While the direct-to-home (DTH) satellite television service providers currently are benefiting between the telecom service providers and cable television operators, they may need to seek out their own partners or alter their focus to remain competitive against cable.

“I think the challenge for the satellite guys is going to be coming up with a bundling strategy of their own through partnerships, which may be difficult to sustain,” Jim Penhune, director of broadband media and communications research at Strategy Analytics told Satellite News. Another option for satellite DTH providers would be to “concentrate on the video market in terms of offering services that are compelling or differentiated just on the video side like some of the interactive things that EchoStar and DirecTV are doing right now, or really choosing to concentrate on specific segments of the video market, particularly at the lower end.”

Bundling has become a hot topic as cable companies and telcos battle each other for market share, with “triple play” being the buzzword of the day, referring to a bundled offering of voice, high-speed Internet and multi-channel video services to consumers. Cable has been eating away at the telcos’ market, especially now with voice-over-IP (VoIP) gaining traction as an alternative to telephone. For now, the telcos have responded to the competitive threat by partnering with the satellite DTH providers to fill in their own triple play, but satellites in the long term could lose out to other terrestrial technologies such as IPTV.

“I think ultimately it has to hurt the partnerships that exist between DTH providers and telcos,” Penhune said. “But I think [those partnerships have a] couple more years to run their course. I think it is going to be difficult for the large regional Bell operating companies to sign up significant numbers of IPTV customers in the next couple of years [if they are able to stick to announced deployment schedules]. It is a difficult play for the telcos no matter how it shakes out, and in some ways, they would be better off sticking with the partnership model they have now with the DBS providers, which have performed pretty well for them.”

But if the telcos drop partnerships with DBS players in favor of IPTV, the DBS providers do have other avenues to fill in the high-speed Internet service side of the equation, which would bring the VoIP piece to create their own triple play offering, including partnering with a future broadband satellite service provider or possibly utility companies, if the much talked about broadband over power lines becomes a legitimate business.

Penhune suggested that DBS providers likely would go the terrestrial route rather than partner with a satellite-based broadband provider. “I would be surprised if two-way satellite distribution wound up being the option they offered, but it is possible,” he said. As for broadband over power lines, “I think there is still a lot of uncertainty around that. The technology seems to be there. It is more a question of whether there is a business case there, given the number of homes already passed by and served by cable and DSL.”

Penhune continued, “The likelihood going forward is the guys needing the partnerships more are going to be the satellite guys. But a lot of that is going to have to do with whether or not the telcos succeed in being a factor in video. That is really an open question at this point.”

DTH Growing The Market

One interesting observation Penhune made regarding the growth of DTH is that is not robbing all that much from cable operators.

“The emphasis in a lot of coverage on this market tends to present this zero-sum gain–if satellite had a goodd quarter, then cable had a bad quarter,” Penhune said. “There is some truth to that, particularly among the operators that are vulnerable for geographic or technical reasons.” Penhune noted that in 2004, DTH operators added 3.2 million subscribers, while the top 10 cable operators combined lost less than 500,000 subscribers. Penhune attributed that to DTH becoming a legitimate alternative to cable, particularly withe new homeowners and first-time renters.

“Because of the marketing satellite has done and the fact tha they are competitive with pricing, a growing number [of first time multichannel subscribers] are opting for satellite,” Penhune said.

–Gregory Twachtman

(Jim Penhune, Strategy Analytics, 617/614-0701)