Bells Embrace the Dishes
The deal is part of a growing trend of RBOC/satellite TV alliances, which is a quick way for both sides to face the cable threat. "This is something that can be done immediately. Satellite providers can offer voice and data, and telcos get video," says Adi Kishore, media and entertainment analyst at Yankee Group.
SBC Communications Inc. (NYSE: SBC) and EchoStar Communications Corp. signed a similar deal last month (see Is SBC's EchoStar Pact for Real?). Qwest Communications International Inc. (NYSE: Q) also inked resale arrangements with EchoStar and DirecTV around the same time (see Qwest Teams With EchoStar, DirecTV).
BellSouth and DirecTV say joining forces will help them combat triple-play voice/data/video offerings from cable suppliers by offering a combination of these services over their own networks.
BellSouth serves about 60,000 customers in its region with a landline, fiber-based cable TV service it launched several years back. It would like to give those customers DirecTV service over fiber. If that works, BellSouth could attract more customers to bundled offers as fiber buildouts proliferate (see RBOCs Hungry for Fiber).
"We're not just wrapping a couple of products together and tying a bow around them, though it's that to start with," said Bill Smith, BellSouth chief product development and technology officer, in a news teleconference today. "This is a landmark opportunity that gives us short-term capabilities and a roadmap to the future."
Financial details weren't disclosed, but revenues for bundled satellite services will go to DirecTV. BellSouth will take revenues for voice and data portions of the bundle, called BellSouth Answers, along with "fees and commissions" for customers it adds to DirecTV's roster. The two companies will share the cost of rolling out services, execs say.
DirecTV may be looking into a deal with Verizon Communications Inc. (NYSE: VZ) as well. "We would like to extend this opportunity to customers in other regions," said Steve Cox, DirecTV's executive VP of sales, distribution, and customer acquisition, on today's press call. But faced with a reporter's questions, he refused to acknowledge whether a Verizon deal was in the works.
BellSouth's new satellite partnership comes three years after the RBOC tried to start its own wireless TV service in 2000. BellSouth abandoned the attempt in 2001 and directed the 80,000 customers it already had signed to EchoStar. Those customers won't automatically be ported to the DirecTV service, but they'll have the option, execs said.
Today's deal has its share of downside: RBOC/satellite arrangements mean extra costs for setup and integration of services on two completely different networks. There are no guarantees that the returns in revenue will balance these costs. In contrast, MSOs already offer triple-play bundles on one network infrastructure --without partners. "It will always be better if you have a single broadband network," says Adi Kishore.
Most partnerships have potential landmines, and this one's no exception. On today's press call, for example, DirecTV's Cox said the agreement won't hinder his company's efforts to develop high-speed data services on its own, particularly for "those who can't get DSL for broadband." At some point, the strategy is likely to clash with BellSouth's.
On the plus side, Kishore says, consumers are likely to be attracted to RBOC bundles like BellSouth's, because they tend to prefer satellite TV to the cable TV MSOs offer. "Traditionally, cable companies did not have the highest standards of customer service," he contends. While most are working to fix that, perceptions linger.
The bottom line is that RBOCs appear to be taking the cable threat seriously, and this is likely to lead to more wheeling and dealing down the road.
— Mary Jander, Senior Editor, Light Reading