DirecTV eyeing Internet service

EchoStar may or may not follow suit

Joyzelle Davis, Rocky Mountain News

Monday, January 16, 2006

News Corp. Chief Executive Rupert Murdoch indicated last week that the unveiling of DirecTV's wireless broadband strategy is imminent, telling an investor conference that "you'll be hearing from us within two months on a very clear plan."

Smaller satellite-television rival EchoStar Communications' Dish Network hasn't made a similarly definitive statement about plans to offer high-speed Internet services directly to residential customers. But that hasn't stopped speculation about the Douglas County-based company's plans.

The inability of DirecTV, which has about 15 million customers, and Dish, which has 12 million, to match cable and telephone competitors' triple-play of phone and Internet services on top of video has been one of the reasons their stock prices have languished. EchoStar shares have fallen 16 percent in the past 12 months, while DirecTV stock has dipped about 13 percent.

"They have to play in this bundled game because customers like to write only one check rather than three," said Jimmy Schaeffler, a consultant with Carmel Group, who said he expects Dish to make an announcement within months.

Mark Cicero, a spokesman for Dish, declined to comment.

Communications Daily reported last month that El Segundo, Calif.-based DirecTV and EchoStar issued a confidential request for information earlier in 2005 that sought information about the creation of a national wireless broadband network.

The document said the rivals were considering a new company "to be formed for the purpose of providing broadband data and voice services to DirecTV, EchoStar and possibly other distributors," the trade publication reported.

Murdoch said DirecTV is looking at a variety of strategies, including "partnerships, going it alone, going it with a few people." He didn't specify what technology would be used other than to say, "It's got to be something that can be upgraded and stay with public demand."

The most likely solution would be WiMax (worldwide interoperability for microwave access) wireless broadband, which can send signals up to 30 miles from transmitters. WiMax essentially works the same as WiFi but over greater distances for a larger population. The WiMax signal would be transmitted to customers via an antenna attached to satellite dishes on subscribers' roofs.

The wireless network would differ from cable modem and phone DSL lines because it would be mobile, which not only would provide two-way Internet access but also telephone service and video content that could be delivered to portable media players. It also would reach rural areas bypassed by phone and cable lines.

Not everyone thinks a move by the satellite-TV providers into wireless broadband is a good idea, and EchoStar Chief Executive Charlie Ergen has admitted to ambivalence about it.

"We don't have a fully developed broadband strategy," Ergen said during a November conference call with investors, adding that possible tacks range from staying out of the market because Internet service will become "just a commodity" to the other extreme of "owning spectrum."

After Murdoch's comments last week, Sanford C. Bernstein analyst Craig Moffett issued a research note that said there are "more problems than solutions with a wireless broadband venture," including the huge investment and potential price wars among Internet providers.

Unlike cable companies, which achieve cost advantages from bundling services that are pushed through a single pipe, satellite companies would offer broadband on a separate physical network.

William Jacobs, an analyst with Harris Associates in Chicago, said EchoStar undoubtedly is looking at broadband options but the company "doesn't feel the need to be a leader" and instead likely will stick to its strategy of being the lowest-cost all-digital video provider.

"Most of EchoStar's customer base is rural, and the idea of selling a bundled package isn't as compelling" for those customers, he said.

davisj@RockyMountainNews.com or 303-892-2514