When AOL went shopping for broadband internet access by satellite, they didn't come to NCDR. They went to Hughes.
Reading the following NY Times article, you can see how many obstacles there are to making it in the satellite internet service business, including humongous demands for capital, and what kind of competitors, like Hughes, that this scruffy little company faces.
Also worth noting is the fantastic discrepancy between what is feasible and available (DirecPC's 400 kilo bits per second) and the outrageous claims NCDR puts forth for its SAS division:
"Our customers can choose speeds ranging from 1.7, 10, 45, 100, and 155 million bits per second ..."
satelliteaccess.com
Yep. If that were so, AOL would have blown off Hughes, wouldn't they?
New York Times
June 22, 1999
America Online to Put $1.5 Billion Into a Hughes Alliance
By ANDREW POLLACK
LOS ANGELES -- America Online will invest $1.5 billion in Hughes Electronics as part of a wide-ranging alliance that will allow the online service to offer high-speed Internet access using the Hughes satellite data delivery system, the companies said Monday.
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Under the agreement, which is a broadening of a deal announced by the companies a month ago, Hughes will market AOL TV, an interactive television service, to the 7 million subscribers of its DirecTV satellite television service. In turn, America Online will market DirecTV and DirecPC, Hughes' high-speed, satellite-based Internet access service, to its 16 million American subscribers.
Separately, Hughes said Monday that it expects a loss of 20 to 25 cents in the second quarter because it will take a pretax charge of $100 million to $130 million resulting from problems manufacturing certain satellites. Analysts had expected a loss of 4 cents a share. The buyer of the satellites, Panamsat, a communications company that is 81 percent owned by Hughes, had said last month that its earnings and revenue would be reduced by the manufacturing delays.
For America Online, the largest provider of Internet access, the Hughes deal offers a line of defense against cable television companies. Cable is a natural channel for high-speed data delivery, via modems. But cable companies want to offer their own versions of news and entertainment, portal sites that will compete with America Online. The Hughes deal follows several similar agreements by America Online with phone companies involving digital subscriber lines, a high-speed phone-line alternative to cable modems.
The issue of whether cable companies should be forced to open their lines to other Internet service providers has become a heated one around the country. In Los Angeles, three of the five members of a commission formed by Mayor Richard Riordan to look at the issue have resigned in the last week because they favored open access while the mayor opposed it. And last week, the chairman of the Federal Communications Commission, in a speech to the cable industry, said the federal government, not local governments, should regulate cable access.
Under Monday's agreement, America Online will be able to offer high-speed access using DirecPC, which delivers data from satellites to personal computers at 400 kilobits a second, compared with 56 kilobits a second for the fastest conventional modem. A major drawback is that transmission in the other direction, from the user's personal computer to the Internet, is handled by phone lines at a slower speed.
While DirecPC's downstream speed is less than one-third the speed of digital subscriber lines and as little as a tenth that of the fastest cable services, it offers the advantage of being available everywhere in the country, reaching two-thirds of households that do not currently have access to cable modems or digital subscriber line service from their phone companies.
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Electronics maker expects quarter share loss of 20 to 25.
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"There is a majority of customers who today have no broadband options," Steve Case, the chairman of America Online, said in a media conference call. "Those people will finally have an option." But Case said his company continued to look for deals with phone and cable companies, adding: "We want to work with as many companies as we can. We're agnostic as to these underlying technologies."
DirecPC has languished, with only about 100,000 subscribers worldwide, mainly businesses, since its introduction because Hughes, facing financial constraints, has not heavily invested in it. But the infusion of cash from America Online is expected to change that.
"This allows us to bring it into the consumer forefront and put some money behind it," said Michael Smith, the chairman of Hughes, a unit of General Motors Corp. The investment from America Online will also help Hughes develop Spaceway, a two-way, high-speed satellite data service scheduled for introduction in 2002.
The cash infusion is the largest by America Online in another company, though it has made larger acquisitions using stock. It will receive a General Motors security that is automatically convertible in three years to GM class H common stock, the tracking stock for Hughes, at a price 24 percent above the current price. That would give America Online ownership of about 5 percent of Hughes' equity, Smith said.
The investment will allow Hughes to cancel a $1 billion equity offering it had been planning to help pay for its recent acquisitions of U.S. Satellite Broadcasting and Primestar, two satellite television rivals. GM was to contribute half of that $1 billion in equity.
America Online and Hughes announced last month that they would develop a set-top box that would enable consumers to receive both DirecTV and AOL TV. AOL TV, which is to be offered next year, will provide access to the Internet and to other America Online services through a television set rather than a computer. For instance, someone seeing a television business news program could at the same time buy and sell shares online.
Hughes Network Systems, a subsidiary of Hughes, said Monday that it would use Intel microprocessors in the set-top box for the AOL TV satellite service and for other set-top boxes as well. This could provide a boost for Intel's efforts to expand uses of its processors beyond the personal computer, for which it is the dominant supplier. Intel also said it would license Hughes' DirecPC technology to use in future products.
Shares of America Online, based in Dulles, Va., were the most actively traded on the New York Stock Exchange Monday, rising $3.375 to close at $115.375. Hughes, based in El Segundo, Calif., rose $3.1875, to $56.625, while General Motors closed up 93.75 cents at $63.75. |
