DirecTV, EchoStar Bundle Up

"What they're realizing is that by bundling services, the cable companies have some pricing flexibility," says one analyst. "If you take a single service provider and then bundle others with it, that decreases churn by 50%."

That analyst estimates that EchoStar and DirecTV would each be on the hook for an initial $1 billion to create the wireless network. That person also sees the companies hooking up with Intel(INTC Quote) to use its WiMax technology.

Trying to create such a network would involve installing or leasing terrestrial base stations across the country in the form of transmitter towers so that DirecTV can offer wireless broadband. An earlier initial request for quotes went out in late 2005, followed by a more formal request for proposals, sources close to the deal said.

Asked how many tower companies had the infrastructure to achieve full nationwide coverage, the analyst said, "not many."

Some of the leading tower companies mentioned by sources as being in the mix include Crown Castle(CCI Quote) and SBA Communications(SBAC Quote) and American Tower(AMT Quote). A deal could add up to billions of dollars over several years, including the cost of transmitters that would be installed on towers and rental costs. Of note, tower rental companies are fixed-cost businesses and adding a huge rental contract on an existing network would boost profits.

"We're talking about thousands of towers and most fall in the range of $5,000 per tower, per month," says a source.

As new content distribution models such as wireless and IPTV emerge, sources speculate this could be a two-pronged strategy -- enabling wireless broadband for DirecTV subscribers and also giving News Corp. an in-house broadband network. That network could be used as the gateway to distribute its content, and also more control of its overall destiny.