DirecTV to Finalize Wireless Strategy by Year-End, CEO Tells Investors
Having abruptly pulled out of the FCC’s AWS auction, DirecTV will finalize a wireless strategy by year-end that will involve buying a stake in a “separate entity,” CEO Chase Carey told a Goldman Sachs investor conference in N.Y. Tues. While Carey didn’t tip DirecTV’s hand whether that will involve WiMAX or an alternative technology like ancillary terrestrial component (ATC), he said any agreement would “reflect the value we bring to the marketplace.”
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To enter the wireless market, DirecTV will make a “discrete defined investment” and will limit its role to bundling and distributing the technology with its own satellite-based service. The strategy would be similar to existing arrangements DirecTV has with RBOCs that bundle the satellite service with DSL. “We will make an investment in, but not be a 100% owner of,” a wireless service, Carey said.
EchoStar and DirecTV surprised the wireless market in mid-Aug. when their entity, Wireless DBS, withdrew from an FCC auction that’s expect to be one of most expensive involving the sale of airwaves needed for sending wireless calls. Wireless DBS paid the highest deposit among the 168 bidders in Auction 66, nearly $1 billion.
Speculation has been widespread that DirecTV or rival EchoStar might invest in Clearwire, a WiMAX firm headed by cellular pioneer Craig McCaw that provides service to 90,000 subscribers in parts of Cal., Ore. and Tex. Clearwire recently cancelled an IPO after gaining $900 million in funding from a group led by Intel. WiMAX, promoted by Intel, offers download speeds up 1.5 Mbps and can cover large areas with a relatively small amount of equipment.
DirecTV and EchoStar’s wireless options also could include ATC, which uses a combination of satellites and terrestrial gear to supply high-speed wireless data and voice in urban markets, analysts have said. Among the ATC developers are ICO Globalstar Communications, Motient, Skyterra and Inmarsat, all of which are planning to deploy networks in the U.S. in 2007. Globalstar, which filed for an IPO in July, has said in an SEC filing that it’s “exploring relationships” with a range of media and communications companies that would enable it to use its ATC license for delivery of voice, data and video. Skyterra purchased DirecTV’s remaining 50% stake in Hughes Network Systems in late 2005 with the financial backing of Apollo Management. Skyterra purchased an initial 50% stake in HNS a year earlier.
Earlier in the conference, News Corp. Chmn. Rupert Murdoch, whose company owns a 38% stake in DirecTV, said the satellite firm will need to use WiMAX or similar technology to provide broadband to its subscribers. The “positive thing [about WiMAX] is it’s mobile. The negative thing” is that it might not have the bandwidth to compete with cable and phone companies down the road, Murdoch said.
Despite a planned wireless investment, DirecTV’s existing video business, with about 15.5 million subscribers, remains strong and the backlog of installations of the service is at an all-time high, Carey said. While existing broadband services have the challenge of being a “commodity,” video has remained relatively immune to the price competition, Carey said. “Video services show no signs that they're getting pulled into” fierce price competition, Carey said.
DirecTV could have upwards of 100 HD channels by year- end 2007, but Carey cautioned against rushing to add “fill product” to bulk up the service. DirecTV is “quite confident” that it already provides a “great selection” of the “most meaningful” HD channels currently available, Carey said. DirecTV is “closing in on” 10% of its customers subscribing to the HD service, Carey said. “The benefit is that if you get a few [HD] channels, nobody will want to be left behind,” he said. With the arrival of DirecTV’s HD satellite receiver/PVR at retail in late Aug., the HD market should grow rapidly in 2007. DirecTV is forecast to have 18 million subscribers by 2008, analysts have said.
Murdoch deflected questions from investors about the likelihood his company’s 38% stake in DirecTV could be swapped for Liberty Media’s 19% ownership of News Corp. “Let’s just say as far as Liberty goes we are in active” negotiations and those negotiations are “more active… than before,” he said: “I don’t want to get into what assets we're talking about there. If DirecTV were to be involved, we would certainly be protecting our future with any deal that was structured.” When asked if he was alluding to securing favorable carriage for News Corp.’s cable networks before any deal involving DirecTV, Murdoch said: “You have to remember we only have 38%. We don’t get any particularly favorable treatment.”