Satellite

Bell Deals Drive DirecTV Additions

5/02/2005 7:22 AM Eastern

DirecTV Inc. reported strong net new subscriber additions in the first quarter, fueled in part by its arrangements with several regional Bell operating companies.

DirecTV reported 505,000 net new subscriber additions in the period, the strongest quarterly customer growth in its history. Fueling that growth were 150,000 gross subscriber additions from several RBOCs, 40,000 net new subscribers from the National Rural Telecommunications Cooperative and about 120,000 net additions from its Hispanic language package, DirecTV Para Todos.

DirecTV has agreements with Verizon Communications Inc., Qwest Communications International Inc., Cincinnati Bell Inc. and BellSouth Corp., which bundle DirecTV’s DBS service with their telephone and high-speed data offerings.

Revenue for the period was up 27% to $3.15 billion. Subscriber acquisition costs also were down sequentially to $656 compared to $669 in the fourth quarter. Churn came in at 1.49%, a sequential decline but still too high according to DirecTV executives.

The strong subscriber growth pushed DirecTV stock up 82 cents each (5.8%) to $14.94 per share in afternoon trading Monday.

In a conference call with analysts, DirecTV CEO Chase Carey said the subscriber additions were more than he expected, but added that with new initiatives underway — especially a new credit policy aimed at weeding out low-quality new subscribers — that growth is expected to decline slightly in future quarters.

Carey said that with the new credit policy — mainly requiring a $150 up-front deposit from customers deemed to be potential credit risks — net new additions could drop about 10%.

“This is a very healthy 10% reduction,” Carey said. “There was a segment of customers that had a level of churn that it didn’t make sense for us to be pursuing them. This credit policy is geared to weeding those customers out.”

Carey added that DirecTV also plans to target specific geographic areas in the coming quarters that it believes are particularly vulnerable for new promotions for digital video recorders, HDTV and other interactive features.

DirecTV launched the first of three Spaceway satellites last week geared at providing HDTV coverage. He said the first satellite will enable DirecTV to cover about half of the country with high-definition programming.

“The next few quarters will clearly be critical for us as we take real steps in taking the DirecTV consumer offer really to the next level of really starting to fulfill what is our vision of what DirecTV really can be,” Carey said.

While Carey said that subscriber growth could decline in the second quarter — a traditionally weak period for multichannel-video providers — he said the DBS service provider will target multiple dwelling units, ethnic programming packages and interactive services to help drive future growth.

“That [MDUs] is an opportunity for us to develop a market we have clearly underperformed in,” Carey said.

DirecTV already has announced an interactive advertising agreement with Chrysler Corp., and Carey said that more longform interactive advertising could come in the future. He added that downloading software into set-top boxes for local weather and additional programming guide features will come later this month. DirecTV also plans to launch its next generation DVR this summer, he said.

September