Despite rumors, AT&T not talking to EchoStar now
NEW YORK -- AT&T's T stock price dropped 5% this week amid rumors that it is preparing to buy satellite TV company EchoStar DISH, whose stock price surged 20% on the news.
The reality? AT&T isn't even talking to EchoStar now and has no interest in trying to broker a deal anytime soon, according to people familiar with the situation. The sources declined to be identified by name or affiliation because they are not authorized to speak publicly on behalf of the companies.
They say AT&T has talked to EchoStar in recent months about the possibility of buying the company, but the discussions did not go far. Earlier this month, EchoStar reported disappointing financial results, causing its stock price to drop 20%. Thanks to the AT&T rumor, a lot of that loss was made up this week.
AT&T spokesman Larry Solomon declined to comment. EchoStar spokeswoman Kathie Gonzalez also declined to comment.
Under federal rules, a publicly traded company can deny a false merger rumor, but once it does so, it is obliged to keep issuing updates on the status of its merger activities. That is a primary reason companies rarely comment on deal rumors — they want to preserve their right to enter into secret negotiations later, should they decide to do so.
Media analyst Tim Horan of CIBC, for one, thinks an AT&T-EchoStar deal is unlikely. "Regulatory approval would be very difficult to receive, and it may already be too late to consummate prior to next year's election," he said in a note to investors.
AT&T's current strategy of building an advanced video network (called U-verse) and reselling satellite TV services in areas where U-verse isn't available "is already working well," Horan added.
AT&T has deals with both DirecTV and EchoStar's Dish Network to resell their services in parts of its sprawling territory.
Horan said the biggest argument against an EchoStar deal, by far, is the hefty price. Rumors this week had AT&T paying $29 billion for EchoStar, or $65 a share. That's a 55% premium over the current $42 price of EchoStar shares.
AT&T is spending billions to construct U-verse, with the goal of selling consumers a bundle of voice, wireless, high-speed data and video services. Verizon, the No. 2 telecom behind AT&T, has a similar strategy with the FiOS fiber-optic network it is building.
Both carriers are aiming at cable TV operators, which for decades have dominated the video market. After two years of steady slogging, AT&T and Verizon are beginning to make some headway: Verizon currently claims more than 700,000 video subscribers. AT&T, which started later, has 126,000 customers.
Verizon and AT&T use resold satellite TV to fill out their service bundles in spots where they don't currently offer their branded video services. On that note, Horan thinks there are a few reasons AT&T might eventually want to consider an EchoStar deal. Among them:
•Coverage. AT&T's current plan calls for U-verse to be deployed to 50% of its territory; the carrier still must figure out how to reach the other half.
•Cheaper TV programming. In the cable TV world, the cost of programming is based on subscribers: the more you have, the cheaper the rate per subscriber. Adding EchoStar's 13.7 million subscribers could give AT&T instant leverage for the cheapest rates.
Overall, however, Horan wrote that he doesn't think an EchoStar deal would fly right now: "We believe an acquisition … makes strategic sense but certainly would not fault (AT&T) for refusing to pay $65-$70 a share."