Ergen: DirecTV Merger Could Work

Dish Network chairman Charlie Ergen refueled speculation concerning a possible merger with DirecTV, telling analysts that regulators today could find little fault with a merger with the No. 1 satellite TV service provider, but quickly adding the two are not in current discussions.

Talk of a Dish/DirecTV merger has heated up recently as both Ergen and DirecTV CEO Mike White have said publicly that the competitive landscape has changed enough to allow such a deal to go through. But White has also said that the current political administration would not allow a merger to take place.

DirecTV and Dish tried the merger route before – in 2002 – but was blocked by regulators who deemed the deal non-competitive.

Ergen, speaking on a conference call with analysts to discuss third-quarter results, said regulators from either political party today would be hard pressed to find similar non-competitive issues with the joining of the two satellite TV giants, although he was quick to add he was not having merger discussions with DirecTV.

“Obviously it is one of the things both companies have to consider,” Ergen said on the conference call, adding that the video business is basically mature and consumers are increasingly getting access to video via mobile and Internet distributors, a technology that neither Dish nor DirecTV has a major hand in.

“I don’t think either administration would block it if it made sense,” Ergen said, adding that personally, he thinks such a merger is “a doable deal under the current circumstances.”

Ergen isn’t the only one talking merger. In a research report Tuesday, Sanford Bernstein cable and satellite analyst Craig Moffett wrote that Dish’s relatively weak results – it reported a net loss of $158 million in the period compared to $319 million in net income last year – present a case for a combination of the two companies.

“Dish’s weak results in the core business are in fact a selling point to regulators for a merger with a much stronger DirecTV,” Moffett wrote. He added that the prospect of the two teaming up to provide wireless broadband service could also push regulators toward favoring a deal. 

He added that Sirius Satellite Radio’s 2008 merger with XM Satellite Radio is a prime example of two dominant satellite companies that were facing competition from terrestrial and Internet radio companies and were allowed to merge.

“That one is a situation where two companies who were in a relatively mature business and had tremendous competition from regular radio and iPhones and iPads,” Ergen said. “That one is close to on point.” 

Ergen also offered some insight as to Dish Network’s wireless spectrum plans, adding that the recent merger between Sprint Nextel and Japanese wireless giant Softbank and T-Mobile’s pending merger with Metro PCS have taken two potential partners out of the immediate mix. Ergen had said in the past that Dish would likely take on a partner to help it build out its wireless spectrum.

He said that Dish is currently awaiting FCC approval on the use of its wireless spectrum – expected by the end of the year – and that 30 days after receiving the go-ahead would begin to implement its strategy. He added that on Dish’s next earnings call he should be able to give better detail on which direction the company is heading,

Ergen also commented on Dish’s controversial Auto Hop ad-skipping DVR, adding that the satellite giant is aware of broadcasters’ concerns about the product.

Ergen said that while he believes that consumers have the right to skip commercials, Dish could work with broadcasters to target ads that customers won’t want to skip. That said, he added that Dish first has to get through litigation with broadcasters who have tried to block the service, first.

“We have to take a stand,” Ergen said. “If we don’t, nobody else is going to do it.”