News

Sharing the Wealth

5/10/2008 2:00 AM Eastern

Overcoming the housing slowdown and a dour economy, DirecTV is crowing about its gain of 275,000 subscribers in the first quarter, which surpassed Wall Street's expectations.

But the satellite provider also got some bad news, because its wireless-broadband partner Clearwire is teaming up with several of DirecTV's cable archrivals — as well as Sprint and Google — in a $12 billion WiMax joint venture.

Enjoying a surprisingly strong first quarter, DirecTV's net subscriber growth represented a 17% gain from the year-ago period. The nation's largest satellite provider — now with 17 million subscribers, up 5% from a year ago — also saw its lowest first-quarter monthly churn rate in 10 years, at 1.36%.

Some analysts had thought DirecTV, positioning itself as the HDTV leader, would see subscriber gains slow down. The causes cited include a housing construction downturn and the recent customer gains some cable operators — such as Time Warner Cable and Mediacom Communications — and phone companies racked up for the first quarter. DirecTV's stock price began the week at $25.55 and ended Thursday at $27.40, up $1.85 (7%) over the period.

“The fact of the matter is we have unique strengths, which we feel in many ways are getting stronger, and we're competing very effectively against the bundle and other market forces out there,” DirecTV CEO Chase Carey said.

Last Wednesday morning, just hours before DirecTV did its first-quarter conference call, Clearwire and Sprint Nextel announced they were forming a joint venture with Comcast, Time Warner Cable, Bright House Networks, Intel and Google to create a nationwide wireless-broadband network.

“Bottom line, this is not something that is going to be impacting the business a whole lot in the next couple of years,” Carey said during the earnings call.

Although Carey downplayed the competitive threat of the WiMax venture, the news immediately raised questions about DirecTV's ongoing efforts to find its own broadband play. First, it called into question the deal that DirecTV and EchoStar Communications (now Dish Network) cut almost a year ago with Clearwire, a wireless high-speed Internet provider, a partnership to offer satellite customers a triple-play bundle of video, voice and data.

“Clearwire really hasn't had any meaningful — I don't mean this in any derogatory way, they may have been focused on other things — but Clearwire has not been a meaningful part of anything we've been doing,” Carey said. “We have an agreement, but we're not doing a whole lot with it, and they haven't been doing a whole lot with the business.”

Clearwire confirmed it still has an agreement with DirecTV, but wouldn't say what the term of that agreement is.

“Our partnerships with EchoStar and DirecTV are still in place,” Clearwire spokesman Susan Johnston said. “Based on company policy, we do not comment on future plans.”

The WiMax joint venture “is not particularly positive for EchoStar and DirecTV's relationship with Clearwire,” according to Jimmy Schaeffler, chairman of The Carmel Group, which has consulted for both satellite providers.

At least one analyst, Sanford C. Bernstein & Co.'s Craig Moffett, said flat out the Clearwire-Sprint joint venture spells the end of Clearwire's year-old resale deal with both satellite providers.

“The satellite operators DirecTV and Dish [Network] would look to be the 'odd men out,' ” Moffett wrote in a report. “Both have a tenuous JV with Clearwire to provide wireless broadband that will now presumably be dissolved.”

Carey vowed that DirecTV will continue to explore broadband options. “It is an area — over time — we do intend to play in,” he said. “In what shape and form, we're going to continue to be thoughtful about.”

DirecTV also said it is increasing its stock buyback to $3 billion, and disclosed that its large new shareholder, Liberty Media, has agreed to limit its voting power to its current ownership percentage, 47.9%, regardless of how many shares DirecTV buys through its stock repurchase program.

Liberty Media increased its stake in DirecTV to nearly 48% from 41% in April.

“These steps should be clarification that Liberty and DirecTV are working well together, and working well to move DirecTV forward,” Carey said.

September