I know you have not been to kind to the satelite competition, just wondering if this is viable or more of the same. excerpt from a research comment on gmh
Hughes Electronics Corp. ? 31 January 2000
2
Hughes Announces 2-Way Internet
Services Ahead of Expectations
At an investor conference, Hughes announced two high-speed
internet initiatives roughly two years ahead of
expectations. We expect these offerings to position the
company to compete effectively with terrestrial internet
providers, as well as other satellite competitors.
2 Way Internet For Consumer Ahead of
Plan
In the Consumer segment, the company announced it
expects to launch a 2-way broadband product by Q4 2000,
or roughly 2 years ahead of expectations. This product is
expected to operate at speeds of up to 400 kbps outbound
(downstream) and 128-200 kbps inbound (return path).
Although not officially announced, we believe the retail
price to the consumer will be comparable to current retail
prices for the company?s one-way dial-up option on
DirecPC today, roughly $149-$249. With box costs around
$600, this implies an equipment subsidy of approximately
$350-$450. In addition, we estimate another $250-$350 will
be spent on advertising and marketing costs and dealer
incentives, bringing total subscriber acquisition costs (SAC)
per gross add to about $700. From DirecPC subscribers, the
company should receive about $50 month. For AOL Plus
subscribers, the company has reached a revenue sharing
agreement with AOL that gives them $20.50 per month. It
is not clear whether AOL will assist in subsidizing an AOL
Plus box, or by how much. The company also expects to
have additional revenue opportunities available beyond just
the traditional AOL Plus service, such as e-commerce and
services derived from information cached onto the hard
drive. The company expects to garner approximately 1.2
million subscribers by 2003, at which point it hopes to
transition many of these subscribers to its Spaceway IP
network platform.
2 Way Internet for Enterprise
Should Compare Favorably With
DSL/Cable Modems
For the Enterprise segment, the company also announced its
plans for a two-way product, DirectWay, which it expects
will have equal or better performance characteristics than
DSL and/or cable. Additionally, Hughes intends to launch
higher valued added services, including web applications
such as internet/intranet browsing in alliance with Netscape,
email/fax/voice mail messaging and direct & commercial
web caching. With web caching, HNS will be both an
enabler and competitor to emerging and established satellite
Internet companies like iBeam, Skycache and UUNet.
Hughes May Capture up to 10% of
the Data Market
We believe these announcements position Hughes to
compete aggressively in the broadband and Internet arena.
As a first mover and market leader in satellite broadband,
with significant distribution channels and a future IP
network platform in Spaceway, we believe HNS could take
a major share of the global satellite broadband market. With
2-way satellite broadband over a Ka-band IP network like
Spaceway comparing very favorably to terrestrial
alternatives, we believe a major share of the satellite
broadband market could translate into capturing up to 10%
of the total data communications market, which the
company estimates could be as large as $25 B by 2008.
Valuation
At the meeting, the company outlined a rationale for valuing
the HNS unit alone at $24-$34+ per GMH share. We had
previously raised our valuation of HNS to $15 per GMH
share.
We reiterate our Buy ratings and $140-$150 12-month price
objective.
Merrill Lynch acts from time to time as an advisor to Hughes Electronics
Corp. in various investment banking and securities offerings transactions.
[AOL, GMH] MLPF&S was a manager of the most recent public offering of securities of this company within the last three years.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). This report has been issued and approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is
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