DISH looks to rural telcos, stays away from AT&T

Following the cancellation of its relationship with AT&T (NYSE: T), Dish Networks (NASDAQ: DISH) is looking to its rural telco partners to drive its recovery, while staying away from its former partner at all costs. The satellite company, which saw its profits rise 21% year-over-year despite continued customer loss in the first quarter of 2009, will focus on the rural markets. Charlie Ergen, Dish's chief executive officer, even admitted he might buy AT&T's U-Verse if it was an option.

"Our weakest markets are where there is a good operator with great service and great prices and has a triple play, quadruple play or even a double play," Ergen said on today's earnings call. "That's a tough market for us…An investment in the U-Verse market in the Northeast, where there is great service and the triple play for $99, it may not be the best place for us to compete. Having said that, there are still markets where we are very competitive, and we think we have the best product.

"We have to focus on where we have the best product," he continued. "If I lived in New Jersey and lived in a million-dollar house that was a mile away from U-Verse and U-Verse had a front line right up to my house, I might buy U-Verse. I might not, but that's something to look at. If I lived in rural Idaho, I probably wouldn't buy U-Verse."

Dish partners with independent telcos including Frontier, CenturyTel, Embarq and Windstream to launch hybrid terrestrial video alongside their video offerings. Dish doesn't break out its subscriber additions from its regional telco partners, but Ergen said they are an important part of Dish's business since they are where Dish's rural customer base is. But they won't ever be competitors, he said.

"They aren't getting a customer today then longer-term trying to switch them out to their video product when they run lines by them," Ergen said in a dig to AT&T. "They are good long-term strategic partners for us. They also work closely with EchoStar, the engineering side of the company, to design products for them. So they are valuable to where we are strategically going forward."

Ergen admitted that an AT&T, Verizon or Qwest would obviously be a much bigger part of any service provider's business but said that Dish and its rural partners complement each other well. Contractually, AT&T can't target these or other Dish customers to incentivize them to switch to DirecTV or U-Verse. Although Ergen admitted in Dish's fourth-quarter earnings call that this was an issue when AT&T was its partner, he believes the telco will honor their agreement going forward.