AT&T flies with EchoStar

Telecom giant will drop DirecTV

It was a case of mixed blessings for EchoStar Communications on Tuesday. The satellite TV giant won an exclusive partnership with AT&T over competitor DirecTV for a while, but AT&T management signaled no need to acquire EchoStar.

The latter doused the flame of one of the media sector's most popular deal scenarios, and shares of EchoStar closed down 3.1% at $38.83. The stock has traded in a 52-week range of $36.67-$52.54. Some on Wall Street had hoped AT&T would move to acquire EchoStar by year's end.

AT&T said Tuesday that it will stop offering DirecTV's satellite TV services in a product bundle in the first quarter, while a comparable deal with EchoStar will continue through the end of 2008. When AT&T acquired BellSouth, it inherited the DirecTV relationship.

But beyond 2008, AT&T's video strategy remains unclear. On Tuesday, the telecom giant said it would evaluate its long-term relationship with the satellite TV providers with an eye toward making a decision late next year.

Some observers have suggested that if AT&T's U-verse video service develops well, the firm could end all bundling deals. If it doesn't gain enough traction, it could lead to a bid for one of the two satellite TV firms.

Asked about possible acquisitions, AT&T CEO Randall Stephenson told an analyst meeting Tuesday that the company is not missing any major businesses that it needs to execute its strategy. "There are right now no big piece parts that are missing that would allow us to execute" our strategy, he said.

AT&T shares rose as investors took that as the clearest sign yet that the company won't make a play for DirecTV or EchoStar in the short run. Also pointing in that direction was news Tuesday from AT&T that it has increased its dividend and stock-buyback program.