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Satellite, DSL team up against cable

EchoStar and SBC are packaging satellite services with DSL Net access to better compete with cable companies. Also, a deal with EarthLink is signed.

EchoStar Communications and SBC Communications are packaging satellite services with digital subscriber line (DSL) Internet access in an effort to better compete with cable companies for customers of high-speed Internet access.

Under the terms of the deal, both companies will offer video and DSL services, and customers using both will get up to a $10 credit on their monthly bill. EchoStar will market the DSL services to the approximate 7 million users of its Dish Network TV subscribers, and SBC will market satellite services to its 1.5 million DSL customers.

Through such a combination, EchoStar and SBC say they should be better able to compete with cable companies, which can offer high-speed Internet access and cable TV at a discount since the services flow over the same lines. EchoStar's potential merger partner, DirecTV, a unit of Hughes Electronics, already has a deal to offer DSL service with WorldCom, but offered no rebate or "bundle" before. Analysts say other DSL companies are likely to strike deals with EchoStar or others in the future, and to provide tough competition for cable companies.

"This is significant for both of these companies; they can now compete head-to-head with cable," said Mark Kersey, an analyst at La Jolla, Calif.-based research firm ARS. But cable companies are still at an advantage, he added, because they can offer video, data and Internet services all over the same pipes, saving more money for the company and consumers. EchoStar and SBC will only save on marketing costs.

Nevertheless, analysts think the deal will be a significant drawing point for broadband customers. "We believe the alliance will be an enormous competitive benefit to (EchoStar) as it blunts the impact of cable's most cost-effective competitive weapon: high-speed data," Thomas Weisel Partners analyst Ray Schleinkofer said in a research note.

The move could also boost what is becoming something of a resurrection for DSL. After years of troubled installments, and a bad rap on reliability, DSL's image is being refurbished. SBC recently reported that in its recent quarter, DSL subscribers rose 59 percent over a year ago, bringing its total subscribers to 1.5 million.

The company attributed the gains to a streamlined installation process and better customer service. The move may also have something to do with customers getting fed up with cable, as several cable companies fumbled when managing the transition of Excite@Home customers over to their networks.

In a similar deal announced Friday, EchoStar said it would offer EarthLink's high-speed Internet service along with its satellite television service.

EarthLink, for its part, is looking to gain subscribers for its high-speed Internet service over phone lines, called EarthLink DSL, which has 471,000 subscribers. EarthLink has been aggressively trying to boost its high-speed subscription service as its dial-up system matures.

Financial terms of that deal were not disclosed.

Internet access over satellite isn't new, but satellite companies have struggled to offer two-way services, overcoming the initial technology that only allowed high-speed downloads and required a slow dial-up service for uploads. EchoStar recently pulled out of a deal with Starband Communications, in what some say was a move to pressure U.S. regulators to approve its proposed takeover of Hughes Electronics. The company said the service just wasn't economically viable.

But the current deals are better thought out. "Prior SBC and Bell Atlantic video-distribution pacts failed because they did not have a top priority from senior management, nor was the right equipment available at the time," said Merrill Lynch analyst Marc Nabi. EchoStar's new set-top box will have advanced video and storage capacity and a DSL outlet, he added.

Even so, EchoStar will need to push forward with more aggressive bundling offers, and move into areas where SBC doesn't operate, for the move to have a huge impact, analysts say. Several predict it will happen soon. "Having a deal with Verizon (Communications) would give (EchoStar) a great bundling offer," said Kersey.