trending Market Intelligence /marketintelligence/en/news-insights/trending/hgNBHdo9YiujKNkbkkSikw2 content esgSubNav
In This List

Why regulatory concerns could kill potential DIRECTV-DISH deal

Blog

Broadcast deal market recap 2021

Blog

Price wars in India: Disney+ Hotstar vs. Amazon Prime Video vs. Netflix

Blog

Volume of Investment Research Reports on Inflation Increased in Q4 2021

Blog

Using ESG Analysis to Support a Sustainable Future


Why regulatory concerns could kill potential DIRECTV-DISH deal

Nearly two decades after U.S. regulators struck down a merger of the nation's two major satellite TV operators, the pay TV industry is vastly different — yet regulatory concerns continue to be a key hurdle for any new attempt to combine DISH Network Corp. and AT&T Inc.'s DIRECTV.

The Trump Administration's approach to major mergers remains difficult to predict, telecom attorneys told S&P Global Market Intelligence. The administration engaged in a prolonged court battle over AT&T's acquisition of Time Warner, which ultimately closed in June 2018, and President Donald Trump has, at times, indicated an interest in breaking up big media companies.

Amid ongoing speculation about AT&T's potential sale of DIRECTV and the possibility of a new attempt to merge DIRECTV and DISH, executives at both companies said recently that regulatory concerns dampen their interest in pursuing such a deal.

"The Trump Justice Department has been a lot more aggressive on media than anybody ever expected," said one telecommunications attorney who has represented clients before the U.S. Federal Communications Commission and federal courts. "Based on how they've acted in the media space so far, you would think they would have problems with consolidating into one satellite company."

The attorney added: "The DOJ's performance in the last couple of years has just been so erratic — I think it's very hard to predict exactly what they'll do."

The FCC is likely to follow the lead of the DOJ in the event that a DIRECTV-DISH deal is proposed, the attorney said, noting that there is a precedent to the FCC allowing such a merger. In 2008, communications regulator repealed a rule prohibiting two companies classified as a "Satellite Digital Audio Radio Service" from merging and allowed the combination of the nation's two satellite radio operators to proceed, a deal that created Sirius XM Holdings Inc.

In that respect, Steve Goodman, a telecom attorney at the law firm Butzel Long, said in an interview that a potential DISH-DIRECTV deal would start on slightly more favorable odds than the 2008 XM-Sirius merger because it does not have to seek an exception or repeal to an existing agency rule. Still, Goodman agreed that it is difficult to ascertain the administration's approach to antitrust enforcement.

A former DOJ attorney said in an interview that despite major changes in the pay TV market in recent years, over-the-top services are not available to homes without broadband, meaning regulators could flag competition concerns for a merger in certain rural areas that still rely on traditional satellite operators. According to a 2019 survey from the Pew Research Center, 63% of rural Americans say they have a broadband internet connection at home, compared to 75% of Americans overall.

Beyond regulatory hurdles, Wall Street analysts flagged several business challenges.

Marci Ryvicker, an analyst at Wolfe Research, said it might be hard merging executives from the two companies, pointing to animus between AT&T Chairman and CEO Randall Stephenson and DISH Chairman Charlie Ergen. "They have not liked each other for years," Ryvicker said, "most recently over HBO."

AT&T and DISH have been involved in a nearly yearlong carriage dispute that is keeping AT&T's premium network dark for DISH's satellite and Sling TV customers.

Ryvicker questions how much of a buy-in AT&T really has for a potential DIRECTV separation, despite reports that the company is weighing a sale or spinoff of DIRECTV as it faces investor pressure to streamline its business.

At a Sept. 17 industry conference, AT&T's Stephenson spoke to investors about the promise and premise of AT&T as a modern media company. At a Sept. 11 event, AT&T CFO John Stephens shot down speculation about a DIRECTV-DISH merger, telling analysts: "That's been tried, from a regulatory perspective, it hasn't been successful and I don't know that there's any change in that regulatory perspective."

Should the companies decide to proceed with a merger, analysts said the combination would likely occur via a joint venture. The combined entity would control some 33 million satellite and virtual subscribers, making it by far the largest pay TV distributor in the U.S. That gives the merged company more power to negotiate lower content costs.

As such, content acquisition costs would also be lower. Walter Piecyk, an analyst at technology, media and telecommunications-focused research firm LightShed Partners, said AT&T already gets the best pricing, and DISH would stand to benefit from that if it merged with DIRECTV.

DISH, which positions itself as a low-cost programming provider, has long been perceived as a tough negotiator. The company has been engaged in many pricing disputes that resulted in periodic programming blackouts over the years. In addition to the ongoing conflict with AT&T over HBO, DISH recently reached a new retransmission-consent deal with station owner Meredith Corp., ending an almost two-month programming blackout.

AT&T has also been engaged in battles with programmers in recent months, resolving retransmission pricing and other differences with station owners CBS Corp. and Nexstar Media Group Inc. after lengthy blackouts.