ECHOSTAR HOPES NEW PLAN WILL BOOST DEAL'S CHANCES
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.
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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.