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Cable Technology Feature Article

March 27, 2014

DISH Network-DirecTV Proposed Merger is Defensive

By Gary Kim, Contributing Editor

Though a merger of DISH Network and DirecTV was rejected by regulators in 2002, DISH appears to be trying again, by approaching DirecTV (News - Alert) about such a deal.

If it seems as though such mega-deals are proliferating, that is a correct assessment. Big mergers tend to occur in waves, typically when one major service provider makes a move that rearranges market share and strategic advantage. Even deals that fail, such as the AT&T (News - Alert) effort to acquire T-Mobile US, can spark other moves.

Over the last year we have seen the successful SoftBank purchase of Sprint; Sprint’s purchase of Clearwire and Verizon’s acquisition of the remainder of Verizon Wireless it did not already own.

Now we have the proposed Comcast (News - Alert) purchase of Time Warner Cable and the proposed DISH Network merger with DirecTV.

Also, contestants also move when other big mergers make all deals more feasible, from a regulatory perspective. The possible DISH-DirecTV deal is an example. The combination was forbidden in 2002, because of perceived diminution of competition.

But if Comcast acquires Time Warner (News - Alert) Cable, DISH and DirecTV could argue they only are combining in response to that reshaping of the market.

In many ways, a DISH-DirecTV merger would pose the same issue as a Sprint acquisition of T-Mobile (News - Alert) US. Each would remove one competitor from the market.

On the other hand, each big deal also would be pitched as a necessity (a defensive move) in a consolidating market. DISH and DirecTV, furthermore, likely would argue that they are at a growing disadvantage in the consumer services market.

Unlike cable TV and telco competitors, DISH and DirecTV cannot easily add voice and high speed access services. DISH does own Hughes Network Systems, which sells satellite-based broadband access, but that service operates using different satellites than DISH’s video service, and has throughput limitations, compared to fixed network services.

The longer term threat is more serious. By design, satellites are ill suited to support full interactive services, and that is what will happen, if and when streaming providers get content rights from most of the suppliers of linear TV programming.

If the market moves from linear to over the top delivery, the satellite providers instantly will be disadvantaged, as they simply cannot provide such access.

In that sense, a DISH-DirecTV merger is defensive both in short term and long term ways. As a platform, satellite is ill suited for on-demand services of all types. 

Edited by Cassandra Tucker

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