Would Consumers Buy A Bundle From a Telco?

BY MAVIS SCANLON

If SBC Communications CEO Edward Whitacre has his way, the big telco will finally offer a truly bundled package of services to compete with cable's ?triple play.?

Acquiring DirecTV would give SBC, which is in talks with General Motors to acquire its DBS operations, the video, high-speed data and voice package it seeks, but the phone giant would face high hurdles getting it off the ground and into serious competition with cable.

A bid for DirecTV would represent the culmination of years of effort on SBC's part to offer a combination of consumer services. Even before its current marketing partnership with EchoStar, which, through January, offered new customers a $25 per month discount on packages of video and SBC Yahoo-branded DSL service, SBC was looking to offer a one-stop communications package. In 1998 it partnered with DirecTV to offer video and phone service to apartment complexes. That deal ended in 2001, according to an SBC spokesman.

If SBC were to win a bidding war for DirecTV against front-runner News Corp. and any other bidders that may emerge, it would then have to meet a huge challenge in billing and customer service. ?In order to maximize the benefits of that [acquisition] you will have to provide a seamless face to the consumer,? says Yankee Group analyst Adi Kishore.

Bundling in general is a strong strategy, he adds, one that Cox Communications has proven can work. But those bundles have to be ?natural bundles,? and consumers don't necessarily see satellite as a natural extension of phone service or even DSL.

Patrick French, an analyst at Frost & Sullivan, says integrating products and equipment would be difficult. ?For SBC to really integrate all that together is not really obvious,? he says. Further, he notes, if SBC is looking for a way to juice sagging margins, buying a money-losing satellite operation that could require heavy investments to keep it competitive may not be the solution.

Cable operators don't appear to be overly worried about the prospect of a combined SBC-DirecTV. During a Cablevision conference call last week, CEO James Dolan said, ?I don't think that an RBOC purchasing DirecTV would change the competitive landscape at all.?

Cox president and CEO Jim Robbins said last week on a conference call that while Cox respects SBC as a formidable competitor, the MSO is not seeing any effect in its markets where SBC is marketing EchoStar's services. ?Clearly they are seeing the value of the bundle,? Robbins said, ?and we are going to keep pushing it.?

Investors did not greet news of the talks warmly. SBC's stock fell 7% in the days following the report, to $23.35 Friday.

?From a purely financial perspective Wall Street has already spoken,? says Yankee Group's Kishore.