Satellite central

Douglas County may soon be home to No. 1 DirecTV and No. 2 Dish Network

By Jeff Smith, Rocky Mountain News (Contact)

Published February 20, 2008 at 12:05 a.m.

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Denver, once the cable TV capital, is poised to become the satellite hub of the United States.

Douglas County's Liberty Media Corp. as early as this week could get final approval for its acquisition of a controlling stake in DirecTV, the country's largest satellite TV company.

Less than three miles from Liberty's offices is the headquarters of Dish Network Corp., the country's second-biggest satellite TV provider.

"As (for the Liberty deal) making Denver the satellite capital, that is surely the case," said Ray Gifford, former Colorado Public Utilities Commission chairman and now head of the communications practice at Kamlet Shepherd in Denver. "I am not sure, exactly, what the significance will be, but it does set up some intriguing local possibilities."

Foremost would be a potential merger of the two companies, he said.

Rupert Murdoch agreed in late 2006 to swap his controlling 39 percent interest in El Sugundo, Calif.-based DirecTV for Malone's minority stake in Murdoch's News Corp.

The deal, however, has been held up for a year by the Federal Communications Commission. FCC Chairman Kevin Martin recently called for a vote by next Tuesday and said he is recommending approval. The vote could come even sooner, but FCC spokeswoman Mary Diamond declined comment Tuesday.

DirecTV CEO Chase Carey said last week that he expects the deal to be completed within a couple of weeks.

Back in 1990, three of the top 10 cable TV operators were based in Denver, including John Malone's Tele-Communications Inc. Now, Malone, the billionaire chairman of Liberty Media, is helping usher in the satellite communications era for Denver.

Phil Weiser, a telecommunications law professor at the University of Colorado, called Malone a "brilliant strategist" who has the capital and industry connections to be a force in a rapidly changing communications industry.

Many speculate that Malone already has plotted his next move for DirecTV. Liberty officials declined to comment for this article, except to say they believe DirecTV has good business prospects.

Liberty CEO Greg Maffei, Malone's top executive, has indicated previously that Liberty would like to acquire all of DirecTV, not just the 39 percent stake.

Generally, owning more than 50 percent of a company constitutes a controlling interest. But a 39 percent stake can be a controlling interest when the rest of the shares are widely dispersed as with publicly held DirecTV.

Though based in California, DirecTV already has a large presence in Colorado. The company last summer opened a national sales and support hub at the former ICG building in the Denver Tech Center. DirecTV also operates a broadcast signal uplink facility in Castle Rock, with about 100 employees.

Maffei also has said a DirecTV-Dish Network merger would make strategic sense, although he's uncertain it would pass regulatory muster.

A similar deal in 2002 was thwarted by antitrust regulators, who said competition would be hurt if the two largest satellite TV companies combined.

Dish Network then argued that a merger was the best opportunity to stop rising cable TV prices and bring additional services to rural Americans.

Gifford said that if the XM-Sirius satellite radio merger goes through, that might indicate a DirecTV-Dish merger is ripe.

Many think Dish Network CEO Charlie Ergen might be more inclined to part with Dish now that he has spun off the company's satellite, set-top and digital video recorder assets into an entity called EchoStar Corp.

Weiser sees Ergen's new consumer electronic business as being a potential disruptive force in the communications industry as well.

"They can take it internationally," Weiser said, as well as continue to purchase promising startup technologies like Sling Media. The popular Slingbox device enables consumers to watch their home TV anywhere they have a high- speed Internet connection.

Gifford said the strength of DirecTV and Dish Network is the ability to serve consumers nationwide with a TV product that costs less than those offered by cable companies and telcos.

The companies' weaknesses, Gifford and Weiser said, are the lack of their own high-speed Internet or telephony services.

Although DirecTV has growing revenues and a good product, "it's a stand- alone offering in a world that's moving to a triple play (TV-Internet-voice)," Weiser said. "It's vulnerable. If you simply sit still on your existing product offering, you're going to fall behind."

DirecTV and Dish have been trying to offset their weaknesses by forming partnerships with telcos. For example, Qwest resells DirecTV as part of its TV-Internet-telephony bundle. That deal has become an important chunk of sales for DirecTV. Dish Network has a similar relationship with AT&T in some of its territory.

DirecTV and Dish also have relationships with Greenwood Village-based WildBlue, which provides high-speed Internet service targeted to rural areas.

Liberty Media owns a stake in WildBlue, but WildBlue tends to be more expensive and slower than cable and DSL high-speed Internet.

Regulators and consumer groups have talked for years about the need for a third broadband pipe into homes to compete with cable and DSL.

That could take the form of a high- speed wireless network like WiMax, often referred to as "Wi-Fi on steroids."

With Malone's financial muscle, there's no reason why Liberty-DirecTV can't participate in developing a third broadband pipe, Weiser said, perhaps in partnership with a company such as Sprint or Clearwire.

"At this point, it's an open field," Weiser said.

DirecTV's Carey told analysts last week that DirecTV continues to "kick around WiMax" and other wireless technologies, but he said DirecTV would rather be a partner with others than build a network itself.

Carey said the company's goal is "to make sure there are ways a consumer can find broadband and telephony options," he said.

smithje@RockyMountainNews.com or 303-954-5155

Dish Network

* Corporate headquarters: Douglas County

* Subscribers: 13.7 million

* Annual revenue: $11 billion

DirecTV

* Controlling owner: Soon to be Douglas County-based Liberty Media

* Subscribers: 16.8 million

* Annual revenue: $15.5 billion

The players

* Liberty Media's John Malone, once a cable TV king in the U.S., soon will have a controlling stake in DirecTV, the country's largest satellite TV company. Malone also owns cable TV properties worldwide.

* Dish Network's Charlie Ergen runs the country's second-largest satellite TV company. The Douglas County-based company recently spun off its satellite and set-top technology assets, which it plans to market globally.

* News Corp.'s Rupert Murdoch was willing to part with his controlling interest in DirecTV in exchange for Malone's minority stake in News Corp.

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