UPDATE 1-AT&T rolls out DISH service, drops DIRECTV

(Adds spokesman's comments, background on partnerships)

NEW YORK, April 2 (Reuters) - AT&T Inc (T.N) said on Wednesday it is rolling out a satellite video service with DISH Network Corp (DISH.O) and has stopped marketing rival DirecTV Group Inc's (DTV.O) satellite television service.

AT&T spokesman Michael Coe said the company was still in negotiations with both DirecTV and DISH over a long-term partnership, which allows for bundled phone, Internet and video services. A decision was due by the end of the year.

The DISH roll-out is over territory previously covered by BellSouth Corp, which AT&T acquired in late 2006. BellSouth had a pact with DirecTV in its nine states, mostly in the U.S. Southeast.

Analysts have said AT&T, the largest U.S. phone company, is likely to switch to DISH throughout its territory, although both sides appear to be haggling over price and other conditions.

Video partnerships are seen as crucial for AT&T as it competes with cable service providers that have been luring away customers with bundles of phone, Internet and video services.

AT&T is developing its own high-speed Internet and video service called U-Verse, but analysts say it would take years for it to scale out and that joint services with satellite are key to retaining customers. (Reporting by Yinka Adegoke and Ritsuko Ando, editing by Richard Chang)