Article on GMH. GM'S space age
freep.com
Hughes Electronics unit aims to link
Internet, TV and other communication
systems with its satellites
March 19, 1999
BY TED EVANOFF
Free Press Automotive Writer
EL SEGUNDO, Calif. -- General Motors Corp.
is mapping out a communications strategy to earn
billions of dollars from households whose phones,
computers, radios and televisions someday could
rely on GM communications satellites orbiting in
space.
General Motors controls the world's largest fleet of
privately owned communications satellites through
its satellite-making subsidiary, Hughes Electronics
Corp., a 77,000-employee company acquired in
1985.
"We're looking to grow the business not only in the
traditional automotive area, but in non-automotive
arenas," GM Chairman Jack Smith said. "There are
some huge opportunities for us going forward."
Senior executives in Detroit and in Hughes
headquarters in El Segundo, Calif., figure cell
phones, personal computers and the Internet will
become as essential to American life in the next
decade as cars and trucks are today.
They see opportunities for making money from
communications technology not only in the vehicles
GM sells, but also in homes and offices.
The technology that would seamlessly link phones,
computers and the Internet, as well as radio and
television, are satellites that beam signals directly
into autos, homes, hotels, offices and hand-held
computers.
GM's OnStar telecommunications division already
provides navigation, emergency and other
communication services for about 50,000 vehicle
owners who subscribe to the service.
And a number of communications companies, such
as AT&T Corp., offer similar services, usually
through land-based coaxial cables. But no company
offers all those services and links them by satellite.
Yet the day soon may come when you can leave
home with a small computer that can almost instantly
communicate with a satellite in space. At your
command the computer could lock the house,
unlock and start the car, tell you where you are if
you are lost, summon help if you need it, serve as a
cell phone and download data into your car fax.
"We're becoming more and more involved in an
almost seamless life as the communications
boundaries vanish for people whether they are on
the boat, in the house or out hiking. They can never
be out of touch if they don't want to be," said David
Cole, executive director for the Office for the Study
of Automotive Transportation at the University of
Michigan.
"The revenue potential for General Motors is almost
unlimited," Cole said. "When they look at the
potential, the communications element is bigger than
the transportation side. No one knows how much
money they can make."
Endless possibilities
For a company that has squandered market share in
the automobile business, it might seem overly
ambitious of General Motors to aspire to creating
this all-encompassing electronic highway. But
analysts say it is possible.
Hughes has found ways to profit from those
satellites, undreamed of only a few years ago. For
example, Hughes' DirecTV sends cable television
via satellite into homes, restaurants, offices, and
hotels.
DirecTV, which signed its first customer four years
ago, produced $1.8 billion in revenue last year and
next year could reach $5 billion -- more revenue
than the typical 2,500-employee car assembly plant
produces.
DirecTV had 4.5 million subscribers last year and
expects to have nine million this year. In December,
Hughes bought rival U.S. Satellite Broadcasting
Co. for $1.25 billion and the next month paid about
$1.82 billion for rival Primestar Inc.
"DirecTV is amazing," GM's Smith said, noting
investors "take the number of subscribers and assign
a value to them. Can you imagine what could
happen to the stock price of General Motors if we
had millions of subscribers for our
telecommunications system, and we got a value per
pop for every one of them? I mean, the potential is
enormous."
Smith said once a vehicle is paid for, GM makes
little money off it, regardless of how long it is on the
road. By offering services such as in-vehicle
communications systems, GM can reap fees for the
life of the vehicle.
Stock possibilities
GM owns 74 percent of Hughes, a stake currently
worth about $13 billion. But the automaker's stock
price barely reflects Hughes' value. And Hughes,
which has its own class of stock traded under the
ticker symbol GMH, underperformed much of last
year.
As a result, some automotive analysts conclude GM
might sell off part of Hughes. Spinning off GM's
position in Hughes, analysts estimate, would add
about $17 to the value of GM stock, which closed
Thursday at $89.50.
Communications analysts, however, doubt GM
executives want to part with any element of Hughes
until they've explored all the possibilities for making
money in the telecommunications field.
"There's a possibility that Hughes could be Wall
Street's darling in 1999," said analyst Sean Badding
of the communications research firm Carmel Group
in Carmel, Calif. "We see this as a tremendous
growth stock."
Hughes stock, which reached a low last year of
$30.88 on Oct. 14, has since shot up more than 60
percent, largely on the success of DirecTV. Hughes
closed Thursday at $50.
Hughes earned $5.9 billion last year and contributed
$350 million in profits to General Motors. Those
revenue figures are expected to climb.
Future offerings
Hughes is rolling out DirectPC, which would beam
the Internet into homes and offices by satellite,
eliminating the need for phone lines or dedicated
cable connections.
XM Satellite Radio is also coming, probably this
year. It would beam 100 channels of digital radio
into homes, autos and offices equipped with
palm-size antennas. Channels would carry regular
radio stations and broadcasts of book readings,
weather forecasts and news.
Hughes is also working on a picture telephone that
would allow Internet users to see one another while
they talk, a major problem now for Internet satellite
services. The system currently is better at sending
reams of information in only one direction.
"The future is going to be with these two-way
satellites," said communications analyst Bob Berzins
of the New York brokerage firm Lehman
Brothers. "I believe the technology will be there in
not too many years."
More immediately, Hughes is linking GM's far-flung
offices and factories with a satellite communications
network. On top of that it is setting up services so
mechanics in GM dealerships can listen to lectures
beamed by satellite.
The fight with cable
Probably the biggest obstacle for Hughes is the fight
in Washington over the future of satellite television.
Land-based cable broadcasters, such as Comcast
Cable Vision, don't want satellite companies to air
network stations like ABC.
As a result, many consumers have avoided satellite
TV because they're not sure they'll get what
Last week, Hughes and the National Association of
Broadcasters reached a temporary compromise and
dismissed a lawsuit that would have shut down local
TV shows for about two million satellite televisions
subscribers.
Satellite providers have Washington on their side.
Congress has leaned toward direct broadcasting
systems as a way to keep cable rates in line. The
land-based cable system is being deregulated, which
means the government will no longer set the monthly
rates paid by cable consumers.
But Chuck Sherman, vice president of the National
Association of Broadcasters, thinks Congressional
support will wane as it becomes clear behemoths
like GM are the beneficiaries.
"When it gets to the point of GM being the largest
cable provider in the country, the reception in
Washington is going to change," he said.
Before that point comes, though, many analysts
expect Hughes will gain millions of subscribers and
make the satellite-based system interact with the
Internet as a two-way communications tool.
"I see a future in which we press forward as
pioneers in the effort to evolve direct broadcasting
into the interactive medium it can clearly become --
a portal into millions of American homes," Hughes
Chairman Michael Smith said.
Ted Evanoff can be reached at 1-313-222-8763.
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