AT&T has been building capabilities for its video offering, U-verse that will offer IPTV. The acquisition of Echostar will add a lot of value to AT&T’s video offering. Specifically, Echostar will get the expertise of content negotiation and relationship that is so crucial for a successful video offering. The Echostar’s Direct to home (DTH) service will be a very good complement to the IPTV offering.
As a stand alone business Echostar may have limited options as they will need to partner to offer bundled services - broadband and phone (both wireline and wireless) services. And if the market direction is to offer bundled services, a pure play video services business will have its limitations.
Cable operators and Telecommunication service providers have been at war as each enters the forte of the other. Cable operators are already eating into the phone business. And the Telcos have been aggressively upgrading their networks to offer video services. With Echostar DTH, AT&T could potentially hurt revenue growth and profitability of cable operators. AT&T could also tier their video services – DTH and IPTV. DTH could be priced to mimic the cable operators business in region and IPTV could command a premium based on its interactivity and time shifted TV.
Also with the number of scribers of Echostar (approx. 13.7 Million as opposed to AT&T 126,000) will give AT&T additional room for bargaining with the content providers – could reduce cost.
Similar thinking must be going through the Verizon video services strategic team.
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