Sun Shines on DBS in July

8/16/1998 8:00 PM Eastern

The scorching summer weather isn't keeping customers
away from consumer-electronics stores, judging by last month's
direct-broadcast-satellite-system sales.

The DBS industry continued to record impressive growth in
July, as DirecTv Inc. signed up 81,000 new subscribers, followed closely by EchoStar
Communications Corp.'s Dish Network at 73,000, according to Golden, Colo.-based
SkyTrends, which tracks DBS-subscriber acquisitions.

Only PrimeStar Inc. fell behind, posting 16,764 net new
subscribers. While its July numbers were modest compared with those of its competition,
PrimeStar did exceed its own figures for June 1998 (14,200) and for July 1997 (9,000).

DirecTv and EchoStar each beat both previous-month and
year-earlier figures, as well (see chart).

Subscribers aren't the only ones smiling on DBS this
summer: Solid subscriber gains and strong second-quarter earnings also brought a nod from
Wall Street, which has not always looked favorably at the DBS industry.

Last Monday, Morgan Stanley Dean Witter raised its rating
on EchoStar from "neutral" to "strong buy."

And late the previous week, Merrill Lynch & Co. put out
a buy recommendation on U.S. Satellite Broadcasting's stock.

"We've long thought that we were an undervalued
stock," said Stanley E. Hubbard, president and CEO of USSB. "We do have
breakeven in pretty close range and earnings in pretty close range. And once we hit
critical mass, earnings will pick up quickly."

More than in previous years, DBS companies have spread
their advertising and promotional efforts in 1998 throughout the year, rather than holding
back for the holiday season.

"Our objective was to try to take some of the
seasonality out and to bring up the first half of the year," DirecTv president Eddy
Hartenstein said.

It appears to have worked: DirecTv gained about 30 percent
more customers for the first seven months of this year compared with the same period last
year, he said.

As hot as the summer numbers have been, all eyes in the DBS
world are focused on the second half of the year, when consumer-electronics sales
typically go up exponentially.

"Everyone is working at a fever pitch,"
Hartenstein said.

Even PrimeStar -- which has suffered recently from a lack
of focus, as it continues to transition from a partnership to a single corporate structure
-- intends to be in the game for the holidays.

"We expect to be ready and charged by September,"
PrimeStar president and chief operating officer Dan O'Brien said. "We see Sept.
15 through Dec. 24 as key."

O'Brien said PrimeStar would continue to advertise
aggressively throughout the year, and it will run two major promotions this fall -- one in
September and October, and the other in November and December.

DirecTv kicked off its fall sales a little early with a
high-profile NFL Sunday Ticket promotion, centered around its out-of-market National
Football League package. Hartenstein said he's heartened by initial anecdotal

By all accounts, the DBS industry enjoyed very strong
holiday sales last year, and it may have done even better if retailers had more product.
This year, EchoStar's Dish Network products are likely to be more widely available.

And Hartenstein said DirecTv has expanded distribution of
Digital Satellite System hardware somewhat. Still, he admitted that there were limitations
to the amount of growth that the company could see during the fourth quarter.

"I don't think that anyone's looking for us
to do 30 percent better in November and December over last year," Hartenstein said.

Last December, DSS installers were working "seven days
a week, 10 and 12 hours a day," Hartenstein said. Recently signed deals with
telephone companies, wireless cable operators and even a handful of small cable operators
should help to ease the situation. And, he added, consumers are becoming more comfortable
with using self-installation kits.

"We're very confident that we'll end this
year ahead" of the total for last year's subscriber acquisitions, Hartenstein

But the DBS industry has felt a few growing pains along
with its subscriber gains, especially as it fights to keep pace with calls to its
customer-service centers.

EchoStar recently said that it would build a third call
center to help reduce the hold time that callers face when they dial the company's
800 number.

And Pegasus Communications, which sells DirecTv service in
a number of rural territories, has already started hiring additional customer-service
representatives at all three of its call centers to meet the demands of the fourth-quarter
selling season.

Pegasus last week reported a 470 percent net increase in
subscribers in the second quarter versus year-earlier figures.

As part of its roll-up, PrimeStar has consolidated its call
centers from 11 to three, plus an additional, outsourced center.

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