AT&T picks DirecTV for joint TV bundle, drops DISH

By Yinka Adegoke

NEW YORK, Sept 26 (Reuters) - DirecTV Group Inc (DTV.O), the largest U.S. satellite television provider, said on Friday AT&T Inc (T.N) had picked it to offer a co-branded package of video, home telephone, wireless phone and Internet service from Feb, 1, 2009.

The news mean AT&T will not be renewing its five-year partnership with DISH Network Corp (DISH.O) raising new concern about future of the second largest satellite TV provider. DirecTV will begin selling the joint service in a new multi- year contract once AT&T's current partnership with DISH Network expires on Jan. 31. AT&T said current AT&T/DISH customers will continue to receive the same service after that date.

Terms of the agreement were not disclosed.

New AT&T/DirecTV customers will get DirecTV programming with the benefit of a discount for bundling other AT&T services, including phone and broadband services.

Both DirecTV and DISH had agreements with AT&T until April this year when the phone company said it would end its partnership with DirecTV and expand its relationship with DISH.

But in July AT&T then said it would also end the DISH partnership by the end of the year. This raised the prospect of both satellite companies bidding for the lucrative joint marketing contract.

Since the start of the year, DISH has struggled to add net subscribers. In the second quarter it lost 25,000 subscribers, its first ever loss. The loss of the AT&T contract will come as a blow for the company controlled by Chief Executive Charlie Ergen. In the first six months of this year, the AT&T partnership accounted for 15 percent of DISH's gross subscriber additions.

"The worry is how many quarters in 2009 do they lose subscribers," said analyst Thomas Eagan, an analyst at Collins Stewart. "They were adding about 100,000 gross subscribers a quarter from the AT&T deal. We think they can make just half of those and will lose subscribers in three of four quarters next year."

Video partnerships are as important for the satellite companies as they are for AT&T. The bundled video, phone and Internet package helps in competing with similar discounted 'triple play' packages from cable TV operators such as Comcast Corp (CMCSA.O) and Time Warner Cable Inc (TWC.N).

AT&T is developing its own high-speed Internet and video service called U-Verse, but its expansion is taking years and analysts say joint services with satellite are key to retaining customers in the face of competition from cable.

Liberty Media Corp (LINTA.O) said earlier this month it would like to merge DirecTV with Liberty Entertainment LMDIA.O if the terms are suitable to shareholders. Liberty Media owns around 50 percent of DirecTV shares. (Reporting by Yinka Adegoke; Editing by Ted Kerr and Andre Grenon)