AT&T and DirecTV are said to be talking about a cash and stock deal that could be worth close to $50 billion. It could be signed in the next few weeks, according to a Wall Street Journal report.
But the benefits of this combination, beyond cash flow, were not readily apparent to BTIG media and technology analyst Rich Greenfield. "DirecTV is a fundamentally challenging business long term. You are in an environment where the cable pipe is really evolved. It used to be that DirecTV was the market leader. They were technologically superior," he told CNBC on Tuesday. "That's simply not true anymore."
"If you stop growing subscribers and you just harvest the cash," Greenfield continued in a "Squawk Box" interview, "DirecTV generates a ton of cash. [Even though] it may not be a growth business over the next 10 years."
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The talks are the latest sign of a rising tide of potential megadeals in the telecom, cable and satellite TV space, which is being roiled by Comcast's proposed $45 billion takeover of Time Warner Cable as well as market forces such as the rise of Web-based TV and surging mobile Internet usage.
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A combination of AT&T and DirecTV would create a pay-television giant close in size to the combined Comcast-TWC. For that reason, the proposed merger is likely to face a prolonged battle to convince regulators to allow further consolidation in pay TV. AT&T and DirecTV declined to comment on reports of their talks.
"This is not the first time that AT&T and DirecTV have danced around the fire and thought if they could give it a go," said ReconAnalytics analyst Roger Entner.
"They both looked at each other for at least 10 years. Both kind of came to the conclusion that it was in the right environment. It makes a lot of sense to get together," he said. "But there was never the right regulatory environment for it."
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A Comcast-Time Warner Cable merger would call for a counterweight like a combined AT&T-DirecTV, Entner said. He added that the merger would make sense for DirecTV given the decline of satellite TV.
"They both see the Grim Reaper at the horizon. DirecTV hasn't gone out and bought spectrum. Dish has, so DirecTV needs to find a partner, and AT&T is that partner," he said.
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Some investors have also speculated about a potential tie-up of DirectTV and smaller rival Dish Network.
But Dish Chairman Charlie Ergen last week said his company, which attempted to buy DirecTV more than a decade ago, would not make a fresh approach at current prices even though he said such a tie-up would create many benefits.
Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.
—By CNBC's Matthew J. Belvedere. Reuters contributed to this report.