EchoStar Deal Talk Fizzles

EchoStar (DISH Quote) shares dropped 6% Tuesday as analysts said a wireless auction bid puts a potential buyout by AT&T(T Quote) on hold.

A Lehman Brothers research note Tuesday said that EchoStar filed an application with the Federal Communications Commission late Monday to bid on the 700 megahertz radio-wave auction in January.

AT&T (T Quote) -- along with Google (GOOG Quote) and Verizon (VZ Quote) -- is also expected to enter bidding for the prime swath of wireless spectrum on the block. Lehman concluded that anticollusion rules prohibit fellow bidders from discussing mergers until the conclusion of the auction.

EchoStar was unavailable for comment.

As TheStreet.com first reported on Sept. 27, AT&T had heated up discussions to buy EchoStar to give the giant telco a national video service to bundle with its fast Net and phone offering. The discussions got even hotter last month, with AT&T willing to pay between $64 and $68 a share for the Dish Network operator.

But last week, AT&T's board grew concerned over the stock market's reaction to the deal, and put the discussions on the backburner.

A source close to the talks says the discussions remain cooled, though a source familiar with AT&T says the deal's prospects aren't completely dead.

Deal watchers, including Lehman, say AT&T's window for an EchoStar merger may have closed for now. With the upcoming elections, the pro-deal regulatory climate may be changing, and AT&T may have wanted get the transaction in front of the agencies sooner rather than later.

EchoStar shares were down $2.44 to $39.92 in midday trading Tuesday. AT&T shares rose 7 cents to $38.35.