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Cable Technology Feature Article

November 19, 2009

Will DirecTV Be Sold to a Telco?

By Gary Kim, Contributing Editor

DirecTV Group Inc. Chairman John Malone won’t rule out a possible takeover by AT&T (News - Alert) Inc. or Verizon Communications Inc., saying they will likely have closer ties to his company as they develop packages of phone and television service, Bloomberg (News - Alert) reports.

Of course DirecTV is not ruling out an ultimate sale to either of those companies. DirecTV, the largest U.S. satellite-TV provider, simplified a potential takeover bid recently by agreeing to merge with Malone’s Liberty Entertainment unit, a move that cut his voting stake in half. The companies expect the deal to close by year-end, clearing the path for a potential acquisition.

In fact, speculation about the ultimate ownership of both satellite TV companies, DirecTV (News - Alert) and Dish Network always has included an ultimate incorporation of both providers into telco ranks, driven by the increased importance entertainment video has assumed in triple play packages, and the sheer economics of delivering linear TV using point-to-multipoint methods, while reserving fixed bandwidth for on-demand video.

DirecTV has about 18 million customers, more than six times Verizon’s FiOS (News - Alert) TV service and 10 times AT&T’s U-Verse TV service, and ownership of either satellite service would provide instant scale in the video entertainment business.

And if video entertainment is to be a key and permanent part of the fixed broadband business, then scale and low delivery costs are going to be important. Either satellite TV firm would provide that, as it would be possible to offload a huge amount of bandwidth from the fixed access links to the sky link.

Ultimately, that might prove as capital-friendly a move as offloading mobile broadband traffic onto the fixed network.

“Our relationship will continue to broaden and intensify,” Malone said. “It may lead to some more ownership-oriented relationship, or it may not.”

DirecTV already offers pay-TV service to some Web and phone customers of AT&T and Verizon, especially in less-dense areas where Verizon's FiOS is not likely to be built, or where AT&T's U-Verse likewise will be unavailable.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Patrick Barnard