STARBAND TO EMERGE FROM BANKRUPTCY PROTECTION

Starband, which has struggled for much its 4-year history, will emerge with Gilat Satellite Networks owning 49% of the company, Bank Leumi 20% and First International Bank of Israel and Israel Discount Bank 15.5% each, a spokeswoman said. The company based in McLean, Va., will be headed by a 3-member board that includes its Chmn.-CEO Zur Feldman and Gilat CEO Oren Most.

Starband has 38,000 subscribers, having lost 2,000 since filing for bankruptcy protection in U.S. Dist. Court, Wilmington, Del. in May 2002, the spokeswoman said. It will continue to lease transponders for the service on Loral’s Telstar-7 satellite at 129? W and SES Astra’s AMC-4 at 101? W and recently introduced model 480 Pro satellite modem that’s designed for small-business market. The 480 Pro, which is packaged with a 4-port router and is compatible with all PC operating systems including Apple Macintosh OS X, Unix and Linux as well as Microsoft, will be priced at $899 with a one-year contract carrying a $149 monthly fee; $599 with 2- and 3-year pacts that have $149 and $139 monthly charges.

On the consumer side, Starband will continue with the model 360 satellite modem and pricing ranging from a starter kit at $699 with a one-year contract and a $39 monthly fee that provides download speeds up to 250 kbps to $199-$699 standard plans that are based on 2- and 3-year contracts. The 2- and 3-year agreements charge $99 a month for the first year, then drop to $59 and $49. The top-selling Starband plan has been one that charges $699 for the hardware and $49 monthly fee, the spokeswoman said. Starband also sells extended warranties at $4.99 and $9.99 a month for the 360 and 480, respectively. Gilat will continue to manufacture the satellite modems for Starband at its factories in Israel.

“We still tell our dealers don’t even try to compete in an area where there’s cable and DSL because we don’t have the infrastructure built in or the economies of scale to work with,” the Starband spokeswoman said. “If we did, we would pass it along.”

While Starband’s low-end pricing will bring it closer to DSL and cable modems, it still must provide a sizable subsidy to remain competitive, the spokeswoman said. “We have a pretty large subsidy on all of it,” she said. “I wish it could go away, but all the pricing plans help deal with that [the subsidy] over time. We take a hit on that for a while, but by the end of the contract we will have hopefully made it up.”

For marketing the service, Starband will rely on a network of 2,400 dealers and national installers including Installs Inc. and Metro Communications, supplemented by its own direct sales. Starband, which has cut its work force to 150 from 350 in the last 3 years, has a 9-member staff to support the dealer network and 3 more targeting direct sales, the spokeswoman said.

Among the Starband dealers are those that also sell EchoStar’s DISH satellite service. Starband sued EchoStar, which once owned 32% of the company, in May 2002 for breach of contract and a month later reached a settlement that included a $710,000 payment and an agreement that DISH dealers could continue selling the Starband service. Under the reorganization plan, neither EchoStar nor Microsoft, which also was once an investor, will have a stake in Starband, the spokeswoman said. Unclear at our deadline was whether Starband’s previous distribution agreements with the NRTC and U.S. Online would continue. NRTC earlier this year announced plans with Intelsat and Wildblue to launch Ka-band Internet access service in 2004.

In seeking to expand service, Starband will weigh extending the service into Canada and has revived discussions on providing a lease option, a strategy that was postponed as the company filed for bankruptcy protection. “It [leasing] has been discussed again recently so I don’t look at as having been eliminated, but I don’t think it’s a priority right now,” the Starband spokeswoman said.