SBC IN RETAIL PACT WITH ECHOSTAR TO BUNDLE DISH WITH SERVICES
EchoStar and SBC Communications announced an agreement Mon. that would bundle former’s Dish Network with SBC’s voice and data services. New service, SBC Dish Network, will be available in early 2004, companies said. SBC also said it would help with funding for co-branded product. Although both companies will benefit from deal, analysts said that agreement is more significant for SBC. EchoStar CEO Charles Ergen said deal is culmination of a partnership that began a year ago with bundling experiments involving certain video and telephone services: “It boils down to a smart business deal for both companies… [and] will focus on the business of offering products across the board.”
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SBC customers in 13 states served by company will have opportunity to add SBC Dish Network to their existing SBC services, including local telephony, wireless, DSL Internet and long distance services, companies said. SBC CEO Edward Whitacre said in a conference call that company has made no secret “of the importance we place on including video [programming] in the [service] bundle… [Both companies] have a common vision on the power and importance of bundling. This partnership allows us to get to market with a video offering quickly.” Bundling won’t just affect availability of service, but also ordering, customer service and billing, companies said.
Customers who choose new service will receive DBS programming at a “significant” value, said SBC Chief Marketing Officer Lea Ann Champion: “This approach will allow us to have significant flexibility when it comes to bundling the Dish offering with the telecom capacity.” Champion said specific pricing packages are still under development. Companies also announced long term plans for an integrated set-top box that would incorporate satellite television, DSL Internet and a home networking capability, although there is no firm date for unveiling new box. “We're taking the broadband DSL connection out of the home office and transporting it to the living room to become more of a centerpiece for the home. While we're not talking specifics, we are very confident and will be evaluating the marketplace,” Champion said.
New alliance with EchoStar appears to signal a major break for SBC Communications, which has resold DirecTV service for 5 years and earlier this year was considered a suitor for Hughes Electronics. SBC first signed on, along with Verizon, to resell DirecTV in 1998 and later added its DirecWay Internet access service. SBC and Verizon packaged phone services with DirecTV and added about 100,000 subscribers in a 2-year period ended in 2000. DirecTV official confirmed that SBC-EchoStar deal would have no effect on company’s resale deal with SBC.
EchoStar also has had discussions with SBC in past including reaching out to company in 2001 as a possible partner that would gain an equity stake in an EchoStar-Hughes combination. EchoStar mounted a bid for Hughes that collapsed last fall after being rejected by FCC. News Corp. has since reemerged with an agreement to buy Hughes in a deal that’s expected to close by year-end. EchoStar also has long sought to forge an alliance that would give it access to a DSL service as part of revamping of its Internet access strategy. EchoStar previously made failed investments in Starband and WildBlue, both of which market satellite-based Internet access services..
Also unclear is what impact EchoStar resale agreement with SBC will have on its retailers, largest of which are Sears and RadioShack. Sears and RadioShack officials weren’t immediately available for comment. Agreement is exclusive for single-family residences in SBC’s 13-state service area, providing service to more than 56 million access lines. EchoStar will continue to sell its satellite service through its retail arm, but new pact “provides a significant channel to further increase Dish Network sales,” EchoStar said. New and existing EchoStar customers will “benefit” from bundling of satellite service with local, long distance, wireless and DSL.
Agreement, although exclusive, will allow both companies to grow in future. SBC told reporters that agreement will allow SBC to enhance its wired network to include new technologies for different services, such as video programming over SBC’s landlines. Although EchoStar would be preferred video provider for those networks, SBC said, company can go to other companies for programming. Ergen also said that EchoStar was considering similar agreements with other companies in other parts of country: “SBC is the company we're farther along with. It may be that we will do additional transactions, but we may not do another transaction. We've certainly made a deal with SBC to move in this region.”
Precursor Group CEO Scott Cleland said SBC likely decided agreement would be best low-cost, high-impact alternative to purchasing a video outlet, “so they wisely decided not to encumber a lot of their own capital when they couldn’t get scale cost savings.” Cleland said that although deal is significant because SBC can offer a video alternative, it’s not cheapest way to create revenue synergies: “It’s not a one company bundle. It provides a comparable product offering…but it doesn’t provide a comparable business offering.” TelAstra’s Roger Rusch said that on satellite side, DBS providers realize that they need to offer a broadband alternative and that broadband over satellite isn’t best option yet: “DBS is trying different things but they don’t know what is going to work. Nothing has really been successful so far.” Rusch said change appears to be marginal, but if bundling is answer, it will still take a while for people to start changing their services.
Separately, SBC also agreed to make an investment in EchoStar via purchase of $500 million in convertible debt. EchoStar has sought to raise funding in past including a $1.5 billion investment from Vivendi Universal that was to include access to programming developed by its subsidiary Canal Plus. Vivendi bought 57 million shares (19.3%) of EchoStar stock in Dec. 2001, proceeds of which were partly to fund latter’s planned acquisition of Hughes. With collapse of deal, Vivendi said it was considering a sale of stake in EchoStar as part of drive to sell assets in next 2 years.
Meanwhile, Qwest also announced plans to bundle EchoStar and DirecTV services with its own voice, video and data services. Qwest plans to offer Dish Network to its customers in Colo. and Neb. and DirecTV to Phoenix, Tucson and Seattle, all for single family homes. DBS services will be available beginning in Aug., and new markets will be announced throughout rest of this year and early 2004. Qwest and DirecTV also have an agreement to provide services to multiple dwelling units, Qwest said.