DirecTV and Dish might actually merge this time

The US satellite TV provider is in the early stages of talks with Dish parent EchoStar, Bloomberg reported over the weekend, the first of a number of news outlets to float a rumour that has surfaced with unerring regularity over the past two decades.

To date, all the tie-up talk has come to nothing. But this time it could be different.

The newswires have made much of the fact that the pay TV market has changed considerably in recent years, and that is indeed the case, and it could well have an impact on the likelihood of any deal to succeed. But an upcoming debt deadline for EchoStar, which recently subsumed sister company Dish, adds a certain amount of time pressure to the situation.

Fundamentally, Dish is in trouble. It has spent heavily on its mobile ambitions, rolling out a greenfield, Open RAN-based 5G network in the US in the bid to set itself as a credible competitor to the big guns. But it has struggled to attract customers and for the past few quarters has been warning of a cash flow problem.

In May it confirmed that it did not have the cash – either in hand or through projected cash flows – to pay off around US$2 billion of debt that matures in November. It was keen to paint an optimistic picture, noting that it was in talks with a number of possible funding partners, but when its second quarter results presentation rolled around in August not much seemed to have changed.

To say its financial position is precarious would be something of an understatement and bankruptcy is an ever-more real prospect.

Naturally, trying to broker an M&A deal for a company is such a situation would be no mean feat; it seems likely that DirecTV, still majority-owned by AT&T, will drive a hard bargain given the circumstances.

Dish and DirecTV last formally moved to merge as long ago as 2002, but their $26 billion tie-up was blocked by regulators; the FCC and the Department of Justice, among others, raised serious competition concerns in the pay TV space.

There have been other merger attempts between the pair in the intervening period, if the rumour mill is to be believed. The most recent report to that effect came in early 2022, at which point it looked as though a deal could actually go ahead. The New York Post quoted sources close to Ergen as saying that a deal was imminent, albeit a complicated one. Clearly nothing materialised.

There was a lot of speculation at the time over the potential separation of Dish's mobile operations from its TV business. Presumably that is now a less likely option, Dish and EchoStar having just come together. Then again, the firm has to do something to shore up its finances and ensure its survival, so it could well be that nothing is off the table.

From a competition perspective, previous objections to the deal were centred on a concentration of power in the pay TV space. However, the move away from traditional pay TV plans towards streaming has changed the market significantly in the past few years, so regulators may look more kindly on a DirecTV/Dish amalgamation this time around.

However, Dish's mobile position is now more of an issue than it once was. Dish Wireless is being set up as the fourth nationwide mobile operator in the US, not only according to its own hype, but in the eyes of the regulators too: it picked up Boost Mobile from Sprint as part of the T-Mobile US merger agreement in 2020. Allowing Dish to merge with an AT&T business might not be particularly palatable to competition bodies.

That said, the clock is ticking for Dish and Echostar, and something has to happen pretty soon. A merger with DirecTV would be one way out of this quagmire, should the relevant parties be able to reach agreement.