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Is DBS competition in the offing?

SES Americom says it is ready to enter market, but first it must persuade FCC to short-space satellites 4/28/2002 08:00:00 PM Eastern

SES Americom, owned by Luxembourg-based SES Global, wants to bring competition to the U.S. satellite-television market, and, surprisingly, the existing satellite-TV operators couldn't be happier about it.

Called Americom2Home, the new service would allow content providers—such as AOL Time Warner or News Corp.—to lease space on a satellite to create their own content offerings. For example, News Corp., which has long coveted a satellite-TV service in the U.S., could put together a service akin to its BSkyB and sell it to consumers.

SES Global has a similar service in Europe called SES Astra, which provides 30 million homes a direct-to-home platform for Vivendi's Canal Plus, News Corp.'s BSkyB and others.

But the company has a long way to go before it can enter the U.S. market. Last week, it asked the FCC to put a broadcast satellite into orbit at 105.5 degrees west longitude, right between broadcast satellites of the two existing U.S. satellite-TV operators, which are fighting hard in Washington for approval to merge. DirecTV has a satellite at 101 degrees, EchoStar at 110 degrees.

But the SES petition is radical. The direct- broadcast satellite service is based on satellites separated in geostationary space by nine degrees of longitude. Short-spacing a satellite would likely cause considerable interference to the 16 million homes that now subscribe to either DirecTV or EchoStar. Dean Olmstead, SES Americom president and CEO, dismisses the interference problem. "We're well within the parameters of what the FCC authorized," he says.

EchoStar and DirecTV indicated that they would not object to the new entrant and raised no concerns about interference.

"We welcome competition," says Marc Lumpkin, spokesman for EchoStar, the merger's surviving party. "This shows there is room for new entrants into the multichannel video programming distribution market."

EchoStar's live-and-let-live attitude may be because it needs competition or at least a show of competition. Its merger is running into trouble with lawmakers, and consumer groups say it is anticompetitive. The merger would combine the only two full-power satellite-TV companies in the country, making it the only choice consumers would have in many rural areas.

"Even if SES isn't necessarily operational, if it's imminent, then there really is no reason to reject the Echo-DTV merger. In fact, this is the best thing that could happen if you're Charlie Ergen," says Aditya Kishore, a media analyst at The Yankee Group. Ergen is the head of EchoStar.

"If the Justice Department thinks it's a real potential competitor, then obviously it's a positive for the merger," says Blair Levin, an analyst at investment research firm Legg Mason. "But I don't know that it's positive enough to get them over the top."

Last week, the FCC gave Northpoint Technology the go-ahead to use DBS spectrum to launch terrestrial wireless video and data services, but observers say the proposed service doesn't appear imminent or real enough to qualify it as a potential competitor to EchoStar. And Northpoint may choose not to roll out its service because the FCC is requiring Northpoint to acquire its license through auctions (see page 45).

"I think Northpoint is very small help to EchoStar," Levin says, "in terms of the merger review."

SES Global's announcement last week fits so neatly into EchoStar's need to show Washington that it will not be a DBS monopoly after the merger that some suggested that Ergen had encouraged the announcement. In fact, SES Global has been in talks with EchoStar about launching a satellite-based Internet-access service in the U.S.

"Why the hell else do they try to come in to a non-existent slot right now?" says Precursor Group CEO Scott Cleland. "It's too coincidental. But if it is Charlie, the Justice Department will see right through it." The merger must win the approval of the FCC and Justice.

If all goes according to plan—and with ventures like this, it usually doesn't—SES Americom says it will launch its service in 2004 and spend $250 million on it. The satellite at 105.5 degrees will have 32 transponders, enabling the company to send out about 10 channels per transponder.

"I won't be Pollyanna about it and tell you it's all done. It's not," Olmstead says. "But we're optimistic based on the discussions we have had with our customers."

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