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DirecTV (DTV - Analyst Report), the largest satellite TV provider in the U.S., has launched a satellite and broadband bundled service in collaboration with ViaSat Inc. (VSAT - Snapshot Report), which will see the satellite provider distribute ViaSat’s high-speed internet services along with its video packages. The deal is mainly to focus on the rural areas where there is limited access to wired broadband service.

ViaSat offers high speed internet service under its Exede platform which provides maximum download and upload speed of 12 and 3 Mbit/sec, respectively. Customers can choose from different data packages ranging from 10GB, 15GB and 25GB with the high end version costing around $129.99. As it is a promotional offer, customers will get a discount of $10 on all tiered data caps for the first 12 months and could avail a waiver of $49.99 set up fee if they sign a 2-year contract.

The new offering provides some relief to the surfing customers as data consumed for surfing during the off peak hours is not counted in the data used. Nevertheless, if the customers fail to stay within the monthly data cap limit, then they can opt to buy an additional 1GB data, failing which they may face reduced download speed.

Despite impressive data speed and an attractive set up fee discount, the data caps remain a significant downside for the offer. This is for the reason that the offer will have less appeal to the video streaming customers, as streaming generally consumes huge amount of data.  

ViaSat is already facing increased competition from EchoStar Corp. (SATS - Snapshot Report) owned ‘HughesNet’ high speed internet services. Distributing its service through DirecTV will provide an incredible opportunity for ViaSat to popularize its product within a wide range of customers.

DirecTV’s arch rival Dish Network Corp. (DISH - Analyst Report) offers similar bundled service with ViaSat under its DishNET brand. However, DISH offers a 20GB data cap plan for a monthly cost of $49.99 and the download speed is10 Mbit/sec.

Teaming up with ViaSat, will allow DirecTV to provide the most robust bundled offering from any video provider in the mostly underserved rural areas, where the demand for high speed internet is enough. Furthermore, competing with DISH for the same market will make DirecTV’s offering much more competitive.   

We are maintaining our long-term Neutral recommendation on DirecTV. Currently, the stock holds a Zacks #3 Rank, implying a short-term Hold rating.

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