DirecTV-Dish next to merge?

XM-Sirius approval opens the door for satellite TV firms

NEW YORK -- With the XM-Sirius merger finally approved, expect to see revived chatter on Wall Street about a possible DirecTV-Dish Network combination.

If the big two satellite radio companies can merge, why shouldn't the big two satellite TV firms do the same?

Indeed, in a legal system based on precedents, the XM-Sirius deal approval opens the door for a possible DirecTV-Dish merger. "It's a logical segue," said Jimmy Schaeffler, chairman and senior research analyst at the Carmel Group, which has opposed both mergers. "They will clearly have a better chance."

However, there are at least two arguments against a DirecTV-Dish deal during the near term.

First, regulators blocked such a deal a few years ago, and some argue the marketplace hasn't changed enough yet to convince regulators this time. And second, there is no natural seller for now.

As far as regulators go, experts have different views.

"I wouldn't be surprised to see speculation about a Dish-DirecTV merger based on the satellite radio approval, but the fundamental legal argument in both mergers are quite different," Sanford C. Bernstein analyst Craig Moffett said.

In 2002, the FCC and Department of Justice pointed out that a merged sat TV provider would have a monopoly in rural America. "Since then, the telcos have deployed a significant amount of fiber and begun deploying video networks, but none of that activity has been in rural America," Moffett said. "So, the legal test in rural America hasn't changed one iota. I don't think a merger of that kind is likely."

However, Schaeffler argued that such telecom firms as AT&T and Verizon have become competitive enough for sat TV firms, and regulators could put restrictions on a merged company to avoid hurting the few million customers in rural areas who have no choice of providers. For example, there could be enforced price stability.

Compared to sat TV, the sat radio merger review benefited from supporters' argument that there already is ample competition from such other sources as terrestrial radio, online radio, iPods and the like.

Second and perhaps more important, there is no logical seller in a possible DirecTV-Dish merger scenario.

Dish chairman and CEO Charles Ergen has dedicated his life to his company. Sources familiar with his thinking said he is unlikely to sell.

Meanwhile, Liberty Media, which controls a majority of DirecTV, has seemed more focused on figuring out whether to buy full control of DirecTV. Observers have predicted a deal of some sort could come during the next year.

In late February 2007, Liberty CEO Greg Maffei said his team will watch the regulatory review of the satellite radio merger closely. "We will watch XM-Sirius with interest" to gauge if a DirecTV combination with competitor (Dish) may be possible down the line," he said at the time.

He added though that during the near term, Liberty would have a problem as a seller of DirecTV as it must hold the asset for several years to get the tax benefits built into a swap with News Corp. that gave it control over the satellite TV giant.

The companies had no comment on the situation Wednesday.
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