All that said, UBS analyst Aryeh Bourkoff is thinking ahead to AT&T’s next deal. In a report issued late yesterday, Bourkoff asserts that AT&T could back away from its Lightspeed IPTV project and switch its focus to a satellite strategy for delivering television programming to its customers. As Bourkoff notes, the company’s HomeZone service does exactly that, reselling satellite service from EchoStar (NASDAQ:DISH). But he thinks AT&T may be better off owning one of the satellite TV companies outright - and he says the logical target is not EchoStar, but instead DirecTV (NASDAQ:DTV).
For one thing, he notes that Bellsouth resells DirecTV’s service, and in fact has more satellite customers than AT&T does. He also thinks News Corp.’s (NASDAQ:NWS) reported sale of its 39% stake in DirecTV to Liberty Capital (LCAPA) makes the company a much more likely seller than EchoStar, which is 73% controlled by COE Charlie Ergun. Moreover, he contends that DirecTV has a better brand. And he says that 55% of the satellite customers in AT&T’s footprint use DirecTV; the figure is 59% for BellSouth.
Bourkoff notes that AT&T’s rollout of its Lightspeed service has been slower than expected; they have several thousands customers in San Antonio, and just launched in Houston; so far, that’s it, despite the company’s statement that it will be in 15 markets by year-end. Meanwhile, he notes that by the end of 2007, 81% of homes will have cable triple play access, versus only 15% for telecos, who come up short on video. Buying a satellite broadcaster could improve retention of core customers and allow more bandwidth for data, Bourkoff asserts.
Bourkoff raised his price target on DirecTV to $24 for $19, based on expectations of higher leverage and a return of capital to shareholders following the sales of News Corp.’s stake.
In today’s trading:
* AT&T is down 50 cents at $34.97.
* BellSouth is down 28 cents at $34.50.
* DirecTV is up 8 cents at $25.
* EchoStar is down 29 cents at $37.70.