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http://www.marketwatch.com/news/sto...643-4F82-4E71-9400-517C0CBC523F}&siteid=yhoof

WASHINGTON (MarketWatch) -- In an intensifying battle to hold off incursions by cable TV providers, AT&T Inc. is about to put its strategy to a new test.

A key step likely will come some time later this year, when the company is expected to unveil a decision that could roil the satellite TV market. AT&T, which now has two satellite providers in its stable as a result of its BellSouth acquisition, soon plans to choose between the two -- and abandon one of them.

Decides which one of the two archrivals will be left standing as Ma Bell's exclusive satellite-television partner.

The loss of a major contract certainly wouldn't be good news for DirecTV or EchoStar, owner of Dish. More than 800,000 DirecTV customers and perhaps 700,000 Dish subscribers signed up with AT&T as part of a discounted bundle of video, phone and Internet service.

The partnership with AT&T helps cut marketing costs for the satellite carriers and augments their ability to add new customers at a time when subscriber-growth rates are slowing.

"It's an important part of their business," said Jimmy Schaeffler, a satellite-industry analyst who runs The Carmel Group. "The phone companies are helping the satellite companies to retain their strong subscriber-growth numbers."
For now, said AT&T spokesman Fletcher Cook, no decision has been reached. "Satellite remains very important to AT&T and we are still exploring our options," he said. Dish and DirecTV officials declined to discuss the issue.

Yet the chief financial officer of the nation's largest phone company has publicly acknowledged that AT&T would end one of the relationships in early 2008.
"Both of those are contractual arrangements that run through roughly the first part of next year;" AT&T CFO Rick Linder told investors at a conference last week. "And so I would expect that we will migrate to one provider, and we will make those final decisions between now and the end of this year."
Ties that bind

The marketing arrangement with AT&T is one of many struck by the satellite companies in the past few years as they battle the cable industry for customers.
"They have broadband. They have wireless phone. They have long-distance and local phone," Charles Ergen, EchoStar's chief executive, explained in a recent conference call with analysts. "So they have the ability to allow us to get our customers a quadruple play that cable really can't offer."

In each of those cases, the phone companies offer just one satellite choice to customers. The same had been true for AT&T, whose marketing of Dish stems from Ma Bell's recent acquisition of BellSouth.

BellSouth, as it turns out, was DirecTV's largest phone partner, bringing in more than 800,000 video customers. Suddenly DirecTV became AT&T's biggest video provider, giving rise to the company's current entanglement with the two fierce satellite rivals.

Yet the longer and deeper relationship between AT&T and EchoStar puts Dish on the inside track to remain in the AT&T fold, analysts say. AT&T paired up with Denver-based EchoStar (DISH : EchoStar Communications Corp
in 2003, and the two recently began to offer a well-regarded satellite-broadband product called Homezone.
Homezone combines television and Internet service in one box, allowing customers to download movies, schedule recordings remotely or gain access to any file on their personal computers via their TV sets.