Satellite’s September Spectrum Search

By Jimmy Schaeffler

September typically is a busy time of year for the U.S. direct broadcast satellite (DBS) business. Executives return from summer vacations and there is less daylight (and thus, presumably, more TV watching). In addition, football resumes and DirecTV’s NFL Sunday Ticket starts to lure new satellite TV viewers.

EchoStar Communications [Nasdaq: DISH] recently took a bold action to push the competitive envelope yet again by starting a street skirmish with Intelsat over the purchase of satellites (and possibly manufacturing facilities) owned by the bankrupt satellite manufacturer and operator Loral Space and Communications [OTCBB: LRLSQ].

Further competitive juices flowed in recent weeks when General Motors’ [NYSE: GMH] DirecTV responded to EchoStar’s efforts to ally with telephone providers SBC [NYSE: SBC] (a former DirecTV ally) and Qwest Communications [NYSE: Q] by setting up its own DBS-telco alliance, teaming with Bell South [NYSE: BLS].

DirecTV’s Petition

DirecTV also took its competitive zeal to the Federal Communications Commission, filing Sept. 6 a petition for rulemaking asking the agency to study and implement rules, if necessary, for the deployment of satellites into Ku-band orbital assignments at 86.5 degrees West longitude (WL), 96.5 degrees WL, 105.5 degrees WL, 114.5 degrees WL, 123.5 WL, 125 degrees WL and 127 degrees WL. Existing rules call for 9 degrees spacing between DBS satellites. “The Commission should not grant a license for or landing rights from DBS locations between the current nine-degree spaced orbital positions until the Commission makes the technical and public interest determinations requested by this petition,” DirecTV said. With this petition, DirecTV is apparently targeting attempts by others to use only 4.5 degrees spacing in those slots. Those looking to use 4.5 degrees spacing include EchoStar, SES Americom, and administrations in the United Kingdom and the Netherlands.

The petition process will create a comprehensive technical record, DirecTV argued. Further, other FCC rules and orders repeatedly acknowledge that a rulemaking proceeding “is generally a better, fairer and more effective method of implementing a new industry-wide policy than is the ad hoc and potentially uneven application of conditions in isolated proceedings affecting or favoring a single party,” DirecTV wrote.

Specific concerns identified in the DirecTV petition include:

• General feasibility of reduced orbital spacing for DBS service at 12 GHz;
• Criteria to adequately protect both existing and planned DBS satellites and services;
• Rules for issuing DBS authorizations to operate from orbital locations with less than 9 degrees spacing; and
• Foreign-licensed systems seeking to provide U.S. coverage.

Merging Systems

Another issue percolating in the satellite TV sector is interest from existing operators to merge their existing broadcast satellite services (BSS) with fixed satellite services (FSS). That trend points to a great “rush” to find new spectrum to deliver content to compete with other satellite operators and with the nation’s 10,000-plus cable systems. The spectrum is necessary to add new channels, including more DBS-delivered local channels, new high-definition TV (HDTV), and new interactive services. The reasoning is to continue developing and introducing innovative new satellites and services. It is important to remember that ultimately, spectrum – no matter how much exists – is akin to real estate on the ocean: there’s no such thing as “enough” or “too much.” Additionally, many more and newer technologies are expected in the future, which will have the effect of opening up more spectrum for DBS providers and their content providers.

EchoStar and NRTC Moves

For its part, EchoStar took two significant steps this year toward obtaining and using more spectrum. First, the second-largest U.S. satellite TV operator in late March secured leases for all of the capacity on an existing SES Americom satellite and a future satellite at the 105 degrees WL location. The terms of those arrangements involve a year-to-year renewable lease of 10 years. As part of that arrangement, EchoStar paid $50 million to begin construction of the new Ku/Ka-Band hybrid satellite, AMC-15, which is due for launch in the second half of 2004. EchoStar is thought to be currently negotiating similar arrangements for additional satellites and more bandwidth.

As mentioned earlier, EchoStar announced an informal $1.4 billion bid for the manufacturing arm and satellites of bankrupt Loral. The EchoStar bid now competes with the $1 billion Intelsat bid for Loral’s North American satellites and assets.

Moreover, in the FCC Cable Competition filings released during the first half of September, the Herndon, Va.-based National Rural Telecommunications Cooperative (NRTC) asked the FCC to ensure that DirecTV and EchoStar better use their spectrum and orbital slots. The NRTC specifically asked that the FCC assist in pushing EchoStar and DirecTV to deliver local channels in all 210 designated market areas (DMAs) across America.

And finally, in mid-September, some information was released concerning Cablevision Systems [NYSE: CVC] Rainbow DBS division’s filing for several additional Ka-Band slots to supplement the Ku-Band satellite launched this past summer into 61.5 degrees WL.

And the Numbers, Please…

At the end of September, the U.S. DBS industry will be serving an estimated 20.873 million total subscribers, with 11.8 million served by DirecTV, giving it a market share of 56.4 percent. EchoStar is expected to have an estimated 9.1 million subscribers for a 43.6 percent market share. Additional net new subscribers for EchoStar during September are expected to approach 100,000. DirecTV is expected to net 80,000 new subscribers.

Because neither DirecTV nor EchoStar provide monthly subscriber numbers, The Carmel Group offers its estimates based upon developments during a given time frame, as well as extensive historical comparisons and analyses.

Assuming those estimates are correct, DirecTV should close the quarter with an additional 181,000 net new subscribers, while EchoStar should produce almost 50 percent more subscriber growth to add roughly 270,000 net new subscribers during the time frame. Based on those estimates, the U.S. DBS industry should add another 450,000-plus net new subscribers in the third quarter alone. That pace would put the industry well on its way to 2.2 million net new subscribers for the current calendar year. If that is the case, it will be the sixth year out of the past nine that the industry has added more than 2 million net new subscribers. These estimates also suggest that the U.S. DBS industry will have added a total of over 1.6 million net new subscribers for 2003 by the end of September.

Add in a lot of new spectrum, and God only knows what these space-based multichannel video providers can do.

Jimmy Schaeffler is a subscription TV analyst at The Carmel Group, a publisher of industry databooks and a consultancy based in Carmel-by-the-Sea, Calif. (http://www.carmelgroup.com). The company specializes in telecommunications, computers and the media. He can be reached at e-mail [email protected] or at telephone number 831/643 2222.