AT&T Inc.’s DirecTV and Dish Network Corp., suffering the steepest subscriber losses in the pay-TV industry, are open to a merger and both companies believe such a deal could pass muster with U.S. regulators, according to people familiar with their thinking. AT&T Dish Are Open

It’s been 17 years since a proposed combination of the two satellite-TV services was deemed bad for consumers and shot down by the Federal Communications Commission and the Justice Department. But today — with at least seven competing cable-like packages offered online and the continued growth of streaming services like Netflix and Amazon Prime — pay-TV subscribers are switching at increasing rates. DirecTV and Dish together lost almost 2.75 million subscribers in the past year.

“Both companies are seeing substantial declines in customers and when that happens, you see management teams start making plans,” said John Hodulik, an analyst with UBS. “As we’ve seen in this industry, it has usually led to consolidation.” Hodulik wrote a research note Thursday outlining the benefits of a such a merger. AT&T Dish Are Open

Representatives for Dish and AT&T declined to comment. The two companies have no active deal talks going on, according to the people, who asked not to be identified discussing internal matters. In a second merger try in 2014, Dish Chairman Charlie Ergen approached DirecTV. But AT&T swooped in weeks later and agreed to buy DirecTV for $48.5 billion.

Dish rose as much as 6.3% to $38.47, the biggest intraday increase since January after Bloomberg reported the companies would consider combining their satellite-TV operations. AT&T gained 1%.

Down to One?

Reducing the only two satellite TV companies to one would seem to raise antitrust concerns, but in a similar scenario in 2008, satellite radio rivals XM and Sirius gained approval to form Sirius XM Holdings Inc. Antitrust officials, at the time, took into account a much larger audio market that included online services like Pandora, as well as terrestrial radio, when they reviewed Sirius XM. That approach could apply to today’s TV market, Hodulik said.

Each company could gain real benefits from a deal. AT&T might retain a minority stake in the combined TV business and part of the cash flow, Hodulik said. It could also obtain valuable airwaves owned by Dish for its nationwide wireless business. If Dish controlled the satellite business, it would have about 29 million subscribers, becoming the largest pay-TV service in the U.S. and gaining leverage in lowering programming costs. AT&T Dish Are Open

The dish is in a particularly tough spot. The Englewood, Colorado-based company has seen its conventional TV customers shrink from more than 14.1 million to 9.64 million in recent years. Its online Sling TV service has 2.42 million subscribers. But unlike Dallas-based AT&T and cable rivals like Comcast Corp., Dish doesn’t have a phone, broadband and wireless services it can bundle with satellite TV to retain customers.

Regulatory Picture

Given how the industry has changed and the number of new competitors that have emerged over the past decade, a combination of Dish and DirecTV could gain regulatory approval, Ergen said on a February 2018 earnings call.

“The marketplace is a little bit different,” he said. “So, I think that Justice would look at that positively.”

Even though there’s no deal afoot, the business case makes sense, according to the people. There’s logic to putting two declining businesses together, one said.

“The internet is becoming the biggest video distributor,” Hodulik said. “A decade from now, in areas that have broadband connections, having to get a satellite to watch TV will seem crazy.”