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Alan Breznick
With the DBS field narrowed down to two main providers, industry observers expect an even further consolidation of satellite TV players and possibly some swapping of orbital slots to occur.
In interviews and speaking appearances over the past week and a half, satellite TV analysts and consultants predicted that DirecTV Inc. and EchoStar Communications Corp. will next battle fiercely over Primestar Inc.'s medium-power subscribers and the dwindling but still sizable group of C-band dish owners. Between them, Primestar and C-band have about 4.2 million customers, almost as many as industry leader DirecTV and twice as many as upstart EchoStar.
Although DirecTV is buying Primestar for $1.82 billion in cash and stock, EchoStar has already launched a new, two-month drive to steal away the Primestar customers before DirecTV can convert them over to its own high-power service. EchoStar chairman/CEO Charlie Ergen is offering satellite TV dealers a $200 bounty for each Primestar customer who switches to his company's Dish Network service, plus up to $150 more if they offer EchoStar equipment and services exclusively.
Analysts estimated that EchoStar could lure anywhere from 15% to 33% of Primestar's 2.3 million customers away from DirecTV. That could mean a gain of more than 700,000 subscribers for EchoStar, which cracked the 2 million-customer level last month and is shooting to reach 3 million by the end of the year.
"Charlie could take a quarter to a third," said Mickey Alpert, a Washington, D.C.-based DBS consultant. But, he cautioned, "there's a certain number of Primestar subscribers that neither DirecTV nor EchoStar want" because of their lower incomes and high propensity to churn.
Industry experts think DirecTV and EchoStar may also duel over C-band's 1.9 million customers this year. Alpert, for instance, expects to see a bidding war for United Video's Superstar operation, which Primestar sought to buy last year.
"If I were EchoStar, I'd be making a deal for United Video while DirecTV is absorbing Primestar," he said. He considers EchoStar the more likely buyer because it can now afford to pay more than DirecTV and can convert large dish owners over to DBS more easily.
Observers also believe DirecTV, with nearly 4.5 million subscribers, may try to consolidate its customer base by gobbling up two of its biggest retail distributors-Pegasus Communications Corp. and Golden Sky. The two companies now resell DirecTV programming in broad, rural territories under DirecTV's agreement with the National Rural Telecommunications Cooperative.
Finally, analysts speculate that DirecTV and EchoStar may trade some of their high-power orbital slots once their three pending acquisitions are completed later this year. DirecTV will have 46 frequencies spread among three slots blanketing the U.S. after its purchases of Primestar and U.S. Satellite Broadcasting Co. are consummated, while EchoStar will have 50 frequencies split between two full-conus slots after it closes its acquisition of Rupert Murdoch's American Sky Broadcasting venture.
Stephen Blum, president of Tellus Venture Associates, noted that a swap of DirecTV's 11 frequencies at 119 degrees west longitude for 11 EchoStar frequencies at 110 degrees would give each company full control over one of its orbital locations. Under this scenario, DirecTV would have all 32 frequencies at 101 degrees and 14 at 110 degrees, while EchoStar would have all 32 frequencies at 119 degrees and 18 at 110 degrees.
"It's a neat division," Blum said. "It's in EchoStar's best interest to rationalize its assets at 119 degrees and in DirecTV's best interests to consolidate its three slots into two."
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