New Distribution Deal Gives WildBlue Service Jump-Start
EchoStar and DirecTV’s 5-year agreement to sell WildBlue’s satellite-based Internet access service in rural markets provides a jump start for a technology that has struggled for years to attract an audience. While research firms have put the potential market for satellite broadband services in rural areas at 10-15 million households, HughesNet (formerly Direcway), StarBand and WildBlue have gained less than 500,000 combined, industry officials said.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
The sluggish sales were largely blamed on hardware costs and, in the early days of DirecTV’s DirecPC, a one-way service that relied on a phone line for a back channel. With the emergence of high 2-way transmission speeds and lower prices -- HughesNet’s modem sells for $499 after a $100 discount -- satellite broadband services appear to be slowly gaining traction. HughesNet has about 300,000 consumer and small business subscribers, while WildBlue and StarBand have about 60,000 and 40,000, respectively, industry officials said.
HughesNet, which changed its name this year after DirecTV sold its remaining 50% of parent Hughes Network Systems (HNS), is adding about 10,000 new subscribers per month, Mktg. Vp Arunas Slekys said. HughesNet is now 70% owned by private equity firm Apollo, and 30% publicly. “If anything, this kind of a deal validates the size and potential of this market,” Slekys said: “This pact shows that others agree with us that this is a valid market. There’s a huge pie here, so I don’t I see any impact on us” from the WildBlue agreements.
While both DirecTV and EchoStar have alliances with a range of telecom firms, most of those agreements are limited to co-marketing in more populated regions. DirecTV launched DirecPC in 1997-1998, changed the service’s name to Direcway and forged distribution agreements with the likes of EarthLink and the NRTC. While EarthLink succeeded in gaining DirecPC distribution through kiosks in Circuit City, the service had just 160,000 subscribers by late 2002. EchoStar put $50 million each into StarBand and WildBlue forerunner iSky, but wrote off those investments in 2002. WildBlue was reborn in late 2002 with investments from Liberty Media, NRTC and Intelsat and launched its service last year.
Even with its agreement with WildBlue, DirecTV’s goals appear modest. DirecTV CFO Michael Palkovic told a Deutsche Bank investor conference Tues. that while WildBlue’s service may not be the answer for providing satellite-based Internet access to the broad market, it could be a “very, very good solution for rural America.” WildBlue has the “best shot for bringing a meaningful solution to market with a deal that’s effective,” he said.
At the same time, DirecTV appears to be hedging its bets in broadband. DirecTV and EchoStar are expected to announce a wireless broadband plan in advance of the AWS auction scheduled Aug. 9. DirecTV and EchoStar haven’t disclosed their plans, but in Dec. issued a joint request for information that envisioned a nationwide wireless broadband network using 1.5/1.6 GHz L-band or 2.5 GHz spectrum. There was speculation at the time that the satellite service providers could team up with Mobile Satellite Ventures on wireless broadband in the 1.5/1.6 GHz L-band.
Palkovic underscored that DirecTV’s pact with WildBlue is a wholesale agreement. “No stipulations… If it goes well, good,” he said: “If it doesn’t, it’s not bad.” If DirecTV pursues a satellite-based access service on a wider basis, “that’s the platform we'll pick.” An EchoStar spokeswoman declined to disclose how many of the service’s subscribers might be interested in picking up the WildBlue service, but like DirecTV, will target rural markets.
The rural customers that DirecTV and EchoStar can reach through WildBlue is “a relatively smaller number,” said Frost & Sullivan analyst Max Engel. “I'm sure that a majority of their customers are in a place where -- even if they can’t get terrestrial broadband now -- it’s a matter of not much time,” Engel said. While the pacts are a “good thing” for WildBlue, for DirecTV and EchoStar, “I don’t see it as a major advantage because they need broadband to compete with triple-play offers coming down the pipe,” Engel said.
Retailers we polled also said the agreement will have little immediate effect. Many of the satellite-based Internet access service sales are through smaller satellite dealers as well as distributors, integrators and value-added resellers. Integrators and VARs are largely responsible for selling HughesNet to the national CE chains, which don’t stock inventory of the satellite modems, Sleyks said. About
of HughesNet’s sales come through the Internet, he said.