Dish Chairman Charlie Ergen yesterday said a merger with the AT&T-owned DirecTV is "probably inevitable."

Dish, the second biggest satellite TV company behind DirecTV, lost 194,000 subscribers in Q4 2019 and ended the year with 11.99 million TV customers. That includes 9.4 million satellite TV customers and 2.59 million customers of Sling TV, Dish's online streaming service. The satellite division lost 100,000 subscribers while Sling TV lost 94,000.

On an earnings call yesterday, a financial analyst asked Ergen for his thoughts on a Dish/DirecTV merger, noting that DirecTV is "in increased trouble" and that the US government seems to have "amenability to large-scale transactions."

"We'll start with Dish/DirecTV," Ergen said in response. "It's probably inevitable that those two should go together just because the growth in TV is not coming from linear satellite TV providers. It's coming from huge programmers, and trillion-dollar companies. So I think the regulatory environment, usually it's behind the marketplace, but I think that becomes increasingly likely that that makes logical sense."

Ergen added that a merger could face "regulatory issues." But a Dish/DirecTV combination would still "make some sense" because of the competitive challenge that streaming services pose to traditional pay-TV providers like the satellite companies. "You can't swim upstream against a real tide of the over-the-top, big players," Ergen said. Seeking Alpha posted a transcript of the earnings call; audio is available in a webcast.

Any merger would have to involve AT&T, which bought DirecTV for $48.5 billion in 2015. If a merger really is "inevitable," AT&T could make it happen by buying Dish or selling DirecTV.

AT&T declined to comment when contacted by Ars today. AT&T executive John Stankey said in September 2019 that "DirecTV is an important part of what we're going to be doing going forward." Activist investor Elliott Management Corp., which has a $3.2 billion stake in AT&T, had criticized AT&T's TV strategy and urged the company to consider divesting DirecTV.

DirecTV still a threat, Dish says

AT&T had a disastrous 2019 in TV, losing more than 4 million customers from its satellite, wireline, and linear streaming-TV services combined. As we previously reported, AT&T began 2019 with 24.49 million TV customers and finished the year with 20.4 million. AT&T said the customer losses were caused by a "focus on profitability," as AT&T has raised prices and eliminated many promotional deals.

Despite DirecTV rapidly losing subscribers under AT&T's ownership, Dish says the combination of AT&T and DirecTV still poses a challenge. Dish wrote in a filing with the US Securities and Exchange Commission:

As a result of AT&T's 2015 acquisition of DirecTV, our direct competitor and the largest satellite TV provider in the United States now has increased access to capital, access to AT&T's nationwide platform for wireless mobile video, and the ability to more seamlessly bundle its video services with AT&T's broadband Internet access and wireless services.

AT&T's June 2018 purchase of Time Warner "further exacerbated" the risks to Dish by giving AT&T/DirecTV "increased scale and leverage in the converging video, mobile, and broadband industries" and potentially "mak[ing] it more difficult for us to obtain access to Time Warner's programming networks on nondiscriminatory and fair terms, or at all," the Dish filing said.

Dish also criticized AT&T's zero-rating practice—in which certain online content doesn't count against data caps imposed on broadband service—saying that this "may give an unfair advantage to AT&T's own video services." But Dish could embrace zero-rating itself, as it will be competing against AT&T in the mobile business over the next few years thanks to yet another merger. Dish plans to build a 5G network with assets that T-Mobile and Sprint are being forced to divest before merging.

Dish reported revenue of $3.24 billion and net income of $389 million in Q4 2019. Revenue was down from $3.31 billion year over year, but net income was up from $337 million in the year-ago quarter.