What to Do with DirecTV?

I honestly have no idea what AT&T might eventually decide, regarding its DirecTV holdings, with one exception. I cannot conceive of AT&T giving away the free cash flow that asset represents. One way of looking at matters is the free cash flow from DirecTV funds 93 percent of AT&T's dividend, for example. 

For that reason, all speculation about AT&T divesting DirecTV has seemed to me a non-starter.  But one way of restructuring, such as combining DirecTV in some way with Dish’s video assets,  

Private equity firm Apollo Global Management has proposed that AT&T spin out DirecTV into a new entity that combines Dish and DirecTV assets and leaves AT&T as the controlling entity. 

At least in principle, that would leave open the ability to use cash flow to support dividend payments, debt reduction or share buybacks, while further deleveraging AT&T. 

There are regulatory and deal risks. Charlie Ergen, Dish chairman, is a notoriously difficult negotiating partner. On the other hand, Dish’s future as an independent entity does hinge on harvesting satellite video while building an entirely new revenue model. So maybe Ergen’s incentive is higher than ever. 

But, all things considered, it seems to be the barriers are high to the status quo. Yes, the linear business is shrinking, so replacement revenue sources are necessary. But AT&T has been through this before, as it harvested its declining long distance calling business to invest in new lines of business. To be sure, that effort might be deemed a failure. After all, AT&T sold itself to what was then SBC, which rebranded itself as AT&T. 

But one might argue that failure was one of execution, timing and perhaps luck. Linear satellite television will go the way of long distance voice, eventually. The issue is how to wring value out of that asset (advertising and support for the streaming business) as that process unfolds. 

Fiddling with the ownership structure, or attempting a big merger with Dish, might make more sense were AT&T not committed to being a force in consumer media services.