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Dish Network announced this week that AT&T would stop selling its product bundle that includes satellite television through the Dish partnership. The telco opted not to renew its contract with the satellite provider, signed in 2003 and set to expire at the end of the year. The shifting market dynamics for IPTV and satellite, as well as the relationship between the two, has several industry analysts predicting significant changes for both AT&T and the TV market in general.

While AT&T called the termination procedural, Bernstein Research analyst Craig Moffett said it is not good news for Dish, as it dramatically increases the risk that AT&T will shift its focus entirely towards DirecTV. “The news strikes a heavy blow to Dish Network, which is already suffering from a steep decline in net additions,” he wrote in a research note. AT&T will continue to offer HomeZone after this year, however, it is likely it will pick either Dish or DirecTV, the largest satellite TV programmer, to supply the TV part of the bundle before the start of next year.

AT&T has partnered with Dish ever since ending its DirecTV partnership earlier this year. Simon Leopold, communications equipment analyst at Morgan Keegan, agreed that the decision likely means that AT&T will allow Dish and DirecTV to compete for the new partnership come December. The firm believes AT&T will continue to offer a bundle including satellite as an alternative to its access upgrade offering. As AT&T’s U-Verse ramps up, Leopold said, the opportunity for satellite will decline; however, a lot of market opportunity remains. As of this year’s first quarter, AT&T had 2.23 million satellite subscribers, according to Leopold, with Dish and DirecTV and only 378,000 subscribing to U-Verse.

“While we believe AT&T’s primary focus remains U-Verse, which includes video via IPTV, its HomeZone product pairs a broadband connection with satellite TV for an integrated bundle,” Leopold wrote in a research note. “Conspiracy theorists might consider a scenario where AT&T’s discontinued partnership pressures Dish’s stock sufficiently to make it an attractive takeover target for AT&T.”

Leopold went on to say that AT&T’s ending its contract with Dish seems to reinforce the carrier’s confidence in U-Verse – good news for vendors including Alcatel-Lucent, Cisco, CommScope, Fujitsu and Symmetricom. If DirecTV becomes the satellite provider of choice, this would also bode well for MasTec, which derives about 45% of its sales from DirecTV for installation and maintenance services, primarily in the former BellSouth region of AT&T. Leopold said there is a risk that the bidding process may lead DirecTV to pressure MasTec for concessions if it should win with AT&T, but the affect of the AT&T/Dish split has yet to be seen on both DirecTV and MasTech.

According to some analysts, the breakup of AT&T and Dish also illustrates trends in the balance of power between telcos and satellite providers, with the latter needing the former increasingly as opposed to the other way around. Pure IPTV providers had a strong year in North America in 2007, nearly quadrupling to 1.2 million subscribers, according to a report issued last week by iSuppli. Yet most of these wins came as net additions to the pay-TV market, rather than at the expense of the direct satellite providers. Going forward, if satellite partners don’t fight for partnerships with broadband providers, this trend will likely not continue, according to iSuppli principal analyst Steve Rago.

“Satellite and broadband companies are starting to work together for these hybrid types of solutions that allow you the truly interactive capability of TV,” Rago said. “What you will see is the satellite people absolutely need the upstream capability, and they will get that by teaming up with broadband companies.”

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