Football fans will remember Super Bowl XLI for Peyton Manning & Co. or for Prince singing Purple Rain in the rain at halftime. TV people will remember it as the hammer Sinclair Broadcasting used to nail Mediacom to a retransmission agreement. And cable operators will identify it as a turning point in multichannel competition, because when Sinclair pulled its signals from Mediacom head-ends, it also worked overtly with DirecTV to lure cable subs to satellite.

Despite the widening ripples from regulatory issues like must-carry, retrans, CableCARD and network neutrality, the biggest story in multichannel marketing continues to be the changing shape of video distribution. Once cable vs. satellite, then cable vs. telco and cable vs. telco-satellite, we now can add cable vs. broadcast-satellite and, possibly, telco acquiring satellite. The concept of either or both DirecTV and EchoStar joined at the hip to telcos is already watercooler conversation on Wall Street.

Recent example: Chilton Investment Co. portfolio manager Michael Cahill told Sandra Ward of Barron’s (Feb. 5), "We think this is the year AT&T buys EchoStar. It just makes too much sense for the deal not to happen." Cahill noted "the problem with the fiber-buildout strategy is that it is slow…Buying EchoStar solves a lot of problems for AT&T. It immediately gives them a fully integrated video offering with scale as they pick up EchoStar’s 13 million subscribers. Remember, AT&T is all about scale."

Cahill suggested that Ma Bell could use its birds for high-definition channels, freeing its "fiber platform" for broadband access. It sounded like he was mixing in a dash of Verizon, but to more than a casual observer, that would suggest, in an AT&T-EchoStar universe, room for a DirecTV-Verizon moon. Maybe John Malone finally does a deal with the old Bell Atlantic?

Financially, Cahill said, AT&T buying EchoStar’s Dish Network would be a no-brainer. Noting AT&T’s $235 billion equity market cap versus EchoStar’s $17.7 billion ($18.2 billion as I write this), Cahill said "they could pay a big premium…and it would barely be dilutive." But there’s another, more relevant, number: subscribers. The two telcos are spending billions to enter video slowly. Even if they speed up, they still have to pry away subs from three competitors in every community, not to mention overbuilders. I used to wonder why they want to be merely the fourth player in the game, but in some places they’ll be the fifth. That means more acquisition potential. Price will not be the issue — it’s just a matter of time.

Investor/analyst Paul Kagan is chairman/CEO of PK Worldmedia, Inc., in Carmel, Calif. He owns shares of EchoStar, DirecTV purchaser Liberty Media, Mediacom and Price Communications, which is planning to distribute its interest in Verizon to its shareholders. Information in his columns is not intended to be a solicitation to buy or sell securities.

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Effros: The Rate of Change

So we’re back where we were with rate of return regulation: an incentive to spend more. There’s just not much rate of change in our regulatory thinking.

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