ERGEN WANTS TO PUT $1 BILLION INTO HUGHES’ SPACEWAY
EchoStar is planning to invest $1 billion to expand Hughes’ Spaceway subsidiary. CEO Charles Ergen admitted decision to invest so much in high-speed Internet project was “extremely risky” pursuit. He said “shareholders may not like me too much” because “I'm passionate about trying to develop that technology.” Ergen promised to develop new generation of satellites to boost Spaceway and said deal would give company “the financial structure and subscriber base” needed to avoid “betting the entire company on the outcome” of project. He also said he planned to grow stake in PanAmSat, satellite operator of which Hughes owns 81%.
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Ergen’s plans for PanAmSat and Spaceway were surprise to analysts and industry officials who have been following company. “Charlie has thrown a curve ball into a lot of thinking,” analyst said: “He is positioning himself to make a stronger case for regulatory approval because of the mounting opposition from rural forces. This could pay off in a big way.” If deal is approved by regulators, Ergen will delay full-scale rollout of service until 2004.
Many analysts had speculated Ergen would sell PanAmSat once he gained regulatory approval of takeover of Hughes Electronics. They also believed he would cut back or sell off Spaceway, in which Hughes already had invested $1.4 billion with little or no return. However, major EchoStar investment in Spaceway could make company more palatable to regulators because of potential that high-speed Internet service provides, industry analyst said. Provision of broadband service to remote and rural areas is seen as one of lynchpins in gaining regulatory approval for proposed EchoStar takeover of Hughes DBS. Many lawmakers and industry analysts believe satellites are best way to provide service where there are few fiber networks, sources told us. FCC kicked off review of EchoStar-Hughes deal last Fri. (CD Dec 26 p9), with comments due Feb. 4.
PanAmSat has “a lower growth, predictable business that marries pretty well” with more DBS business, analyst said. Ergen also said some DirecTV Latin American businesses were core operations that wouldn’t be sold unless competition with News Corp. became too expensive, industry reports said.