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StarBand Ads Back Market Launch

11/12/2000 7:00 PM Eastern

WASHINGTON -StarBand Communications Inc. last Monday announced the market launch of its new high-speed data service, the first two-way broadband service delivered to consumers via satellite.

The service is available in the lower 48 states, although the company plans to add Alaska, Hawaii and Puerto Rico sometime next year.

StarBand will target an estimated 55 million U.S. households that don't have access to cable modems or DSL service.

"If they are tired of waiting for broadband services, the wait is over, folks," StarBand CEO Zur Feldman said at a press conference here. "StarBand customers don't have to worry how far away they live from a telephone company's central office or whether the local cable company has invested in their neighborhood."

But in areas where data-over-cable or digital-subscriber line service is available, demand for satellite Internet service may not be as great as demand for direct-broadcast satellite offerings such as those from DirecTV Inc. and EchoStar Communications Corp.

"Satellite Internet is not going to be competitive with cable modem or DSL service simply because of price," Tellus Ventures Associates president Steve Blum said.

And although StarBand promotes download speeds up to 500 kilobits per second, real-world speeds are typically lower than with DSL or cable modems, Blum said.

National retailer RadioShack Corp. last week began selling the first StarBand systems for about $1,000, including the 23-by-36-inch dish and a specially configured Compaq Computer Corp. PC.

RadioShack will bundle Microsoft Corp.'s "MSN Internet service" with the high-speed service for $59.95 per month.

StarBand's other initial marketing partner, EchoStar, started taking orders for the service last week through its base of more than 2,000 Dish Network dealers. The first installations through that channel are not set to begin until after Thanksgiving, however.

"We are going to help bridge the digital divide with these kinds of products," EchoStar chairman Charlie Ergen said last Monday. His comments from his Colorado headquarters were fed to reporters in Washington via streaming video.

Instead of bundling the system with a PC, Dish dealers will sell a StarBand satellite modem for $399. Monthly access through the Dish sales channel is $69.99 a month and includes a StarBand-branded ISP.

Dish customers can get a $10 discount on the monthly service when bundled with an "America's Top 150" satellite-TV programming package. The bundled price is $99.99 a month. New Dish subscribers can use a single satellite dish to access both television and PC-based high-speed content. Installation will cost $199.


SIX-CITY BREAKOUT

This week, StarBand plans to break its first consumer ads, with print and radio in six cities: Dallas, Chicago, San Francisco, Washington, New York and Minneapolis. In addition, the company plans to run national ads in
Business

Week

and the
Wall Street Journal
.

The tagline for the first ads is "Just Look Up," which is meant to convey that households with a clear view to the south are likely candidates for the StarBand satellite dish.

"Our objective is to build a national brand for StarBand by creating a new category different from narrowband and broadband," StarBand president and chief marketing officer David Trachtenberg said.

StarBand does not yet face competition in the consumer market for a two-way high-speed satellite service. Hughes Network Systems' high-speed service, DirecPC, currently employs a telephone return path, although the company has said it plans to deliver a two-way version later this year.

As neither StarBand nor DirecPC has built strong brand-name recognition among consumers, there's still a chance for one to capture the lead in terms of early market share.

"A lot will depend on promotion and pricing" models between the two competitors, Paul Kagan Associates Inc. senior analyst John Mansell said.

Trachtenberg said the fact that StarBand is launching its two-way service ahead of DirecPC will help establish its competitive position.

"The benefit of being first to market can't be overemphasized," he said. "It's all about building a brand."

Mansell said there's a huge potential demand for broadband over satellite. "It's going to be a huge market but not necessarily at this price or this time."

The price per month for StarBand service is likely to drop over time, Mansell noted, but he did not criticize the company's introductory price points.

"Why not skim off the cream [of early adopters] while you can?" Mansell said.

The monthly access fee is roughly twice as high as many monthly cable broadband services, and cable operators typically offer discounted or free cable modem installations during promotions.

Trachtenberg defended StarBand's pricing, and noted that it's more expensive to deliver a high-speed service over satellite. He also said that the price of the two-way service is competitive in rural markets, especially in cases where consumers don't have local calling plans or a local ISP.

He mentioned one rural online user who had to pay for Internet time by the minute and was confronted with a $2,000 phone bill when she first went online, although he admitted that was probably an excessive example.

"The market will really dictate where we'll be priced over the long term," Trachtenberg said.


CROWDED TRANSPONDERS

Keeping price close to $60 per month will help dictate whether the business model for StarBand will be a success, Blum said.

"You can only get so many customers on a transponder," Blum noted.

StarBand officials last week said the company expected to be able to support 20,000 subscribers per transponder.

At those numbers and a $60 price point, "you might have a business," Blum said. "The problem is that in the real world, StarBand is getting only 7,000 people on a transponder" in its trials.

Both Mansell and Blum suggested that StarBand's entry into the market may be intended to build a moderate business now with plans to convert its customer base and distribution network over to two-way Ka-band satellite technology in the future.

Rural DBS provider Pegasus Communications Corp. also plans to enter the satellite Internet fray. The company last week said it formed a new broadband subsidiary, Pegasus Broadband Communications Inc., to concentrate on its television- and PC-based Internet access businesses.

Best Buy Co. Inc., a retail competitor of RadioShack, last week unveiled the in-store interactive displays it will use to help demonstrate a variety of broadband options, including cable modems from AT & T Broadband and satellite Internet service from DirecPC.

In a recent survey of 1,000 U.S. consumers, Best Buy found half of consumers with dial-up Internet access today would be interested in buying broadband service from a retailer that offers multiple service options. That number translates to 45 million households, the retailer said.

Of those surveyed, 9 percent currently use cable modems, 9 percent use DSL, 2 percent use satellite, 2 percent use wireless and 77 percent access the Internet over dial-up.

Today, Best Buy sells the one-way DirecPC service.

"It's our job to educate consumers on the difference between one-way and two-way," Trachtenberg said.

Two-way services provide high speeds for uploads as well as downloads and consumers also appreciate the always-on connectivity, he added.

 

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