Analysts Bearish, But Bullish on DBS Cos.

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Los Angeles -- Analysts believe that direct-broadcast
satellite stocks will remain undervalued until the industry lowers its cost of subscriber
acquisition.

But that message, delivered at a conference in Los Angeles
by The Carmel Group, was mixed with advice that DBS players must grab for market share by
any means necessary before cable is able to deploy digital or OpenCable set-tops.

'Don't pay attention to Wall Street. Focus on
your core business,' said Marc Crossman, vice president of CIBC Oppenheimer.

If DBS pays to gain market share, stock valuations will
rise eventually, he added.

But for the near term, customer acquisition remains
DBS' Achilles' heel. By Carmel Group estimates, DBS companies cumulatively spent
$750 million on marketing last year. Analysts tabbed the per-subscriber cost at $300 to
$400, including hardware, programming and marketing subsidies. That extends breakeven on
customers out two to three years, they said.

Although analysts generally described themselves as
bearish, they believe that DBS can grab more market share, even though the industry has
already enticed the early adapters and it must now attract those who are not interested in
the popular 'NFL Sunday Ticket' National Football League out-of-market package.

Despite the challenge, Hoyt Davidson, managing director of
Donaldson, Lufkin and Jenrette, projected that DBS could have 21 percent market share, or
20 million subscribers, by 2005. The growth is achievable by targeting multiple-dwelling
units and developing commercial products, he said.

The analysts seemed to support, ultimately, a price of $199
(installed) for hardware. Price points popped up throughout the two-day conference, as
panelists discussed, but frequently rejected, the cellular-phone marketing model of giving
the equipment away.

Free equipment invites churn because in some
consumers' minds, free means zero value, said David Spomer, vice president, DBS
product management, worldwide digital and multimedia for Thomson Consumer Electronics Inc.

Besides, attendees said the greatest barrier to sales is
neither cost nor lack of local TV signals. According to a survey by The Yankee Group of
potential customers, which was quoted by Greg Gudorf, director of marketing for Sony
Electronics Corp., one-half of the consumers who do not buy DBS said, 'I don't
need it.'

In addition to marketing challenges, conference attendees
cited several regulatory issues that they must address this year to improve operating
margins. They hope to overturn the decision of the Copyright Arbitration Royalty Panel,
which set their fee at 27 cents per month, per subscriber to import distant-network and
superstation signals, compared with the 2 cents to 10 cents that cable operators pay.

DBS companies will also push for better program access and
penalties for companies like Cablevision Systems Corp. and 20th Century Fox, which, DBS
executives charged, have repeatedly dodged access rules on their Rainbow Media Holdings
Inc. and FX programming networks, respectively.

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