SBC's EchoStar Pact: For Real?
SBC has exclusive rights to sell EchoStar's satellite TV service in its 13-state region in a co-branded offering. The two will cooperate to link their billing and OSS systems so customers will have a single point of contact -- SBC. They'll also work on a new set-top box for bundled SBC services. Service will start early in 2004, SBC says, though no date is set.
SBC is also putting $500 million into a convertible debt arrangement with EchoStar.
Qwest Communications International Inc. (NYSE: Q) today also signed a partnership with EchoStar and another satellite provider, DirecTV Inc. (see Qwest Teams With EchoStar, DirecTV).
In a conference call, EchoStar execs downplayed the Qwest deal, saying it was a reseller agreement that won't deliver an integrated bundle.
For its part, SBC contends the combination of TV with its video, wireless, local and long-distance voice, and Internet access will be a compelling reason to go with the regional Bell instead of an MSO. "Cable suppliers can't match the bundle," said SBC CEO Edward E. Whitacre Jr. in a press teleconference today.
Neither SBC nor EchoStar, however, would quantify the discounts expected to come with the grouped services. Nor would they specify how revenues are to be shared between the two.
The parties concede that executing the deal will be a challenge. Carrier operations support systems (OSSs) are notoriously complex and prolific (see MCI in OSS Chaos), and getting two providers' systems to work together by 2004 is a lot to ask.
For months now, regional Bells have been talking about making satellite alliances to compete against providers with cable TV services (see No Oasis in Cable Market). SBC has had an arrangement with EchoStar since April 2002, whereby customers of SBC's DSL and EchoStar's DISH TV service get discounts by buying both. With DirecTV, SBC has a deal whereby the satellite provider exited the DSL business in SBC's region and handed over its customers, with incentive discounts, exclusively to SBC.
But analysts are skeptical about taking things further than this. At least one can't see the value of the arrangement: "It doesn't really make sense to me," says Jim Lawrence of Stratecast Partners. If SBC is able to use EchoStar's satellite network for the content or infrastructure to roll out switched video services, that may be significant. But in that case, EchoStar would be shooting itself in the foot by helping set up its own competition in an area it may wish to forge into later, Lawrence says.
Another analyst says he's open to things working out. "I'm not sure previous pushes are the best indicator of what this could be," says William Power of Robert W. Baird & Co. Inc. If it helps SBC retain customers on core access lines, it might be worth it.
At least SBC didn't buy EchoStar outright -- though it reportedly considered buying DirecTV earlier this year. It's therefore shielded in part from the kind of liability that goes with a failed merger if things don't work out as planned. If they do, perhaps that $500 million is an investement in SBC's and EchoStar's joint future.
— Mary Jander, Senior Editor, Light Reading