BellSouth, Taps DBS For Grand Slam

By | August 9, 2004 | Feature

The partnerships between satellite-television service providers and regional telecommunications companies are growing in strength and number.

El Segundo, Calif.-based DirecTV, the largest U.S. satellite TV service, became the latest player in this trend last week when the company announced it would partner with Atlanta-based BellSouth [BLS] to provide a bundled service that offers video, broadband, in-home telephony and wireless services. That combination of four services was described as a “grand slam” by BellSouth officials who said they now not only can match cable’s one-stop, bundled, triple-play offering of video, broadband and in- home telephony, but it also can beat it.

Digital satellite television provides the key video component that was the missing link for telecom carriers, which previously had been unable to defend fully against the loss of their customers to cable’s triple-play bundle. The addition of a digital-quality television signal to the BellSouth offering allows the company, which operates predominantly in nine southeastern states, to go beyond protecting its customer base from cable to attacking the competition with a superior bundled service of its own.

The move comes at a time when the cable industry is estimated to have lost roughly 200,000 subscribers during the second quarter of 2004. Further erosion of its customer base is a legitimate risk, especially in the face of formidable alliances developing between telecom and satellite-TV powerhouses.

DirecTV inked a similar partnership with New York-based Verizon [VZ]. Last week, Verizon began marketing DirecTV to its customers in New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia and Washington, D.C., by offering discounts to those who combine a new DirecTV programming package with local, regional and long-distance calling services.

In addition, Verizon customers who receive their Internet access from Verizon Online will save as much as $370 a year – compared with purchasing the same or equivalent services from the company separately at standard rates. The more services Verizon customers buy in the bundle, the bigger the savings.

Customers initially will receive separate billing statements from Verizon and DirecTV but the two companies are expected to arrange later in the year to send a unified bill from Verizon only.

Rival satellite TV service, Englewood, Colo.-based EchoStar Communications [DISH], has a strong relationship with its key regional telecommunications partner, SBC Communications [SBC] of San Antonio, Texas. Under that arrangement, SBC, a minority shareholder in EchoStar, offers a $4 discount on SBC Dish Network packages when bundled with an SBC Connections package that combines SBC local and long-distance services with a package of call-management features. The $4 discount applies to all SBC Dish packages except the “America’s Top 60” or “Dish Latino.”

Customers who purchase all SBC services – local service and long-distance, Cingular Wireless and SBC Yahoo! DSL or dial-up Internet service – receive discounts as part of the company’s “the more you buy, the more you save” approach. This bundle, called SBC Total Connections, when combined with SBC Dish Network programming, is priced at roughly $125 a month. According to SBC, the bundle saves a customer more than $380 a year compared with a la carte pricing. If SBC Yahoo! Dial Internet service is chosen, or basic SBC Dish Network programming packages, prices and savings are lower. Marc Lumpkin, EchoStar’s corporate communications director, said customers are given progressively higher savings to subscribe to as many bundled services as possible.

EchoStar also has marketing relationships with Qwest, Sprint [FON] and Internet service provider Earthlink. DirecTV has a marketing alliance with Qwest as well.

BellSouth Breakthrough

The decision for BellSouth to team with DirecTV was based in large part on the satellite-TV service’s exclusive programming, highlighted by the “NFL Sunday Ticket” football package, said Jim Rozier, senior director of video services at BellSouth.

“‘NFL Sunday Ticket’ is absolutely a winner with customers,” Rozier said in an exclusive interview with Satellite News. “They love it. The NFL Sunday ticket is exclusive to DirecTV, and it really is a great package. That certainly is an overwhelming reason why it was chosen.” EchoStar lacks a comparable sports programming package, so it was unable to compete at the same level.

Those BellSouth customers who subscribe to DirecTV’s “NFL Sunday Ticket” also will receive four free months of the satellite-TV service’s “Total Choice Premier” programming package, including all premium movie channels and local channels. The subscribers would be able to “test drive channels” and to decide which ones best meet their needs before choosing a customized package at the end of the four-month trial, Rozier said.

BellSouth had attempted to partner with satellite companies twice before but both efforts were short-lived. The first attempt occurred in the late 1990s, when the telco lost money in an aborted attempt to use in-orbit satellite capacity from SES Americom (then called GE Americom) to offer its own satellite video service. A second foray into the satellite arena occurred when BellSouth opted to halt its MMDS video business, called BellSouth Entertainment. BellSouth then shifted its 80,000 customers either to the local cable provider or to EchoStar.

At the time, DirecTV did not have its nationwide Home Services Network of trained and certified installers under contract. DirecTV subsequently formed the unit, and it became BellSouth’s choice in a new effort to partner with a satellite TV services provider.

The EchoStar partnership was intended to be a short-term relationship to help ensure BellSouth customers who took MMDS service could continue to receive a video option without suffering any disruption of service, Rozier said. That relationship ended completely in 2000.

“We have a much stronger deal now than any of the times we have in the past because it allows our customers to go with one-stop shopping within our service area,” Rozier said. “Customers resoundingly told us they wanted one-stop shopping for the grand slam bundle of in-home voice, data, wireless and now video services.” The bundle allows a BellSouth customer to save as much as $10 a month.

BellSouth customers also would be able to purchase a DirecTV digital video recorder (DVR) for a one-time payment of $99 and to sign up for DirecTV DVR with TiVo service for $4.99 a month.

“Today, customers want discounts if they bundle,” Rozier said. “That is what we are trying to develop. It is nice to look people in the face and offer it to them. Eighty-seven percent of our customers qualify as part of a bundle.”

Another benefit for BellSouth is that, typically, the customers who bundle “spend more,” said Bob Marsocci, vice president of corporate communications at DirecTV. For that reason, bundling is a good tool for increasing profit margins and the retention of high-value subscribers, he added.

BellSouth actually began offering DirecTV to customers through its e-store prior to the announcement last week to begin proactive marketing of the bundled service.

Unlike the SBC/EchoStar alliance that markets the satellite TV service as SBC Dish Network, the BellSouth and DirecTV partnership will not attempt to establish a brand between the two companies by linking their names together, Marsocci said, adding, “An attempt will be made to take advantage of both brands together but not combine them in one name.”

DirecTV’s Motivation

Partnerships with telecommunications companies are “more of a hedge” for DirecTV than something that the company is doing as a critical part of its subscriber acquisition strategy, Marsocci explained.

“It is more of a defensive move than an offensive move,” Marsocci said. “We can compete with cable any day of the week, and we have been doing so for the past 10 years. It certainly augments our core distribution for DirecTV. It also gives consumers an option that they otherwise previously did not have.”

The cable industry has spent more than $75 billion in the United States since 1996 to upgrade its plant and equipment to introduce digital services that include HDTV, video on demand, high-speed Internet and local cable TV capabilities, according to the National Cable & Telecommunications Association (NCTA). In the past, attempts by partnered satellite TV and telephone companies to offer bundled packages seemed to have been viewed as something worth trying but the incentives may not have been compelling enough for either side to drive unrelentingly to succeed.

“Now, they are more motivated by the competitive environment,” said Patrick Fuhrmann, an independent satellite analyst based in Berkeley Heights, N.J. “They have to make it work. Cable is becoming more robust with video on demand and voice-over-IP through cable broadband. Satellite operators need to bundle video with voice, and the telcos need the video connection.”

(Jim Rozier, BellSouth, 404/986-1528; Marc Lumpkin, EchoStar, 303/723-2020; Bob Marsocci, DirecTV, 310/726-4656; Patrick Fuhrmann, 908/490-1391)

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