Echostar Hopes New Plan Will
Boost Deal's Chances
Copyright 2002
Warren Publishing, Inc.
Communications Daily...02/27/2002
From Lexis-Nexis
from the February 27, 2002 edition of Broadband Week
EchoStar and Hughes Electronics filed joint strategy
application with FCC seeking to combine satellite assets in bid
to bolster local broadcast channel and broadband services. Filing
late Mon. was another sign of companies' efforts to further buttress
case for proposed $26 billion deal that has drawn opposition from
cable and broadcast industries.
Initial reaction was mixed. NAB Pres. Edward Fritts said announcement
"seemed to be a step in the right direction'" but NAB
still was skeptical of plan that "needs to be scrutinized
to determine it's legitimacy." Fritts said NAB would "have
more confidence" if organization were dealing with DirecTV:
"Broadcasters have long had a long and tortured history of
bad-faith dealings" with EchoStar Chmn. Charles Ergen.
NRTC also was guarded. "We're pleased that EchoStar and
Hughes have listened to the strong voice of rural America and
recognized the importance of providing access to local news and
programming to all TV markets," spokeswoman said. She said
decision was direct result of pressure by rural organizations
and consumers, but "there are still a number of other issues
that need to be addressed." Pegasus said it would wait before
making statement.
Local Channels, All Americans plan, developed jointly by engineers
from Hughes' DirecTV and EchoStar, calls for companies to combine
96 frequencies and 16 satellites at 101 degrees, 110 degrees and
119 degrees W, including 2 spot beam birds.
Companies plan to launch 2 other spot beam satellites, as well
as 5th model at cost of $300 million, if deal is approved, Ergen
said. Combining of assets would enable companies to use 28 frequencies
to retransmit all local broadcast channels in 210 markets vs.
70 each if companies were to continue as standalone operations,
DirecTV Chmn. Eddy Hartenstein said. About 100 markets could receive
local service shortly after close of proposed takeover, with another
110 to be added within 24 months, he said. DirecTV offers local
service at 101 degrees W in 41 markets -- 61% of estimated 107
million TV households in U.S. -- while EchoStar has 35. Companies
have combined 17 million subscribers. Merged assets could provide
12 high-definition channels, Hughes CEO Jack Shaw said. "This
makes us a true competitor to the dominant cable providers,"
he told analysts and investors in conference call detailing proposal
Tues.
Joining satellite assets also would enable EchoStar and DirecTV
to move to reverse fortunes of money-losing broadband services
that have attracted fewer than 150,000 subscribers. Hughes Network
Systems' DirecWay 2-way satellite service is fully funded for
current year, but its future beyond that without merger is in
doubt, Shaw said. DirecWay has gained about 100,000 subscribers
since repackaging itself as 2-way service in 2000, but has suffered
from software glitches, with hardware and prices remaining in
$700 range for receivers, along with $60-$70 monthly service fee.
EchoStar has invested in Starband, but service has only about
40,000 subscribers. Combined service would be based on Hughes'
Ka- band Spaceway platform, due in 2004, that has largely been
designed to serve enterprise market but could be tailored to provide
consumer services as well, Shaw said.
"We can't get the service to them (consumers) economically
today and people aren't willing to pay $700 for equipment and
$70 per month for service," Ergen said. "We would offer
a one-dish solution to every American that would allow them to
pick any service they want" including both video and data.
Receiver dish would be similar to that offered with current broadband
services that measures 18"x22", Hartenstein said. Combined
company would take "subset" of Spaceway and "drive
the per- bit cost down" to provide service that would be
competitive with cable and DSL offerings that currently were in
$30-$50 range, company said.
EchoStar "isn't opposed to consent decree as condition of
merger, Ergen said: "Absent the politics, we are going to
have great support" for merger. Merger partners had earlier
said in SEC filing it would be impractical to provide local- into-local
service in all markets (CD Feb 25 p7). Ergen said difference now
is companies will use 5 satellites and 3 orbital slots.
Northpoint CEO Sophia Collier called EchoStar announcement
"last-minute political stunt." She said EchoStar was
promising local carriage while at same time challenging must-carry
provision in court where it has said local programming is of limited
interest and viewership isn't in harmony with DBS objectives.
-- Mark Seavy, Bruce Branch
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