Cablevision Systems Corp. announced that it has entered into a definitive agreement for its Rainbow DBS Co. LLC unit to sell its direct broadcast satellite (DBS) and certain other related assets to a subsidiary of EchoStar Communications Corp. for $200 million.
Under the terms of the agreement, EchoStar will acquire the Rainbow 1 satellite, which operates from 61.5 degrees West, along with Federal Communications Commission– issued licenses to construct, launch and operate DBS services over 11 frequency channels at that orbital location. EchoStar also will acquire the contents of Rainbow’s ground facility in Black Hawk, SD. Rainbow 1 shares an orbital slot with EchoStar 3.
EchoStar said it is assessing how Rainbow’s flexibility can best be utilized to enhance its Dish Network direct-to-home satellite television service. The company noted that Rainbow 1 can operate in 13 frequencies, up to 12 of which can be operated in spotbeam mode.
A spokesman for EchoStar told Satellite News that the rights to existing Rainbow customers, who purchase DTH services under the Voom brand, are not part of this deal and added that it would be speculative to say that this deal could be a stepping stone for EchoStar to acquire Voom and its subscribers.
Cablevision said it will continue to explore strategic alternatives including modernization, for its remaining Rainbow-related assets. It added that Voom will continue to provide service to its current customers during a transition period.
Thumbs Up From Wall Street
Wall Street analysts reacted well to the news, with them seeing this beneficial to EchoStar for a number of reasons, including the fact that Rainbow 1 is co-located with an EchoStar satellite. Analysts said the move also boosts EchoStar’s high-definition (HD) offering without the risks and time associated with the construction and launch of a new satellite.
The transaction “speaks to EchoStar’s high-definition strategy,” said Benjamin Swinburne, analyst with Morgan Stanley in a Jan. 21 equity research report. “We believe that an investor concern regarding [EchoStar] has been its lack of a well-articulated high-definition strategy. This transaction begins to address this concern. Rainbow 1 represents a state of the art satellite already constructed and in use, [with] no launch risk assumed for EchoStar.”
“We believe the purchase is a positive event [for EchoStar] as it enable the company to quickly add HDTV local channel capacity, filling in what is a significant gap between DirecTV’s and EchoStar’s HDTV capacities,” Thomas Eagan, analyst with Oppenheimer, said in a Jan. 21 research report.
“We believe that the acquisition will allow [EchoStar] ease in transitioning its more than 1 million local subscribers to a single-dish solution over the legally mandated next 16 months,” Vijay Jayant, analyst with Lehman Brothers, said in a Jan. 21 equity research report.
“We have long speculated that EchoStar wold be the most sensible buyer of these assets as the company already owns (or leases) 19 of the total 32 frequencies at this orbital location,” Robert Peck, analyst with Bear Stearns, said in a Jan. 21 research note. “Adding Voom’s frequencies would give EchoStar a total of 30 frequencies at this 61.5 degrees West. Furthermore, since EchoStar already has installed dishes that ‘look’ at this orbital slot, the company can expand capacity in a quick period. We would expect EchoStar to use the additional spectrum for more local services (potentially local HD). To be clear, the additional spectrum is helpful to EchoStar, but [it] does not come close to completing EchoStar’s need for additional spectrum to handle local HD. We expect EchoStar to lease further Ku-band spectrum to address its ultimate capacity demand.”
(Robert Peck, Bear Stearns, 212/272-6665; Vijay Jayant, Lehman Brothers, 212/526-6019; Benjamin Swinburne, Morgan Stanley, 212/761-7527; Thomas Eagan, Oppenheimer, 212/668- 5769)