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Daily Stock Brief by Briefing.com
Updated: 01-Dec-99
The Satellite TV Ruling
[BRIEFING.COM - Robert V. Green] On Tuesday, President Clinton
signed into law a bill that allows satellite TV to carry local channels.
Most people dismissed its significance for the internet landscape. We
think it could become a very important development over the next
three years. Here's why.
The Central Argument
The central argument is simple: Broadband internet services will be
closer to TVs-turned-net devices, than PCs-turned-into-TVs.
Integration of wireless broadband technology into satellite TV will be
easier to sell than any other combination. Especially if offered by a
telecom company. Add in the momentum that satellite TV will gain
from the local channel carriage, and a significant new service is
created.
Local Channels Give Satellite TV an Advantage
Back on March 25, 1999, we wrote that internet investors must start
watching the regulatory scene for satellite broadcasts. The reason
was simple: when satellite TV companies get permission to broadcast
local channels, penetration of satellite TVs will increase.
They will then have an advantage in offering broadband service,
against DSL or cable. The reason is that satellite TV service more
closely fits into two fundamental forces in the industry.
The first is the conversion of analog services to digital. This is
happening everywhere. First the CD conquered the cassette and LP.
DVD is now taking over VCR tapes. It is actually hard to buy a analog
cell phone now. Everything is becoming digital. How long until digital
TV takes over?
Satellite TV is already digital.
Digital TV allows for user-parsed viewing. TiVo already makes it easy
to skip over commercials. Eventually, we think payment for TV
services will become less dependent on commercials, and many
users will prefer digital delivery for this reason.
Digital TV will also allow for easier intergration, into the TV signal, of
other digital services. (Pick your own stats for the batter in the on-deck
circle?)
The second trend is the bundling of telecom services. Every telecom
company is beginning to offer bundled services of ISP access,
wireless phones, and local and/or long distance phone service. (Bell
Atlantic (BEL) has filed to provide long distance services.)
The trend towards bundling will eventually allow you to get broadband
internet, TV, and phone service, all from a single provider, all of which
will be digital services. A single installation on a rooftop could provide
all of these very easily. Combined in a package, the cost will be
appealing.
Is there any other reason why SBC Communications would have
signed a strategic alliance with Hughes Electronics (GMH) in July? A
telecom with a TV company?
But the real advantage is the application advantage.
The Application Advantage
Critics argue that satellite TV systems only provide 400 Kbps
transmission speed, for internet access. That can be upgraded. After
all, phone systems for DSL and cable systems also need to be
upgraded to provide broadband. But the broadband service may not
even come from the same transmission source as the TV. The
services only need to be integrated in a settop box.
The advent of TV's turned net-device may make arguments about the
technology benefits of each system irrelevant. What users will really
want is a single provider of service, for TV and broadband service.
It may, in fact, become a "relic" to think of "TV" and "internet" as
separate services.
But, also, if there is any single lesson in technology it is that the best
technology doesn't always win. We think a bundled TV and internet
package, delivered without wires, has an application advantage that
will only get stronger.
Broadband internet applications will start with three basic applications
On demand pay-per-view (Any movie, any time, in every
language...Also, any TV show...) This is the killer app for
broadband. The digital VCRs (TiVo, ReplayTV) will facilitate and
precede this.
Interactive videoconferencing, businesses first, but homes
eventually
Interactive commerce (video demonstrations, help with a live
remote salesperson, etc.)
All three of these are better suited for display on TVs than on PCs.
It is becoming more likely that true broadband applications will first
appear on TVs turned into net devices, than on PCs turned into TVs. In
fact, we are increasingly beginning to think that the TV-turned-net will
be the way broadband services become fully implemented.
Can't Cable Do It?
Why can't these new services be delivered by the cable company as
easily as the satellite TV company? They could, but the extremely
slow rollout of broadband on cable certainly doesn't speak to cable
companies execution abilities. And without converting to digitally
delivered TV, some services may be lost.
After all, cable modems completely split the TV signal from the internet
signal. That may turn out to be an Achilles' heel.
And for straight TV services, satellite TV is by far better: lower prices,
more choice, better quality images. The only thing that prevented
satellite TV from completely destroying the cable industry was the
local channel restriction. (Is it only coincidence that the local channel
ban stayed in place long enough for John Malone and Ted Turner to
both sell out?)
Meanwhile, the most interesting aspect of the MCI/WorldCOM and
Sprint merger isn't getting a lot of press. Both MCI and Sprint were on
an acquisition spree of their own, prior to the merger. Most of the
companies they bought owned licensed spectrum for the broadcast of
wireless broadband. Between the two of them, they spent $2 billion to
acquire licensed spectrum across the country. They aren't going to sit
on it.
The Strong Offer
What if you could buy, with a single purchase from a single company,
a satellite dish for digital TV, including your local channels, with
wireless broadband service included. (The broadband might not even
come from the same transmission source - but the service could be
integrated in a single settop box.) And as a bonus, you get free long
distance.
Such an offer could be made in any community, by any vendor. The
single provider monopoly problems of cable would vanish.
An offer like that could very easily be the best seller in the year 2001.
Or earlier.
Implications for Investors
The first implication for cable modem systems (Excite@Home ATHM
is the largest) is they better move fast. A lot faster than they have
been. Their only defense against the wireless tide is an installed base.
The second implication is the satellite TV companies themselves. We
think that, eventually, both Hughes Electronics Systems (GMH) and
Echstar (ECHO) will be acquired by someone. A major telecom
company is the likely buyer.
The third implication is manufacturers of wireless broadband
transmission and reception equipment, such as Adaptive Broadband
(ADAP). We'll look at suppliers like this in the near future.
Comments can be emailed to the author, Robert V. Green, at
rvgreen@briefing.com. |
