WGNR. IMO may be a great mid to long term holding. Briefing.Com out with a great article on why satellite TV will increase dramatically and this is the sector that WGNR builds equipment for. They were recently beaten down in the Nasdaq downdraft. I think it's worth a look if you're not already in, but as always, please do your own DD. Russ
Satellite TV: The Future of Broadband?
10-Apr-00 01:21 ET
[BRIEFING.COM - Robert V. Green] The future of the internet is interactive broadband services. Everyone agrees on this. But there is widespread disagreement on what medium will dominate: cable, DSL, wireless local loop, or satellite delivery. The "long shot" pick has always been satellite TV. Briefing.com has always argued that satellite's chances were greater than most people think. Now we believe it even more strongly.
Who Will Own The Broadband Network?
Here's a brief, subjective summary of the four main methods of broadband delivery.
Cable: The "favorite," especially in the early years, 1997 and forward. The best example: Excite@Home (ATHM). The argument: the installed base is so large, it can readily be converted to broadband. In fact, the installed base was viewed as a sustained competitive advantage. But Excite@Home has consistently fallen below its estimates of customer signup, despite posting huge "homes passed" numbers.
DSL: originally (circa 1996) dismissed as unlikely, since Regional Operating Bell Companies (RBOCs) were the biggest vendors. They "blew it with ISDN as a high speed connection, so they should blow it again", was the original line of thinking. But Bell Atlantic, Qwest, SBC, and even Sprint are all offering extremely competitive DSL offerings, now. There are also a myriad of smaller companies offering DSL services for businesses. DSL is likely to find a spot in the broadband future.
Wireless local loop: Came onto the scene as an option in late 1998, became very popular in the fall. Primarily a B2B medium. Adaptive Broadband is a good example of an equipment maker. Unlikely for the consumer marketplace, except as apartment building services, but a real possibility for businesses.
Satellite TV: A total flop when first introduced because upload was through a phone line, and charging was done on a per-kilobyte download model (who wants that?). DirecTV boomed, but DirectPC flopped. As a broadband delivery system via satellite fell off the radar screen. It is time to rethink it.
The Advent of Local Channels
The satellite TV introduction in the mid-90s was one of the faster growing consumer technology product rollouts ever.
But it was stunted in urban areas by not offering local channels.
The local channel ban was created solely to protect existing cable franchises. Had satellite TV been able to offer local channels early, the cable TV industry might have been wiped out five years ago.
But now, satellite TV companies are able to offer local channels, due to legislation passed in the fall.
And based on personal experience, it looks like the introduction of local channels has given satellite TV an incredible boost in growth.
Peter Lynch's Datapoints
Peter Lynch, the famous money manager from Fidelity, and author of "Beat The Street" often said "buy what you know, use data you see, to stay ahead of the trend." The argument is that personal experience, if you read it right, gives you a jump on seeing "trends."
If you buy that philosophy, then Hughes Electronic (GMH) and Echostar (DISH) are good ways to play the broadband future.
Personal Experience
Recently, I converted from cable TV to satellite TV. The only thing holding me back previously was the lack of local channels.
The new TV has been well received. Aside from confirming that satellite TV is better than cable TV on every point, what I learned from the installer was impressive. And has implications for investors.
The installer has been exclusively doing satellite TV installations for three years. But since local channels were added to the satellite offering, he hasn't been able to keep up with orders.
He said he had worked for 21 straight days, including Sundays to keep up with orders. He finally had to tell Circuit City not to send him any more installation orders for at least two weeks. He attributes the sales pace to the advent of local channels, and free installation offers.
He estimated that satellite TV sales are now more than twice what they were last year. Not scientific evidence, of course, but the kind Peter Lynch likes.
Local channel deregulation happened late in Q4. If it has boomed, it hasn't shown up yet in any revenue reports by Hughes or Echostar. (GMH reports on Wednesday, April 12; DISH reports May 15.)
Satellite TV Is Superior To Cable
Satellite TV is a superior product than cable TV. It offers:
Better picture
More pay-per-view offerings, at a lower price
An interactive experience with the user, with customization, and filtering
More channels, with digital music, at roughly the same monthly price
Satellite also has a subtle advantage, over cable, in the race to become a broadband medium.
Satellite is already digital. The only place it is an analog signal is from the home receiver box to the TV, about a 1 foot connection. Cable systems are completely analog currently, at the cable headend, across the cable, and in the home.
Coming Features From Hughes
Hughes Electronics, (GMH), has an impressive array of broadband and interactive services in the pipeline for DirecTV. Three are content, the fourth is the broadband channel.
AOL-TV: A separate set-top box, with keyboard, which integrates AOL services into the DirectTV offering is coming in Q2 2000. The service allows email, instant messaging, and additional AOL services. Summer 2000.
iWink: iWink is a new separate internet/TV service which provides a "second layer" to video presented on your TV. When the "iWink" icon appears on your screen, you use the DirectTV remote control to layer the additional information on top of the video. A selection of baseball statistics, for example, could be offered when each new player comes to the plate. Summer 2000.
Integrated TiVo: TiVo is a "hard-disk" VCR which allows automatic recording and organization of shows. The DirectTV deal will integrate TivO and TV services, providing a single interface. TiVo stored programming will look no different than other programming on the system. Summer 2000.
"Spaceway:" a two-way satellite broadband service (1.2 Mbps - with uplink through the satellite, not phone lines, as is currently required for DirectPC) for home and enterprise consumers which will provide full broadband capability to homes. An upgrade to existing satellite dishes at the users home. Early 2001.
We do not currently have the same type of detailed information for the Echostar (DISH) network broadband plans, but it is likely that similar types of services are currently being planned.
When services like Spaceway become available, satellite TV is suddenly a viable broadband medium for consumers.
Summary
Here is the argument for satellite TV as a serious contender as a broadband medium:
Satellite TV, with local channels, is a superior TV product to cable TV.
Local channel availability is driving satellite installations
Nearly every new satellite user gained is a conversion from the cable installed base.
From personal experience, we think satellite TV installations are booming, more than most expect
Satellite broadcast systems, being completely digital, can readily become broadband systems
The last point is a key issue to consider. Cable systems deliver video as an analog signal. To become video-on-demand, the broadband killer app, requires a complete rebuild of the cable system. For satellite, it is a more natural evolution.
Final Words
One year ago, on March 25, 1999, (Stock Brief Satellite TV Regulations: Internet Investors Must Watch) we wrote about how local channel availability would play a large role in the internet rollout. The story cautioned holders of ATHM, and advised investors to look at GMH.
At the time of Briefing.com's story, ATHM traded at $73 and GMH traded at $52.
Today, one year later, ATHM trades at $30, (off 50%) and GMH trades at $120 (more than double).
Clearly the market has recognized what we pointed out a year ago: satellite is a serious contender for broadband. Now we think it is even clearer.
And so is the picture on the tube.
Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com
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