Satellite

Making Love, And War

1/23/2005 7:00 PM Eastern

EchoStar Communications Corp. rose to the top spot in J.D. Power & Associates’ customer service survey this past summer — a position it has shared alternately with DirecTV Inc. for the past eight years. But the direct-broadcast satellite provider could find it more difficult to perch on the top rung in the future, according to some analysts and observers.

The gap between the cable industry and DBS providers in this year’s survey was smaller than in years past, notes J.D. Power senior director of telecommunications Steve Kirkeby. Some analysts believe 2005 could be the year that cable actually gives DBS, notably EchoStar’s Dish Network, a run for its money.

“The whole momentum EchoStar has over cable right now, including subscriber additions and customer-service scores, can only last so long,” says Jimmy Schaeffler, chairman and CEO of The Carmel Group, a research firm that covers DBS and cable.

“What continues to give satellite the leg up on customer service is the idea that cable has been so bad for so long and it takes a long time for people to forget,” he says. “I think in many ways customers are being too harsh on the cable guys. Satellite, including Dish, continue to draft off cable’s bad image and that just can’t last forever.”

Leichtman Research Group president Bruce Leichtman believes the satellite companies come out on top in customer satisfaction because consumers feel they have to make a conscious decision to choose DBS over cable. “Consumers don’t feel they really have a choice when they pick cable, and so those customers aren’t as likely to think as highly of their provider,” he says. “It’s all perception vs. reality.”

Dish received top ratings in three of the six factors that drive overall satisfaction in J.D. Power’s 2004 survey: billing, cost of service and offerings and promotions. Dish also performed near the top in the remaining three factors: customer service, image and performance and reliability. Dish was followed by DirecTV, WideOpenWest LLC, Cox Communications Inc., RCN Corp. and Bright House Networks, respectively.

For cable operators, cost of service has proven the most irksome. Dish has promoted itself with aggressive ads pointing out how greedy cable operators are when it comes to rate hikes.

Yet despite its now-infamous “cable pig” ads, EchoStar has increased its own rates five times in the last five years and the low-cost advantage EchoStar has enjoyed in years past is beginning to erode. The latest hike will result in Dish customers’ bills rising between 6%-8%, according to some analysts. EchoStar puts the lift at an average 4%, but the hikes vary according to different program packages effective next month.

For instance, the price for Dish’s America’s Top 60 package will increase $2 a month to $26.99, or $31.99 with local channels. The price on its America’s Top 120 package will increase $3 a month to $37.99, or $42.99 with local channels. And the Top 180 package will pop up $3 a month to $47.99, or $52.99 with local channels.

Although it is somewhat difficult to compare packages, Dish’s Top 120 package could be measured against Comcast’s Digital Classic package that costs $39.94. Both packages offer local signals (Dish’s local station packages tack another $5 to all programming packages), an interactive guide and approximately the same number of channels. America’s Top 120 delivers more digital channels, but Comcast’s package offers about 1,000 hours of free video-on-demand programming.

Despite EchoStar’s own rate hikes, the company continues to rail against cable operators for their annual rate adjustments. EchoStar executives handed out T-shirts with the company’s latest marketing tag — “Why is digital cable so expensive?” — to attendees of this month’s Consumer Electronics Show in Las Vegas, while at the same time the company was sending out its own rate hike notices to customers.

Though Wall Street analysts and marketing experts extol EchoStar for its marketing savvy and success, some of the company’s aggressive promotions and marketing campaigns have gotten it into trouble in the past. DirecTV sued EchoStar last summer, accusing the company of using false advertising to target customers in areas served by DirecTV reseller Pegasus Communications Corp. A handful of state attorneys general also slapped EchoStar for ads run in Pegasus-served areas that made claims such as, “Warning, Pegasus customers! DirecTV may turn off your TV channels,” and “DirecTV by Pegasus customers may lose their TV channels.”

The issue was eventually settled, but some analysts believe that situations like that one coupled with the company’s insistence on bashing cable rates while raising its own will eventually come back to haunt EchoStar.

“I think this will be a watershed year for cable companies, and cable service will finally rise in the minds of consumers and on Wall Street,” Schaeffler says. That remains to be seen. But it could be a year when the satellite and cable companies begin to experience similar amounts of scrutiny when it comes to rates and service.

October