Cable Blunts Satellite’s Push

Mar 20, 2006  •  Post A Comment

In the war for television viewers’ remote controls, satellite providers DirecTV Group and EchoStar Communications lost momentum last quarter as their cable rivals lured customers with packages of TV, phone and Web access.

EchoStar said last Wednesday that fourth-quarter subscriber additions fell 23 percent to 330,000 from a year earlier. DirecTV, the biggest satellite broadcaster, in February reported a 55 percent decline in new customers, attracting 200,000 fresh accounts. Among the four biggest public cable companies, only one reported a decrease in basic subscribers.

The satellite companies’ decision to reduce customer turnover by tightening credit requirements for new subscribers contributed to the fourth-quarter decline in customer additions. Cable companies including Comcast Corp. made inroads by offering a package of TV, high-speed Internet and telephone service to lure customers with the convenience of one bill.

EchoStar may be “strategically challenged” in part due to its lack of a bundle of services, Bernstein Research analyst Craig Moffett said last Thursday in a note to investors.

An EchoStar spokeswoman declined to comment.

For their part, cable operators say their offerings of high-definition programming, video-on-demand and, most recently, telephony creates a package of services that satellite can’t match.

The satellite services are working with phone companies to offer packages of television, telephone and Internet service to compete with cable providers. The lower price of satellite television is an arrow in the industry’s quiver, said Kaufman Bros. cable and satellite analyst Todd Mitchell.

“If you look at the bundle, it has some valuable retention qualities, but video is the key driver,” Mr. Mitchell said.

The competition between satellite companies and cable providers may turn more desperate as telephone companies including Verizon Communications spend billions to expand their video offerings, representing a new threat to revenue and profit.

Telcos Get ‘Aggressive’

Until those systems are in place, the phone companies, including descendants of the Bell monopoly, will continue to ally with satellite companies, Mr. Mitchell said.

“You will see the Bells get more aggressive with their satellite partnerships,” Mr. Mitchell said.

Phone companies last week convinced U.S. Rep. Joe Barton, R-Texas, to draft legislation to let them bypass state regulators when setting up local video franchises. That would give them an advantage over the cable companies, which must seek approval jurisdiction by jurisdiction.

DirecTV, whose shares have risen more than 4 percent in the last 12 months, and EchoStar, whose shares have dipped around 1 percent, have said they plan to focus more on profitability than market share, which could slow their growth further.

Comcast, the biggest cable company, in the fourth quarter gained 40,000 new customers following three consecutive quarters of decline amid the growing popularity of Internet-based phone services. By comparison, debt-laden Charter Communications lost nearly 22,000 subscribers in the fourth quarter.

The cable companies are betting consumers will pay more for advanced services such as video-on-demand, high-definition programming and digital video recorders.