EchoStar needs a boat load of Divicom encoders....................
multichannel.com
Weekly Preview for December 7, 1998
With New Slots, EchoStar Eyes 500 Channels
By MONICA HOGAN December 7, 1998
EchoStar Communications Corp.'s deal last week to secure scarce high-power DBS spectrum takes News Corp. off the hook for a $5 billion lawsuit and resurrects EchoStar's plans to create a 500-channel universe complete with local-broadcast signals.
In a stock transaction valued at $1.25 billion, News will shed its breach-of-contract suit, and EchoStar will gain control of the last 28 full-CONUS (continental United States) direct-broadcast satellite transponders.
The other party in the deal, MCI WorldCom, won the 110 degrees west longitude orbital spectrum at auction in early 1996 for $685 million.
EchoStar will now go forward with its ambitious plans, which include providing local-to-local channels to about 50 percent of the country, plus high-definition television and data services, through a single, small dish.
A similar announcement by EchoStar and News' American Sky Broadcasting Inc. last year was dubbed "DeathStar" by those close to the cable industry. But cable reaction last week at the Western Show was more muted.
Questioned on the show floor last Thursday, Tele-Communications Inc. chairman and CEO John Malone called the deal "very good for Rupert [Murdoch, News' chairman] and very good for Charlie [Ergen, EchoStar's chairman and CEO]." Malone added that it was not his place to oppose the license transfer.
According to a U.S. Department of Justice antitrust suit filed earlier this year against PrimeStar Inc.'s plans to take control of the 28 transponders at 110, Malone was instrumental in convincing Murdoch last year that a News deal with EchoStar would hurt News' relationships with its cable affiliates.
One DBS executive, who asked not to be named, said EchoStar could be in a position to pass DirecTv Inc.'s subscriber count within five years or so. And the deal solidifies DBS as a two-horse -- rather than three-horse -- race.
Bear Stearns & Co. analyst Vijay Jayant said he believes that the deal allows EchoStar to create "the most powerful video platform in the world." Wall Street loved the news, sending EchoStar's stock up 20 percent, to $42.25 per share, before it fell a bit by last Friday morning.
While DBS analysts said the EchoStar/News deal will significantly change the DBS landscape, it doesn't create quite the "DeathStar" that was envisioned a year ago.
"It's more like 'DeathStar Light,'" said Steve Blum, president of California-based Tellus Venture Associates. Last year's deal would have merged EchoStar with an international multimedia empire and given the smallest U.S. DBS company a huge influx of cash.
The new deal gives News a 30 percent ownership stake in EchoStar, but it leaves Ergen with 87 percent voting control of the company. By many accounts, that sole control is more valuable to the hands-on Ergen than cash.
"I think [Ergen] is much better off now than if the deal had gone through the last time," said Mickey Alpert, president of Washington, D.C.-based Alpert & Associates.
Alpert also believes that News had little choice but to strike a deal with EchoStar in exchange for dropping the lawsuit.
"Charlie had a very good case," he said. "If it went to trial, it would have been the global media mogul who wants to rule the world against a country accountant."
In other terms of the deal, News will launch two high-power satellites -- valued at $450 million, with insurance -- for EchoStar. And EchoStar also gains from News a $100 million uplink facility in Gilbert, Ariz.
News granted EchoStar's Dish Network three-year retransmission-consent agreements for all of its Fox Network owned-and-operated stations, which could be a first step toward negotiating similar deals with other stations.
EchoStar also agreed to carry Murdoch's Fox News Channel. And News gave EchoStar a worldwide order for 500,000 digital set-top boxes incorporating News' NDS encryption technology.
The government could block the DBS-license transfer, but there are early indications that regulatory agencies look favorably on the deal.
Federal Communications Commission chairman William Kennard said in a prepared statement last week, "Consumers need more competition to provide an alternative to cable," adding that the deal "could facilitate stronger DBS-cable competition, depending on the specific business plans put forward."
DBS competitor DirecTv could contest the license transfer, given the fact that the FCC once said that DirecTv would be prevented from owning significant DBS spectrum at more than one orbital location. At the Western Show, DirecTv president Eddy Hartenstein said the company would "wait and see" whether it would file opposing comments with the FCC.
If given FCC and DOJ approval for the license transfer, EchoStar expects to see the two new satellites launched next year. The company's core Dish Network programming would be transitioned to 110 degrees, leaving the company's 21 transponders at 119 degrees free for additional services.
EchoStar would need to reposition its current customers' dishes. It also expects to introduce a new antenna that could receive signals from both 110 and 119.
PrimeStar president Carl Vogel said his company has filed comments with the FCC contending that PrimeStar should now have access to all 32 transponders at 119. PrimeStar has plans to launch a high-power service at 119, but it currently controls only 11 transponders there.
On a conference call with reporters last Monday, Ergen expressed confidence that the DOJ would approve the transaction.
"They've seen this deal a number of times before, from us and from PrimeStar," he said.Ergen was in Washington, D.C., to lobby for the DBS-license transfer, which faces regulatory approval, and for changes in copyright laws that would allow Dish Network to market its local-to-local channels to a greater portion of the population.
Also as part of the deal, MCI and EchoStar have agreed to bundle Dish Network programming with MCI's telephone service, although details have not been determined.
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