The news that AT&T will end its distribution deal with Dish Network has sent the shares of Dish reeling: the No. 2 U.S. satellite-TV company has lost more than 7% of its market cap since the closing bell on Tuesday. But Ma Bell's maneuver could indicate a broader weakness in the satellite TV arena.

In a Securities and Exchange Commission filing late Tuesday, Dish said the agreement, which began in 2003, will conclude at the end of the year. Earlier this year AT&T ended a partnership with DirecTV, the No. 1 satellite TV provider.

Some analysts believe AT&T is angling for better terms from Dish Network to renew the partnership, or that it will try to spark a bidding war between the two satellite providers, which rely heavily on telecom-company partnerships to market their services to consumers.

As AT&T rolls out its own Internet Protocol television (IPTV) offering, however, it may see the sat-TV partnerships as less integral to its overall strategy. In the tangled market for supplying bundled services to residences, including voice, Internet access, and entertainment, big providers like AT&T are offering multiple, and often competing, services.

Launched in 2006, AT&T's U-verse IPTV service has struggled to find customers and to supply television and video-on-demand in a cost-effective fashion. There are signs, however, that U-verse is gaining traction: At the end of the first quarter of 2008, the company said it had 378,000 U-verse subscribers and plans to offer the Internet-based service to 31 million residential customers in the next few years.

AT&T has about 2.23 million satellite-TV subscribers, through both DirecTV and Dish Network.

"AT&T would not monkey with its satellite partnerships if it lacked confidence in U-verse," wrote Morgan Keegan analysts Simon M. Leopold, Paul A. Bonenfant, and Mark Carroll Jr. in an "Investor's Soapbox" column on Barrons.com.

FiOS TV, the IPTV offering from Verizon Communications launched in 2005, is also winning customers from cable and satellite providers. Adding 263,000 subscribers in the first quarter of this year, Verizon now has about 1.3 million IPTV subscribers.

By comparison, the top cable and satellite providers, Comcast and DirecTV, have more than 50 million subscribers combined. That gap could narrow in coming years, according to a recent report from research firm SNL Kagan. The telcos' share of the pay-TV market will triple in the next three years, to 9%, Kagan predicts. Particularly strong will be video-on-demand services: IPTV providers' revenue from video could jump tenfold by 2012, according to research from Gartner.

"Competitive pressures in the consumer communications market" are driving the big telcos "to expand their suite of services to include broadcast television and video programming," said Amanda Sabia, principal research analyst at Gartner.

AT&T has been rolling out a bundled service that comprises U-verse TV, high-speed Internet access, and voice services to selected regions. Last week Verizon announced the biggest upgrade to date for its FiOS Internet Service, saying it will increase the upload and download speeds available to more than 10 million homes and businesses across 10 states. The company said it expects FiOS be available to more than 18 million potential customers by 2010.

While FiOS is a pure fiber-optics technology, AT&T's U-verse network uses a combination of long-haul fiber and copper connections to the home. Previously selling to largely separate geographical territories, the two services have begun to compete directly in some markets.