Cablevision’s Rainbow Poses Threat

The Rainbow 1 satellite recently launched by International Launch Services for New York-based Cablevision Systems [NYSE: CVC] poses a legitimate threat to existing satellite TV service providers Hughes Electronics’ [NYSE: GMH] DirecTV and EchoStar Communications [Nasdaq: DISH], according to observers familiar with its capabilities.

Cablevision, a cable operator and entertainment company with major cable TV holdings in New York, New Jersey and Connecticut, thus far has not announced its detailed plans for the satellite except to say it would compete with DirecTV and EchoStar.

Skeptics have raised doubts about Cablevision’s estimated $300 million-plus expenditure on the satellite, but documents filed by the company with the Federal Communications Commission (FCC) about the technical capabilities of the high-power satellite offer a glimpse into the spacecraft’s enormous potential.

The Lockheed Martin [NYSE: LMT] A2100AX satellite, with an expected life span of 18 years, is the most powerful and advanced direct broadcast satellite (DBS) ever launched, Cablevision officials said. The Ku-band satellite, lifted into orbit July 17 from Cape Canaveral, Fla., aboard an Atlas V rocket has 22 spot beams – an unusually large number for a commercial satellite. That satellite also offers a CONUS (continental U.S. coverage) beam

Cablevision Chairman Charles F. Dolan, an entrepreneur who emphasizes the importance of content, should not be underestimated. Speculation that the capacity of Rainbow 1 would be sold to EchoStar or DirecTV seems off base. Indeed, the satellite’s spot beams each could provide more than 100 local and national channels of programming to 143 designated metropolitan areas (DMAs). Those markets include 76 of the top 100 in the United States where the vast majority of the U.S. population lives, according to Cablevision’s filing.

Dolan promised that the satellite would make an “important advancement” in Cablevision’s history of state-of-the-art content delivery. The view of satellite engineers who are aware of the spacecraft’s publicly disclosed technical capabilities agree that it should help Dolan keep his pledge.

Rainbow’s Many Colors

D.K. Sachdev, a satellite engineer who heads the SpaceTel Consultancy in Vienna, Va., said Cablevision’s Rainbow 1 satellite would be capable of offering more than 450 standard definition channels. The company’s technology should help to compensate for a late market entry to create a new competitor to established satellite TV providers.

But Cablevision has a long way to go. DirecTV and EchoStar already have amassed roughly 20 million subscribers since launching service in the mid-1990s. Cable has 71 million U.S. subscribers.

The use of a “large number” of spot beams aboard Rainbow 1, in conjunction with CONUS coverage from the 61.5 degree West orbital slot along the eastern edge of the United States, will give Cablevision “flexible connectivity,” Sachdev said. As a result, Cablevision will be able to offer potential DBS customers smaller dishes and high-definition TV capability.

In light of News Corp’s [NYSE: NWS] possible entry into the U.S. DBS marketplace through the purchase of Hughes and DirecTV, the emergence of another competitor would be in the interest of U.S. consumers. Still unclear is whether Cablevision will have any backup capacity to protect itself in the event of an in-orbit failure, Sachdev said.

Edmund Habib, a satellite engineer who heads Ed Habib Consulting in Derwood, Md., agrees that the Cablevision satellite is equipped to provide a substantial amount of television programming that could top 100 television channels per market within the regions served by the 22 spot beams. The high-powered spot beams’ technical capability lends support to Cablevision’s claims in FCC documents that consumers would only need a 13-inch antenna to receive Rainbow 1’s signals, he said.

Using either MPEG 4 for standard definition television (SDTV) or MPEG 2 for HDTV in the available 13 channels per spot beam or the CONUS beam, Cablevision can deliver a total of nearly 2,500 television programs at one time.

Each time a CONUS channel is used, the same channel of polarization and frequency cannot be used in the spot beams without interference, Habib said. For that reason, as the number of CONUS channels used by the satellite rises, the capacity of the spot beams is reduced, he explained.

Despite engineering innovations, the marketplace hurdles Cablevision must clear to become a viable nationwide competitor to DirecTV and EchoStar are high, said Roger Rusch, who heads the TelAstra satellite consulting firm in Palos Verdes, Calif.

“It will be difficult to compete with 10-year-old DBS companies because they have an established customer base,” Rusch said. “Subscriber migration is possible, but that is a relatively slow process. Generally, the service must be better and/or less expensive. EchoStar, for example, has had some success winning over DirecTV customers by being a little cheaper.”

The satellite’s relatively low elevation angles at 61.5 degrees West for California and the Pacific Northwest, combined with a relatively weak CONUS signal, means much of the country likely would face a heightened risk of signal fade due to rain or weather conditions, Rusch said.

Another potential disadvantage for Cablevision is that its service offerings would be “much more limited” than those of DirecTV and EchoStar. Rainbow 1 is only licensed to use 11 frequency blocks. In full CONUS mode, it currently could support only 143 standard TV channels, but the other DBS companies offer more than 500 national TV programs in addition to local-into-local service, Rusch said. –Paul Dykewicz

(D.K. Sachdev, SpaceTel Consultancy, 703/703/757-5880; Ed Habib, Ed Habib Consulting, 301 417 0243; Roger Rusch, 310/373-1925)