PrimeStar Hurdles Remain

1/11/1998 7:00 PM Eastern

Las Vegas -- PrimeStar Partners L.P. did not announce at
the Consumer Electronics Show last week what attendees really wanted to learn: that its
roll-up into a publicly held company was complete, and that the government had cleared the
way for its move to high-power direct-broadcast satellite service.

PrimeStar president Dan O'Brien said the restructuring
process is progressing, 'but not as fast as we would like.' The company is
waiting for Federal Communications Commission approval to transfer orbital spectrum at 119
degrees west from Tempo -- a wholly owned subsidiary of TCI Satellite Entertainment Inc.
(TSAT) -- before it completes the roll-up.

As recently as November, PrimeStar had expected FCC
approval of the 119 license transfer to occur by the end of 1997. But PrimeStar has
learned that the commission has chosen to look at both the 119 license transfer and at
PrimeStar's proposed deal with News Corp. -- which would grant PrimeStar additional
high-power spectrum at 110 degrees -- simultaneously, which could hold up the decision for

'We would have liked the FCC to look at the
transactions separately,' O'Brien said, adding that he's still confident
that PrimeStar will have a roll-up by the end of the first quarter.

There were troubling indications for PrimeStar out of
Washington, D.C., however. Last week, assistant commerce secretary Larry Irving told
reporters that he had doubts about whether PrimeStar should be allowed to take control of
MCI Communications Corp.'s DBS license. Irving said it didn't make sense to
allow the cable industry to have an ownership stake in a business that is viewed as
cable's most serious competitive threat.

PrimeStar had hoped to launch its first high-power DBS
service --120 channels delivered to an 18-inch dish, rather than the current 27-inch model
-- in the first quarter of this year.

The company had also planned to introduce its wholesale
digital-tier programming service to cable operators and other multichannel video providers
in the same time frame. But without FCC approval for 119, O'Brien said, PrimeStar
will hold off on those service launches until April, with further delays if the FCC
approval process is postponed.

Although PrimeStar had a sizable booth at the CES, it did
not use the show to let retailers know the name-brand consumer-electronics company that
will supply high-power systems in addition to Next Level Systems Inc.

O'Brien said the first high-power boxes will all be
General Instrument Corp.-branded (NextLevel is in the process of changing its name back to
GI). Six months after introduction, a name-brand manufacturer will also deliver the
digital set-top boxes to retail, O'Brien said.

At a CES conference on the DBS marketplace, EchoStar
Communications Corp. chairman Charlie Ergen said the FCC's ruling on PrimeStar will
influence the DBS industry more than anything else that might happen in 1998.

Ergen does not believe that the FCC will grant
license-transfer approval for the high-power orbital spectrum that PrimeStar seeks, given
PrimeStar's ties to the cable industry.

O'Brien countered that as a publicly held company,
PrimeStar Inc. -- its name after the roll-up is completed -- will have a fiduciary
responsibility to its shareholders to compete with cable.

At a press conference last Thursday, O'Brien said
PrimeStar 'absolutely' intends to compete vigorously against cable.

'Our cable owners want us to compete vigorously,'
O'Brien said. 'This is not a defensive strategy. If it were defensive, would we
create a service rated better than any cable system in the country?'

PrimeStar has been seeking spectrum from which to launch a
high-power service for years. When asked why a company with so many ties to the cable
industry should control valuable DBS spectrum, O'Brien answered, 'You also have
to look at who else would do this if not PrimeStar.'

He pointed out that it's no small task to launch a
satellite service competing against incumbents that already have a head start of several
years in the business.

A move to high-power will allow PrimeStar to compete more
aggressively in cabled areas than it does now, because the dish size for the new services
will be smaller, O'Brien said.

Until then, PrimeStar continues to back its medium-power
service with promotional dollars. The company will unveil its $150 million marketing
campaign with a new advertising spot on Super Bowl Sunday.

The tag line is: 'How Good Can Satellite Television
Get?' The ads play up PrimeStar's first-place ranking in a recent J.D. Power and
Associates survey of cable and satellite subscribers.

PrimeStar said last week that it has frozen monthly
programming costs for basic services, excluding network signals, until the year 2000.

The company also released pricing on its first high-power
DBS system, which will retail for $149.99 after a $50 rebate from PrimeStar. When the
high-power service launches at 119, PrimeStar will not make the product available through

Once the service moves to 110, however, PrimeStar will
offer purchase, lease and lease-to-own options on the hardware.

Under PrimeStar's new risk-free guarantee,
dissatisfied customers can ask PrimeStar to remove the equipment for any reason within 30
days for a full refund, less the cost of installation.

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