more at 7.5%. “We scratch our heads” at AT&T’s motivation to team with DirecTV because the satellite company “does not have wireless spectrum,” Wells Fargo Securities’ Marci Ryvicker says. She suspects the approach to DirecTV is a way “to perhaps ‘flesh out’ [Dish Chairman Charlie Ergen] to pursue some sort of transaction with Dish.” Guggenheim Partners’ Paul Gallant also says that AT&T would prefer Dish, which has been amassing rights to spectrum in the hope of creating a wireless broadband business. That could be important for AT&T because “it is not immediately obvious where new spectrum comes from after the FCC’s broadcast spectrum auction in 2015.”
Wunderlich Securities’ Matthew Harrigan believes an AT&T-DirecTV combo makes sense. AT&T’s U-verse has just 5.7M video customers. Teaming with DirecTV, with 20.1M U.S. subs, would “offer a premium demographic national video solution that supports first to market 4K TV capabilities while allowing AT&T’s U-verse plant to be entirely dedicated to broadband.” (Its systems now allocate 15 Mbps to video and 10 Mbps to Internet.)
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What would antitrust regulators or the FCC say if AT&T tries to acquire DirecTV? Comcast’s plan to pay $45B for Time Warner Cable “makes other pay TV mergers look relatively less problematic,” Gallant says. But MoffettNathanson Research’s Craig Moffett notes that Sprint also wants to buy T-Mobile and “three big media/telecom deals would be a nightmare” in Washington. Consumer response to Comcast-TWC “has been uniformly negative, and we’re only beginning to see Google and Netflix start to rally the troops against it. Add AT&T-for-DirecTV, and creating another 25-million-subscriber-plus Pay TV provider, could be a bridge too far, jeopardizing both deals. A Sprint-for-T-Mobile deal at the same time could very possibly bring all three crashing down.”
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