NEW YORK (TheStreet) -- Dish Network (DISH) surprising third-quarter loss signals that the satellite TV giant's subscribers continue to leave in favor of alternative cable and wireless contracts. The miss may also put the company in a better position to retry a merger with DirecTV (DTV), according to industry analysts.
After antitrust regulators nixed a 2002 merger effort between the nation's top two satellite TV providers, analysts now say Dish Network's weak third quarter earnings put the company and its chairman Charlie Ergen in a better position to broker a tie-up, which could help both companies develop mobile broadband services to better compete with cable providers and national carriers like Comcast (CMCSA), AT&T (T) and Verizon (VZ).
Such speculation comes amid a complicated merger dance in the wireless industry that, in October, reshaped outlook for many telecom sector giants.
It also might add a new twist to the relationship between wireless carriers and cable and broadband service providers. Earlier in 2012, Comcast, Verizon and Time Warner Cable (TWC) were approved to cut a spectrum deal that paved the way for cable companies to offer their services in wireless contract bundles and vice versa.For Dish Network, at issue is whether satellite TV providers can compete in an environment where an increasing number of consumers are switching to multi-service wireless, Internet, telephone and cable contracts provided by the likes of AT&T and Verizon. Meanwhile, Dish Network is sitting on spectral assets that may soon be approved for development by government regulators, and which may play a role in increasing overall U.S. wireless sector capacity, as a smartphone data crunch begins to emanate from Apple (AAPL) iPhone and Google (GOOG)-Android powered devices. Craig Moffett of Bernstein Research sees Dish Network's weak earnings as reviving the prospect regulators might allow a merger between it and DirecTV, citing the tenuous positioning of satellite TV providers and the prospect that a merger might give Dish Network the resources to develop its wireless assets into a mobile broadband network. In a quarter marked by an unexpected loss, Moffett writes the silver lining is, "Dish's weak results in the core business are in fact a selling point to regulators for a merger with a much stronger DirecTV," in a Tuesday note to clients. He sees both company's slow growth, weak service offerings and the prospect that they team up on wireless broadband as reasons regulators might be amenable to a deal. In third-quarter earnings, Dish Newtork reported a net loss of $158.5 million, which included litigation expense of $730 from a carriage dispute with AMC Network (AMCX), and 19,000 net subscriber losses. While Dish's loss was worse than the $251 million in profit analysts polled by Bloomberg had expected, subscriber losses were roughly half of forecasts - signaling to Moffett that the company ate big costs to retain customers. Also on Tuesday, DirecTV missed earnings estimates, reporting a profit of $565 million, or 90 cents a share -- less than the 92 cents a share analysts polled by Bloomberg had forecast. Revenue of $7.4 billion met analyst estimates, but 543,000 subscriber additions fell slightly short of estimates. For Moffett, who called DirecTV's earnings "encouragingly boring", the big question is what happens next for it Dish Network after earnings unveil negative core satellite TV trends and telecom sector consolidation has limited some M&A options with traditional wireless carriers. "While approval of a merger attempt wouldn't be a slam dunk by any stretch, we believe the DOJ and FCC would ultimately conclude that the pro-competitive benefits of a jointly-developed and marketed wireless offering would outweigh any anti-competitive risks of going from two to one video provider in rural America," adds Moffett. While Dish Network shares appear expensive in Moffett's perspective, the analyst sees DirecTV as a better way for investors to play prospective consolidation. "A merger would be a boon to both," he adds.
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