AT&T dials up Hughes for DBS stake

Electronic News, Jan 29, 1996 by Reinhardt Krause

New York--AT&T is acquiring 2.5 percent of the equity in the DirecTV direct broadcast satellite (DBS) subsidiary of Hughes Electronics Corp. for $137.5 million. AT&T maneuvered for the stake in DirecTV just as the Federal Communications Commission auctions off more spectrum for DBS services with MCI, Tele-Communications Inc. and Echostar among the expected bidders.

The move also comes just months after AT&T announced plans to split into three separate companies: communications services, equipment manufacturing and computers. AT&T gives DirecTV a strong marketing and distribution arm; while the Hughes subsidiary has grown swiftly, it reportedly fell slightly short of its target of 1.3 million subscribers by the end of 1995.

In addition, DirecTV could soon be facing more competition from TCI, which is backing the PrimeStar DBS venture with several other cable companies, as well as MCI. MCI was expected to start bidding at $175 million for the new spectrum to be auctioned by the FCC.

According to Schaeffler Media Research, more than 5 million households now receive television programming directly from a satellite. That number could quadruple before 2000, depending on how much DBS providers can make inroads into current cable subscribers.

AT&T has options to increase its investment to up to 30 percent, for a total of more than $1.5 billion, over five years. AT&T's degree of involvement could depend primarily on the number of new DirecTV subscribers it enrolls in the service.

AT&T plans to begin offering the service and equipment to its customers by mid-summer. AT&T and Hughes also plan to jointly develop new multi-media services for DirecTV as part of the agreement. No manufacturing arrangements were disclosed as part of the investment, however.

The DirecTV service, which delivers up to 175 channels, requires a 18-inch satellite dish and decoder box. Thomson Electronics has been an OEM supplier of RCA-brand equipment; its retail pricing is expected to drop to $649 during 1996. More equipment suppliers will provide the Digital Satellite System (DSS) equipment starting this year, including Sony, Samsung, Sanyo Electric and Daewoo Electronics.

"This agreement will bring consumers nationwide a premier package of communication and digital entertainment services," said Eddy Hartenstein, president of DirecTV. "This strategic alliance with AT&T will augment our more than 20,000 existing consumer electronics retailers and satellite dealers nationwide, and provide even more consumers with access to the fastest-growing, direct-to-home satellite service in the nation."

Just how far-ranging the AT&T collaboration with Hughes DirecTV subsidiary remains to be seen. Another threat to cable operators looms from the fact that several PC makers are working with DSS equipment providers to tap into satellite-TV connections for delivering video and data to PCs.

AT&T plans to offer the DirecTV service in addition its its long-distance telephone service; billing could come on the same statement. Joseph P. Nacchio, executive vice president of AT&T's consumer-small business division, said, "Our customers count on AT&T to put leading-edge communications, information and entertainment services comfortably within their reach.