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DBS Conference Plays Down Industry Politics

4/19/1998 8:00 PM Eastern

New York -- The SkyForum conference here last week
highlighted a direct-broadcast satellite industry with two sides. On the surface,
everything was rosy, with news of the industry's best first quarter in history and a new
dealer certification designed to maintain high consumer-satisfaction rates.

But no matter how hard SkyForum's sponsor, the Satellite Broadcasting & Communications
Association
, tried to put a positive spin on things, there was no hiding the political
differences among some of its members.

Broken business deals, lawsuits and opposing proposals for
bringing local channels to DBS customers have been played out in the media over the past
year. SBCA president Chuck Hewitt did not want to see those same issues rehashed at
SkyForum.

Asked why there was no joint panel of DBS CEOs as at
earlier conferences, Hewitt replied, "We were worried about fistfights."

He added, "The purpose of SkyForum is not to air
differences, but to inform -- primarily, Wall Street."

It appears that Wall Street is starting to get the message,
if a panel of five financial analysts was any indication: Each of them waxed optimism
about DBS.

"We're very bullish on the entire DBS sector,"
said Hoyt Davidson, managing director, investment banking at Donaldson, Lufkin &
Jenrette.

Robert Kaimowitz, who heads the Satellite Communications
Group at C.E. Unterberg, Towbin, has projected that the 6.8 million-home DBS industry will
add 2.7 million new subscribers this year.

He added that digital-cable upgrades could even benefit DBS
if cable operators pass their costs on to consumers.

DirecTv Inc. president Eddy Hartenstein said that although
he believes that digital cable will take longer to deploy than some people think, "we
can't let that stop us" from aggressively marketing DBS now.

On that note, DirecTv announced a joint marketing promotion
with fellow Digital Satellite System programming-provider U.S. Satellite Broadcasting. The
campaign offers $100 in free programming to new subscribers, and it runs through May 31.

Hartenstein predicted that DirecTv would reach breakeven at
a subscriber total of slightly above 4 million. The breakeven point has been pushed back,
as DirecTv pays more to acquire new subscribers. Given the company's historically low
churn, Hartenstein said, "it was an easy decision to make."

DirecTv has more than 3.5 million customers, and it added 1
million last year.

EchoStar Communications Corp. chairman and CEO Charlie
Ergen told SkyForum attendees, "We're not above water yet," adding that the
company would need "several million" subscribers before reaching breakeven.

EchoStar has more than 1.2 million Dish Network
subscribers, and it added about 700,000 last year.

USSB president and CEO Stanley E. Hubbard said his company
would have profits in the year 2000 if DSS continues to grow at a rate of 1 million
subscribers annually.

"We hit breakeven on cash flow with about 2.5 million
paying subscribers," Hubbard said. Roughly one-half of DSS owners subscribe to USSB.

PrimeStar Inc. president Dan O'Brien said his company's
current medium-power business has already reached cash-flow breakeven. It serves more than
2 million subscribers.

O'Brien also projected that PrimeStar's high-power business
could be cash-flow-positive by early 2000 if government approval for high-power comes soon
enough.

Hewitt predicted that cooperation among SBCA members will
increase once the DBS companies reach positive cash flow.

But until then, the gloves appear to be off. Ergen said the
lack of industry support for his local-into-local satellite plan "hurts a lot,"
adding that he couldn't understand why anyone in the industry would not back a plan that
gives satellite access to the same local stations that its competitors have.

Ergen said he understood the SBCA's position that it can't
support one company over another when there isn't an industry consensus.

"DirecTv, USSB and PrimeStar haven't supported us
publicly, and they probably have hurt us from behind the scenes," Ergen said last
Wednesday.

Later that day, Hubbard responded, "Charlie [Ergen]
would like to believe that we're all trying to blow up his deal in Washington [D.C.], but
we're staying out of it. We don't care."

"We're not opposing Ergen, per se," Hartenstein
said, "but we've got limited political capacity."

Ergen said explaining away the lack of support from the
industry's trade association means that it takes him that much longer to make his pitch to
Washington officials.

Ergen admitted that local-into-local is not a big business
for EchoStar today. "We lose money on every local signal that we put up," he
said, adding that the company has signed up "several-thousand" local-broadcast
subscribers.

 

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April