Seeking Alpha
Profile| Send Message|
( followers)  
Most of the attention on AT&T (NYSE:T) today revolves around its ongoing struggle to close its long-pending acquisition of BellSouth (BLS). The hiccup involves the company’s attempt to win approval from the FCC; with one commissioner recusing himself, the commission is split 2-2, and there is a lot of hand-wringing right now about what concessions the company might have to provide the two Democratic commissioners in order to seal the deal. The consensus view is that the deal will still eventually close, and that any concessions will not have a huge financial impact.

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.

Source: AT&T May Buy DirecTV, Says UBS