AlphaStar Reborn????????????????????????????
dbsdish.com
AlphaStar - Shudders of Revival
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"Investors Business Daily, Monday, January 26, 1998 at 12:54
An Egyptian tycoon plans to revive a one-time contender in the
direct broadcast satellite business, despite its collapse last year
from what analysts called a "classically flawed" business plan.
Mahmoud Wahba, president of Greenwich, Conn.-based Champion
Holding Co., bought the assets and name of AlphaStar Digital, which
was headquartered in Ontario, Canada, for $4.65 million last month.
The assets - which include an uplink facility in Oxford, Conn.,
where satellite dishes receive and send audio and video signals -are
valued at $72 million, Wahba says.
"We made a good deal," Wahba said. "But the price is the easy
part."
Why such a bargain? Tee-Comm Electronics Inc., AlphaStar's former
parent, also based in Ontario, went into receivership in May '97.
Service was cut off for AlphaStar's 60,000 subscribers, leaving
competitors to feast on its market share. Ultimately, there were no
other bidders for AlphaStar.
To get back in the game, AlphaStar faces an uphill climb.
AlphaStar competes with the likes of DirecTV, a unit of General
Motors Corp.'s Hughes Electronics group in Los Angeles; Bala Cynwyd,
Pa.-based PrimeStar Partners, which is owned by a consortium of TCI
Satellite Entertainment Inc., Time Warner Inc. and Cox
Communications; and EchoStar Communications Corp. in Englewood, Colo.
With a combined 8.4 million subscribers, the three already have
become powerhouses in the relatively young direct broadcast satellite
business. And whether AlphaStar can overcome its past difficulties
is in question, analysts say.
Wahba plans to resume broadcast service and add data transmission
business sometime this year. Plans are to establish at least three
subsidiary communication companies - AlphaStar PC Webcasting and
AlphaStar TV Broadcasting, plus an outfit known as Champion Private
Network and Teleport.
AlphaStar's PC division would provide video, audio, text and data
transmission to computers via satellite. The broadcasting unit would
represent its re-entry into the DBS market. Champion intends to
transport signals for intranets, or private networks.
An additional $50 million is needed to get AlphaStar up and
running again, Wahba says. It requires about 200,000 subscribers to
break even, he adds.
AlphaStar first launched service in September '96, when the more
established DBS companies were in the middle of a price war.
The competition charged subscribers as little as $199 for a
satellite system - comprised of a receiver, dish and remote control -
even though the receivers themselves cost between $400 and $500 each.
AlphaStar couldn't keep up, charging $399 per system.
AlphaStar's rivals were able to subsidize their products because
of the deep pockets of their parent companies, according to Jimmy
Schaeffler of The Carmel Group, an analysis group based in Carmel,
Calif.
That was Tee-Comm's first miscalculation, Schaeffler says. He
wrote in a DBS newsletter that Tee-Comm should have weighed the risks
of entering a new market as a small player against much larger
competitors.
AlphaStar's late entry to the marketplace also didn't help. It
created pressure to get set-top boxes and dishes into consumers'
hands. As a result, satellite dealers and consumers complained about
defects on their set-top boxes.
Another faux pas: AlphaStar started leasing transponder space on a
Loral Space & Communications Corp. satellite in December '95. The
problem was, its DBS service wasn't launched until six months later.
"That's six months of payments without collecting any revenue,"
said Murray Klippenstein, former president of AlphaStar.
Klippenstein now is a DBS industry consultant.
But what hurt AlphaStar most was lack of funding. Tee-Comm's
successful $107 million debt offering was made during August and
September of '96. That move came at a time when the markets were
bullish about the satellite business, and Tee-Comm easily could have
obtained twice that sum.
"The company was significantly underfunded," said Klippenstein.
"It was frustrating that after three years of hard work, we still
couldn't balance the reality of the market with the approach of
senior management."
Can Wahba get AlphaStar revving again? Analysts say he faces many
obstacles. AlphaStar is far behind its already formidable rivals.
"AlphaStar's chances (of success) right now are no better than 50-
50 because of the competition," Schaeffler said.
Analysts say there already is one strike against the company in
its second at-bat: Wahba intends to keep the name AlphaStar.
Schaeffler says those consumers who have heard the name will
associate it with a company that went bankrupt.
But Wahba claims he has some advantages. One is the fact that
DirecTV, PrimeStar and EchoStar don't reach some of the territories
that he will. For example, he got back the use of the Loral
satellite, and it covers Puerto Rico, Alaska and Hawaii.
Wahba also plans to offer niche programming in addition to regular
broadcasts to future subscribers. He maintains this is what will set
AlphaStar apart from his competitors.
But Wahba is cautious about how he launches DBS service again.
"We want to make the right choices given the marketplace
considerations," Wahba said. "We want to take our time."
Analysts wonder whether that will end up being another strike
against AlphaStar. Klippenstein warns that Wahba shouldn't take too
long in staking his claim in the market.
"The marketplace simply will not wait for him to get his ducks in
a row," he said." |
