AOL Might Sell Hughes Stake

Cable World, Sept 11, 2000 by Tim Clark

Somewhere in his underground mansion, Bill Gates is chuckling. U.S. antitrust officials may ask AOL to sell its $1.5 billion stake in satellite giant Hughes Electronics before they sanction the Internet juggernaut's takeover of Time Warner. FTC attorneys have been fretting over Time Warner's strangle-hold on specific cable markets. They expect its cable network to be opened up to rival Internet service providers.

The antitrust agency is still in the early review stage. Staff attorneys have not yet recommended alternate possibilities for AOL to the competition bureau, the organization that will ultimately vocalize a recommendation to the Federal Trade Commission. If AOL is forced to sell, will this leave them SOL?

"Selling their preferred stock would not have a significant impact on the underlying tracking of the GMH stock," says Tom Eagan, cable and satellite analyst, Paine Webber. Eagan adds AOL's affiliation with Hughes is far more important than its stake since part of AOL's agreement with Hughes Electronics is to deploy AOL TV, an interactive TV service. The service would undoubtedly benefit from Hughes' satellite unit DirecTV, which holds about 8.7 million subscribers. Analysts predict DirecTV subscribers may reach 10 million by year's-end. AOL is also expected to offer Hughes' satellite service to most of its 26 million online subscriber base.

Eagan says if AOL is forced to sell, they may be put in an uncompromising position to sell their TV service elsewhere.

"Since Hughes has already spent their money, it could become a very awkward transaction," says Eagan.

Because the burgeoning satellite industry offers high-speed access to the Internet, a major alternative to expedient modems, the FCC also will investigate the AOL-Hughes relationship.

"I think certain parties are more concerned about Time Warner and AOL than AOL's 5% investment in Hughes," says Eagan. "There's a larger value distributing AOL TV and AOL Plus to subscribers than the potential competitive impact on Time Warner cable systems."

DBS Database

                           Market    Current
Platform                   Share       Subs

Echostar                    33.3%    4,423,840

DirecTV                     66.7%    8,517,910

PGTV/NRTC portion is                 1,571,370 or 16.8% of DirectTV

PrimeStar (with DirecTV)               337,144

Total Household
(and equivalents)                   13,278,804

                                        One-Year
Platform                    Year Ago     Change

Echostar                    2,692,669     64.3%

DirecTV                     5,717,248     16.8%

PGTV/NRTC portion is

PrimeStar (with DirecTV)    1,861,430 with DirecTV

Total Household
(and equivalents)          10,271,347     29.2%

SOURCE: DBS Digest