A DISH Network (DISH)/DirecTV (DTV) Combo Might Happen, But There Are Hurdles

November 9, 2012 11:54 AM EST
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Price: $61.35 -1.3%

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DISH Network (Nasdaq: DISH) has been doing well lately, according to the stock price. Shares are up 36 percent in 2012 amid chatter that more and more consumers are switching from traditional television to on-demand streaming media, such as that offered by Hulu, Netflix (Nasdaq: NFLX) and others. Shares have seen some pressure following the company's third-quarter results on Tuesday, with DISH reporting a GAAP loss of 32 cents per share when the Street was looking for profit of 55 cents per share.

The news has drawn the attention of rival DirecTV (Nasdaq: DTV), according to Bloomberg. DISH chairman Charlie Ergen commented this week that the two companies "have to consider" a deal, with the cable- and satellite-TV business generating about $46 billion in revs this year alone. Analysts predict that DISH will see top-line growth of just 7.8 percent through calendar 2014, lower than 95 percent of its peers.

One of the biggest catalysts for DISH moving forward is whether or not the Federal Communications Commission (FCC) will allow the company to use its spectrum for mobile voice and data signals. Should the proposal get the go-ahead, DISH and DirecTV could combine to offer fast wireless Internet while bolstering a stronger position in the pay-TV market.

DISH is no small fry, but its market cap of about $16 billion is about half of what DirecTV boasts. Further, recent deals by Japan's SoftBank to acquire a large stake in Sprint (NYSE: S) as well as Deutsche Telekom's T-Mobile and MetroPCS (NYSE: PCS) hammering out a deal mean consolidation is happening within the segment.

Aside from Netflix, competition still looms from wireless giants Verizon (NYSE: VZ) with its FiOS and AT&T's (NYSE: T) U-Verse. DISH and DirecTV have been bleeding customers to the two, which offer combination packages of TV, Internet, and telephone, not to mention wireless service.

The competition might be a boon for DISH and DirecTV to get a deal through. Typically, combining the two largest players in an industry will have to pass so many regulatory hurdles that it wouldn't be worth it. However, given how the landscape for pay-TV has changed, antitrust regulators might see the new combination as less of a threat to competition.

Should a merger with DirecTV not happen, DISH will have options in simply selling the company to another suitor or selling just its spectrum. As one analyst from Sitfel Nicolaus put it, running a wireless business isn't in the cards. Given that DISH's spectrum is in the 700-MHz range, AT&T might also take a harder look at the company should it receive FCC approval.

Shares of DISH are ticking higher Friday, up 0.1 percent.

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