US DBS GROWTH CONTINUES

By | September 6, 2000 | Feature

The two US DTH platforms continue to show healthy growth. Latest figures from Bank of America (BoA) securities suggest that DirecTV and Echostar’s DiSH system will be touching a combined 27 million subscribers by the end of 2005. In the same time frame the old ‘back yard’ C-band systems, once the mainstay of the TVRO satellite industry, will have shrunk to less than half a million active systems.

Echostar, according to a recent BoA report, is currently “beating our estimates” with a reported 445,000 new subscribers in the second quarter of this year, against expectations of 418,000. This represented a 34 per cent increase on sales in the same quarter last year, while promotion, subsidy and advertising costs were “lower than our expectations”. Churn remains steady at just 1.5 per cent per month. The BoA report places Echostar as a ‘buy’ with a 12 month stock price target of $87 (E96.72), against its current price of around $38 (E42.25).

Moreover, BoA suggests that Echostar – and by implication DirecTV – is in no way affected by North American cable’s switch to digital. It seems Echostar’s 500 plus channel offering (and DirecTV’s 384 channels) are more than a match for anything that cable is likely to offer. Key to both outfits’ growth is the additional local channels that they can now offer.

Echostar says that roughly 50 per cent of new subscribers are choosing local channels (usually for local news and programming) and between 10-20 per cent of existing customers are upgrading into the local channels. The addition of local channels is expected to also help lead to lower monthly churn, says the BoA report. Echostar offers 30 local-into- local markets, and the latest retailer returns show buoyant sales quarter-on-quarter, with BoA saying the additional local channels’ offerings “can continue to fuel subscriber growth”.

Echostar has also invested heavily into DBS broadband. It now owns a 17.6 per cent stake (worth $50m) in Gilat-to-Home, which will lead to Echostar offering broadband multimedia-over-satellite to Echostar dishes in a VSAT-type arrangement. Some 5,000 pilot units are already installed across the US, and Gilat said it is on track to install 10,000 sites by the end of the year.

Units are being demonstrated at Radio Shack (Tandy) outlets and Echostar DiSH retailers and the company says minimum download speeds of 150kbits/s and up to two or three times that speed can be expected. Gilat is a ‘strong buy’ for BoA, with a target price of $182 per share, against its current $79-$80 valuation.

Separately, Echostar has also invested $50 million in Ka-band outfit iSKY in return for a 12 per cent stake and options to increase this to 20.8 per cent.

DBS/DTH Subscriber Evolution Forecast (m)
Mid-2000A
2000E
2001E
2002E
2003E
2004E
2005E
C-band
1.49
1.35
1.10
0.90
0.73
0.59
0.49
DirecTV
8.24
9.81
11.84
13.19
14.21
15.21
16.12
Echostar
4.31
5.33
6.48
7.62
8.48
9.40
10.17
TOTAL
14.45
16.49
19.44
21.72
23.44
25.22
26.78
Data: Banc of America Securities, August 16 2000

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