SBC SIGNS DEAL WITH ECHOSTAR TO BUNDLE DISH NETWORK WITH SERVICES

SBC customers in the carrier’s 13 states will have the opportunity to add SBC Dish Network to their existing SBC services, including local telephony, wireless, DSL Internet and long distance services, the companies said. SBC CEO Edward Whitacre said in a conference call that the company had 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.” The bundling will affect not only the availability of the service, but also ordering, customer service and billing, the companies said.

Customers who choose the new service will receive the DBS programming at a “significant” value, SBC Chief Mktg. Officer Lea Ann Champion said: “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 still were under development. The 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 was no firm date for unveiling the 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.

The 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 (and subsidiary DirecTV). 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 100,000 subscribers in a 2-year period ended in 2000. A DirecTV official confirmed that the SBC-EchoStar deal would have no effect on the company’s resale deal with SBC.

EchoStar also has had discussions with SBC including reaching out in 2001 as a possible partner that would gain an equity stake in an EchoStar-Hughes combination. EchoStar’s bid for Hughes collapsed last fall after being rejected by the FCC. News Corp. since has reemerged with an agreement to buy Hughes in a deal that’s expected to close by year-end. EchoStar also has long sought to form 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 the EchoStar resale agreement with SBC will have on its retailers, the largest of which are Sears and RadioShack, whose officials weren’t available for comment. The 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 the new pact “provides a significant channel to further increase Dish Network sales,” EchoStar said. New and existing EchoStar customers will “benefit” from bundling of the satellite service with local, long distance, wireless and DSL, it said.

The agreement, although exclusive, will allow both companies to grow in the future. SBC told reporters that the deal would 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 the preferred video provider for those networks, SBC said, the company can go to other companies for programming. Ergen also said EchoStar was considering similar agreements with other companies in other parts of the 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 probably decided the agreement would be the 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 the deal was significant because SBC could offer a video alternative, it wasn’t the 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 the satellite side, DBS providers realized that they needed to offer a broadband alternative and that broadband over satellite wasn’t the 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 the change appeared to be marginal, but if bundling was the answer, it still would take a while for subscribers to start changing their services.

Separately, SBC agreed to make an investment in EchoStar via the purchase of $500 million in convertible debt. EchoStar has sought to raise funding in the 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, with the proceeds to partly fund the latter’s planned acquisition of Hughes. With the collapse of the deal, Vivendi said it was considering a sale of the stake in EchoStar as part of the drive to sell assets in the next 2 years.

Meanwhile, Qwest also announced plans to bundle EchoStar and DirecTV with its own voice, video and data services. Qwest plans to offer Dish Network in Colo. and Neb. and DirecTV to Phoenix, Tucson and Seattle, all for single-family homes. The DBS services will be available beginning in Aug., and new markets will be announced throughout the rest of this year and early 2004, Qwest said. Qwest and DirecTV also have an agreement to provide the services to multiple dwelling units, it said.