Satellite firms still lag in high-speed Net market

In the wake of a recent legislative victory, direct broadcast satellite operators still have plenty of work ahead to make a dent in the high-speed Net access market.

3 min read
In the wake of a recent legislative victory, direct broadcast satellite operators still have plenty of work ahead to make a dent in the high-speed Net access market.

New legislation signed into law yesterday clears the way for direct-to-home satellite TV broadcasters such as DirecTV and EchoStar Communications to beam local television programming to more than 50 million households in the nation's top 20 TV markets.

Satellite TV operators previously couldn't transmit local signals, a major competitive disadvantage to cable services. The law now puts satellite and cable operators on equal footing in the multi-channel video programming markets. It also gives new value to recent deals between America Online and Hughes Electronics, which operates DirecTV, as well as WebTV's alliance with EchoStar Communications.

Although the new law is expected to boost satellite TV consumer sales, analysts say it will likely do little to help firms push other consumer satellite services such as high-speed Net access.

Analysts and industry observers question whether satellite data systems can compete against high-speed Net access alternatives, such as cable and digital subscriber lines (DSL).

"I don't see any impact on data services. People are buying [satellites] for TV," Yankee Group analyst Bruce Leichtman said.

For one, technological limitations could hamper those efforts, analysts said. Some in the industry admit satellite Net access services are not yet on par with cable modems or high-speed DSL.

"Right now we can't compete with cable modems," said one satellite industry employee who requested anonymity.

Satellite technology limits download speeds to about 400 kbps (kilobits per second), according to Sean Badding, an analyst with industry consultants the Carmel Group. Those speeds pale in comparison to the 1 mbps (megabit per second) speeds many cable and DSL subscribers have come to expect, he said.

Additionally, today's satellite Net services can only download information from the Web. Consumers still need to dial in with a conventional modem at speeds of only 56 kbps to send outgoing email messages or other information.

In addition, most cable operators are aggressively upgrading their networks to offer local telephone service, another advanced service that will differentiate cable from satellite operators.

But others say the satellite law, coupled with advanced technology, could attract customers that are interested in the so-called digital video recording (DVR) market.

Digital video recorders, such as those by Tivo and Replay, allow consumers to record TV shows or even pause live programs. EchoStar's latest equipment includes such capabilities, while DirecTV has an alliance with Tivo.

"We think DBS is going to be a big driver of digital video recorders," Leichtman said. "I think many consumers will take another look at DBS and say 'Not only does it have the local stations now but it has DVR built in. That's cool.'"

Still, despite the desire to jump into the Net access market, analysts and company executives say simply gaining TV customers is the name of the game for now.

Badding said he expects satellite subscriber growth to continue its climb following passage of the new law.

The culmination of lengthy lobbying efforts, the new law allows consumers to view local TV programs via satellite. In the past, DBS operators could only deliver stations from New York or Los Angeles, leaving many customers outside those areas without timely news, regional weather information or sporting news.

"It levels the playing field," EchoStar spokeswoman Judianne Atencio said. "It gives us an even chance to go after the TV households that cable has had a stranglehold on for years."

EchoStar, citing numbers generated by satellite industry trade associations, claims 80 percent of potential customers chose not to subscribe to satellite service because they couldn't receive local TV programming.

"Now they can go head-to-head with cable," said Badding. "DBS can now do everything that cable can. It has more channel capacity, better prices and better [customer] service."

Acquisitions helped DirecTV grow to nearly 8 million subscribers this year. EchoStar, which has seen its stock price soar in recent months, now claims more than 3 million customers.

Combined, the industry will have--for the first time--gained more than 3 million new customers in 1999, according to satellite industry research firm the Carmel Group.