Why Is AT&T Downplaying a DIRECTV-Dish Merger?

By Phillip Swann
The TV Answer Man – @tvanswerman

TV Answer Man, I read your article on AT&T saying a merger between DIRECTV and Dish may not be a good idea for AT&T because DIRECTV is making too much money or something like that. How can that be? DIRECTV is losing subscribers like crazy. How could it be making money? Why wouldn’t they want the merger? — Jim, Madison, Wisconsin.

Jim, AT&T CFO Pascal Desroches yesterday told an industry conference in London that a merger between DIRECTV and satellite rival Dish would only make sense if it generated more ‘value’ than DIRECTV currently does for his company.

“We separated from our satellite platform, and we have it in a construct where it’s been optimized by our partners at TPG. They do a really good job in optimizing that asset” he said, according to a Hollywood Reporter article. “So right now, we are in a really good position with the asset. Would we look at other opportunities? We always do, that’s our job. But the bar would be pretty high in order to do something to try to accelerate more value creation.”

The statement might seem odd considering that DIRECTV has lost at least 12 million subscribers since AT&T bought it in 2015 and AT&T felt compelled two years ago to spin it off as a separate company with private equity firm, TPG. (AT&T now owns 70 percent of DIRECTV while TPG holds a 30 percent stake.)

How could DIRECTV possibly be an asset to AT&T? And why would Desroches suggest a Dish merger, which could finally get AT&T off the hook as the majority owner of a rapidly shrinking subscriber base, would be a bad idea for AT&T?

Two reasons.

1. He’s bluffing.
The New York Post has reported that merger talks between Dish and DIRECTV have stalled. The newspaper did not provide a specific reason, but Dish Chairman Charlie Ergen is notorious for being a tough negotiator. Desroches could be sending a signal to Ergen, and the financial community where Ergen is currently seeking investors for his 5G wireless project, that DIRECTV is prepared to go forward without a merger. This could put pressure on the Dish chief to accept merger terms more favorable to AT&T.

2. He’s telling the truth, or at least AT&T’s truth.
Under new management since the TPG deal, DIRECTV is a leaner company and more focused than ever on the bottom line. The TV provider’s best days are behind it, but it can still be a profitable operation for the foreseeable future. In addition, the DIRECTV-TPG deal has helped write down AT&T debt.

So Desroches is telling the truth that DIRECTV can still be a ‘valued’ asset to AT&T. That doesn’t mean it’s a growth company. The asset is in decline. But for now, AT&T executives can be patient with Dish or any other company that might want to form a major partnership.

Jim, hope that makes sense. Happy viewing and stay safe!

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