What Does the AT&T-DIRECTV Deal Mean for DISH Network?

U.S. stocks are roughly flat on Friday morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) up just 0.17% and 0.08%, respectively, at 10:25 a.m. EDT. As a reminder, the market is less than a half-percent below last week's record high. One stock that may have a hard time recovering its 52-week high, however, is that of DISH Network (NASDAQ: DISH  ) , which now looks isolated, following AT&T's (NYSE: T  ) planned acquisition of rival pay television provider DIRECTV (NASDAQ: DTV  ) .

The Financial Times this morning reported that "Dish Network ponders options after AT&T deal for DirecTV." Indeed, the deal removes not one, but two excellent potential partners for DISH, which must now carefully consider its next strategic step in an industry that is undergoing momentous change. The AT&T-DIRECTV deal will undoubtedly prove to be a key milestone in the convergence between the mobile telephone/broadband/pay television industries.

In fact, the consensus view on Wall Street was/is that DISH Network was a more attractive prize for AT&T. When news first broke that AT&T was in talks with DIRECTV three weeks ago, shares of DISH Network rose more than those of DIRECTV. Conversely, with DISH now a wallflower as AT&T and DIRECTV take to the dance floor, its shares have fallen nearly 4% since the deal was announced over the weekend (as of Wednesday's close).

Why DISH over DIRECTV? As the FT report pointed out, DiSH "has built a sizable spectrum portfolio by buying satellite spectrum from bankrupt companies and persuading US regulators to reclassify it for use as a fixed wireless broadband network." However, the agreement with regulators requires that it begin building the network within two years -- presumably with the financial support of a partner -- failing which it must sell the spectrum.

The spectrum remains a valuable asset or, more precisely, a valuable option, but without a partner to fund the network build-out, DISH Network won't be able to exercise it. AT&T claims that the spectrum rose had a thorn -- it would attract antitrust regulators' attention. AT&T's $39 billion offer to acquire T-Mobile in 2011 collapsed under scrutiny from the Justice Department.

Perhaps AT&T was right. I expect its deal with DIRECTV to be approved, but I can't say the same with regard to Sprint's ambitions to acquire T-Mobile ... which could yet provide DISH Network with an "out" (i.e., a tie-up between DISH and T-Mobile.) Watch this space, as the pay television market continues to transform.

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