SBC-EchoStar Alliance Pays Dividends

Prospective satellite-TV subscribers appear to be responding to the joint efforts of SBC Communications [SBC] and EchoStar Communications [DISH]. The SBC-DISH branded service is gaining new subscribers but it also likely is “cannibalizing” EchoStar’s acquisition efforts to a degree. As a result, may not be impacting cable TV as much as has been commonly perceived, according to a research note by Douglas Shapiro, a satellite-TV and cable-TV analyst with Banc of America Securities.

“We believe that a substantial portion of switching between multichannel providers occurs when consumers move and their switching costs consequently go to zero,” Shapiro wrote to his clients last week. If most consumers’ first call is to the phone company after moving, some subscribers who would have gone to DBS anyway are probably signing up through the incumbent local exchange carrier (ILEC), he added.

“In addition, we understand that some of the EchoStar independent dealers are now selling the SBC bundle because they expressed concern about competing with SBC,” Shapiro continued. As a result, a substantial amount of EchoStar’s distribution within the SBC footprint may be adding ‘SBC-DISH’ branded subs, he explained.

“It is also important to be aware of the distinction between gross and net adds,” Shapiro wrote. “We estimate that EchoStar will have roughly 3.4 million gross additions this year, to get to about 1.4 million net adds. As a result, it probably has to do about 1 million gross adds in the SBC footprint alone annually, or probably close to 250,000 per quarter.”

(Douglas Shapiro, Banc of America, 212/847-5676)