Deeper Dive—AT&T sold DirecTV but could still score on Dish tie-up

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AT&T’s deal with TPG is expected to close in the second half of 2021, making Dish Chairman Charlie Ergen’s prediction even more prescient. (DirecTV)

AT&T is officially getting out of the linear TV business by spinning off DirecTV et al. into a new company. But AT&T could still bank on potential satellite consolidation.

AT&T late Thursday confirmed a long-rumored deal with TPG Capital to sell a minority stake in its linear video businesses DirecTV, U-verse and AT&T TV. The three linear services will now operate as New DirecTV, in which AT&T will own 70% of the common equity – the other 30% goes to TPG.

That majority stake keeps AT&T in a good position to benefit from potential value creation opportunities in the future, according to UBS analyst John Hodulik.

“This includes potential satellite video consolidation, which we have long believed is inevitable. While likely not an easy process, the video market has changed significantly since the FCC/DoJ blocked the [DirecTV]/ EchoStar merger in 2002, in our view suggesting a path to potential regulatory approval,” he wrote in a research note.

Indeed, streaming video services have grown exponentially and 5G networks are continuing to expand, carrying with them the opportunity for fixed wireless internet service. That means streaming TV becomes a much more viable option in rural parts of the country where satellite service was one of the only options for decades.

Dish Network Chairman Charlie Ergen has been completely transparent with his feelings about a potential DirecTV and Dish Network satellite TV merger. He’s repeatedly said it’s inevitable. In November, he said putting the two beleaguered satellite providers together would achieve the scale to compete with programmers that operate their own OTT streaming services, provided a potential deal could clear any regulatory hurdles.

“So, don't take me as gospel on this, but [AT&T] would like to deconsolidate that business and they would like to do that before they would take any regulatory risk…How they do that or whether they do that, of course, remains to be seen,” said Ergen in November, according to a Motley Fool earnings transcript. “But make no mistake, whether it's a year from now or 10 years from now, I believe it's inevitable that those companies go together.”

AT&T’s deal with TPG is expected to close in the second half of 2021, making Ergen’s prediction even more prescient. During a call with analysts late Thursday, AT&T CEO John Stankey said his company remains very much a participant in any future value created from the AT&T linear TV businesses.

“Both parties are of course incented to try to create more value because it’s good for our investment and our structure moving forward,” he said.