Filing activity at EchoStar this week, mostly a name change and share transfer manipulations in line with the groups stated intent of created DISH as a separate satellite TV company from all of its services and technology offerings, have caused mass speculation among the ranks of newswires and TV industry watchers over the fate of the DISH network.
Most observers fall into one of two camps ‘ those saying that this is preparatory work for AT&T to get the price of DISH down by only buying the TV service and not the technology behind it, and those saying that the deal has run into trouble and that DISH and DirecTV may now get a chance to consummate their former love affair. TheStreet.com has it that a $29.5 billion buyout will be announced by AT&T as early as this week.
In the midst of all this AT&T said this week that it had stopped selling DirecTV, ending a deal whereby Bellsouth sold DirecTV service and the old SBC sold EchoStar. DirecTV insisted that the move would have little bearing on sales and pointed out that EchoStar’s deal doesn’t end until later in 2008, and that it might still work with AT&T after that time.
The key thing that after these filings at EchoStar it is clear that DISH now CAN be bought by a telco, or by anybody else, and they can choose to have an arms length relationship with equipment suppliers, of which EchoStar Communications, the new spin out, will continue to be one.
It would be pointlessness itself if EchoStar had bought Sling Media just a few weeks ago for $380 million and then failed to build a strategic asset out of that plus its own set top know how, its mobile TV and miniature consumer device partners and its satellite service business, not to mention its spectrum assets.
The first thought that struck us at Faultline about that Sling Media deal was that the set tops for satellite, cable and IPTV will ALL eventually need to have Sling Box capabilities ‘ the ability to forward their live and stored TV content encrypted, to the same customer at another broadband attached destination ‘ another set top, a PC or even a handset. But it could not do that without a deep understanding of at least one type of set top, and a demonstration customer ‘ the same way TiVo had DirecTV to demonstrate the capability of the modern DVR.
In that sense EchoStar makes a not bad partner for Sling Media. However EchoStar’s recent poor customer acquisition figures show that it is relatively hard to maintain customer growth in the semi-saturated world of US pay TV services. It is time for Charlie Ergen, CEO and founder with dominant shareholder voting power, to cash in his life’s biggest achievement one way or another (to AT&T or to DirecTV’s Liberty) and get back into a high growth market, creating wealth.
The first clues to what that market might be were laid when EchoStar demonstrated its fascination with portable video devices back when it bought 20% of French pioneer Archos, and began offering its portable video device as a way of storing, carrying and playing out DISH programming.
This followed on from other ideas from way back in 1999 when rival DirecTV bought into XM Satellite Radio along with Clear Channel and General Motors and others to invest US$250 million in the fledgling service. Today XM, once it is merged with Sirius Satellite Radio, will be a unique landmark US creation. No-where else in the world has such a buoyant and established satellite radio market, and to some extent EchoStar was jealous of DirecTV’s involvement.
Some time later during 2004, as these services began to mature, DISH took Sirius Satellite Radio content on board to replace its own music services, and its rival DirecTV did the same with XM Satellite music services.
So perhaps the market EchoStar is after is a re-invention of satellite radio, a market for small digital devices with both video and audio being stored, played out and transmitted to them, whether that transmission is placeshifting, broadcast or sideloading or all three.
EchoStar’s relationship with China over its mobile TV service is yet another strand of this new passion. EchoStar is managing the content and satellite capacity, but when you merge that with the potential for millions of consumer electronics devices being shipped and all manner of satellite based transmission services, then what was just a faint idea that Ergen and EchoStar would take a look at mobile TV in the US, becomes almost a certainty.
Another submerged fact is that EchoStar says in its November filings that it won $57 million of L-Band 1.4 GHz spectrum in the FCC’s March concluded Auction 69, in some of the US’s best TV and radio markets. In actual fact the only bidder that won that amount of spectrum was bidding as Port LLC and although nowhere in its filings does EchoStar actually says that it owns Port, it appears the most likely conclusion.
EchoStar technically cannot use this spectrum from a satellite, and would need to build out its own terrestrial network, but could easily do that using something like DAB to deliver Digital Audio Broadcast compatible signals and borrow compatible equipment (with a slightly different radio) from European markets. We suggest DAB because there is a variant that will allow pure IP packets, but there are other technologies available, it just needs one that can facilitate lots of video. Of course Satellite DAB would be better, but this is in a different part of the 1.4 GHz area, higher up the spectrum, not yet auctioned.
So our guess is that either EchoStar will go up against the existing single merged satellite radio company made from Sirius and XM, or more likely it will offer its spectrum, satellite capacity and service capability to help extend the Sirius service into a fully fledged mobile TV effort.
There is similar 1.67 GHz spectrum likely to be used in much the same way bought from Modeo by two investors earlier this year and EchoStar may even be able to do something for them in that.
But now it turns out that EchoStar is planning to bid in the coming 700 MHz auctions as well, though just what it hopes to do with the $2.8 billion in has in liquid assets (with half of this going to the new operation), against minimum bid prices on some segments which are far larger than that, we shall have to see. Of course if AT&T had just bought DISH, the management shareholders of EchoStar might have plenty of money to buy 700 MHz, to supplement the spectrum EchoStar has already.
But it is within EchoStar’s capability to bring DVR design and place shifting from Sling Box, into the same services, once it gets the TiVo legal action out of the way, and licenses the TiVo patents. One way to mitigate the effect of TiVo’s claim on it going forwards is to offer TiVo access to the placeshifting patents of Sling Media. It could, as we have said in the past, buy TiVo, and merge the two together for a really compelling merged patent feature set.
And to do all of this EchoStar doesn’t even have to sell DISH. If the AT&T or DirecTV offers turns out to be illusory, or it has lost interest, or they can’t agree a price, then Ergen, over time, can fund EchoStar, by selling some of his DISH shares, and then by raising more from equity.
After the company is renamed the DISH Network Corporation, the remaining business will be spun-off including broadcast satellite receivers, antennae and commercial satellite lines of business and assets, and this company will receive all rights to the trade name and trademark ‘EchoStar’ and will subsequently change its name to ‘EchoStar Communications Corporation.’