Are Dow Jones Rivals AT&T and Verizon About to Take Over the Satellite TV Market?

AT&T's purchase of DIRECTV could prompt further consolidation in the space.

May 20, 2014 at 11:30AM

Will AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) take their competition to the next level? The two Dow Jones Industrial Average components (DJINDICES:^DJI) already dominate the U.S. wireless industry, and soon they could also control the market for satellite TV.

AT&T's planned purchase DIRECTV (NASDAQ:DTV) could disadvantage Verizon, and prompt the wireless provider to respond -- perhaps with an acquisition of DISH Network (NASDAQ:DISH)? A Monday report in dealReporter said Verizon's management had held talks with DISH; while it remains speculation at this point, a merger of the two companies makes sense.

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Source: Wikimedia Commons.

AT&T to acquire DIRECTV
By adding DIRECTV's satellite TV business, AT&T could be poised to offer its wireless subscribers an unbeatable bundle of wireless, pay TV, and high-speed Internet. That could hamstring Verizon's own lucrative wireless business.

AT&T already competes in the pay-TV realm, but its U-verse cable alternative is confined to a few geographic regions and today has just 5.7 million subscribers (by comparison, DIRECTV has more than 20 million users). While AT&T offers wireless-U-verse bundles, the pay-TV service's limited reach may not be significant enough to affect the company's wireless business, which has more than 100 million subscribers.

But DIRECTV would be different. Just about every household in the U.S. is eligible for DIRECTV's service, meaning AT&T could offer pay-TV content to virtually all of its wireless subscribers.

Verizon is expanding its pay-TV business
Verizon has its own version of U-verse in the form of FiOS, a fiber-based cable and high-speed Internet service. But like AT&T's U-verse, FiOS is only offered in a handful of markets and has fewer than 6 million pay-TV subscribers.

Verizon's management has said it doesn't plan to dramatically expand the FiOS coverage area, but it has made overtures into the pay-TV market in other ways. Earlier this year, Verizon bought OnCue from Intel, suggesting that it might look to offer an Internet-based pay-TV service.

Prior to offloading OnCue, Intel had been building a high-tech service that would provide pay-TV content over the Internet. With a next-generation set-top box, a cloud-based DVR, and a high-speed Internet connection, Intel stood to challenge traditional cable providers.

DISH Network has been planning something similar
DISH Network has been signing deals with content providers for a rumored Internet-based service of its own, which could launch as early as this summer. Combining that service with the assets acquired from Intel could be interesting, but Verizon could gain much more from buying DISH Network.

In particular: spectrum. DISH Network has been on a spectrum buying spree over the last few years, even though it has been unable to put its new assets to work (without a delivery network, DISH's spectrum has sat idle). DISH Network has sought to remedy that situation, unsuccessfully bidding for Sprint last year, and hinting at a possible deal for T-Mobile.

Selling to Verizon would finally allow DISH's spectrum to be put to use. Verizon would also be able to match a combined DIRECTV-AT&T in terms of bundled services. DISH Network doesn't have as many pay-TV subscribers as DIRECTV, but with about 14 million users, it is still a significant player in the market.

Will AT&T force Verizon's hand?
According to Bloomberg, AT&T moved to acquire DIRECTV as a response to Comcast's agreed-upon acquisition of Time Warner Cable. Could AT&T's purchase of DIRECTV fuel a Verizon bid for DISH Network?

Shares of DISH rose briefly on Monday, likely due to the possibility of a Verizon acquisition. While DISH shareholders would benefit from a takeover, much of the purchase price may have already been factored into the stock -- DISH Network shares are up more than 50% in the last year as rumblings of consolidation have benefited the industry.

Why is AT&T buying DirecTV?
AT&T's purchase of DirecTV might have something to do with cord-cutting, a phenomenon that's grown tremendously in recent years. You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends DTV and INTC. The Motley Fool owns shares of INTC. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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