BellSouth Joins Forces With DirecTV

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BellSouth Corp. struck a marketing alliance Wednesday with No. 1 direct
broadcast satellite service provider DirecTV Inc., agreeing to bundle its voice
and data offerings with DirecTV's video service in an effort to preserve the
RBOC's local telephony subscriber base and stave off high-speed data competition
from cable operators.

The deal is similar to one that DBS rival EchoStar Communications Corp.
reached last month with SBC Communications.

BellSouth will bundle DirecTV's video product with its voice and data
offerings - dubbed 'BellSouth Answers' - at a discount and on a single bill.
BellSouth will market, sell and schedule the install of DirecTV equipment.

DirecTV will do the actual installation of video hardware in the customer's
home.

BellSouth is expected to begin marketing the service early next year, at
about the same time EchoStar's SBC agreement kicks in.

Customers who choose a package of BellSouth's local and long-distance
telephone service, its high-speed digital subscriber line data service and its
wireless telephone service along with DirecTV would receive a discount.

However, the companies did not disclose how much those discounts will be or
how they will be shared between BellSouth and DirecTV.

While DBS service providers have had joint ventures with regional Bell
operating companies in the past, those deals have failed because they were
little more than resale agreements.

BellSouth had one of those resale agreements with EchoStar in the past. On a
conference call with reporters, BellSouth chief product development and
technology officer Bill Smith said those EchoStar customers will not be moved
over to DirecTV.

Smith also said both parties have an incentive to make this deal work.

'We see some significant value in having a broad, robust and market-leading
video offering in that bundle,' Smith said. 'We hope DirecTV feels the same way
in reverse. We've got an opportunity here to join forces to provide an
integrated response to an increasingly competitive marketplace. That is far more
important today than it has been in the past.' 

BellSouth has about 45 million customers in nine states: Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and
Tennessee.

DirecTV executive vice president of sales, distribution and customer
acquisition Steve Cox said he sees the agreement as a compliment to
satellite-delivered high-speed data service, not a replacement.

'We do believe there is and will remain a role for satellite-delivered
broadband,' Cox said. 'We think there are plenty of customers that won't be
reached with DSL that will remain very good candidates for satellite-delivered
broadband. I think the two are complimentary to each other, not an
either/or.'

Cox said that DirecTV is open to similar deals with other RBOCs, but declined
to say which telephone companies the DBS giant is talking to. DirecTV currently
has resale agreements with Qwest Communications Corp.

Speculation is that DirecTV will next forge a deal with Verizon
Communications Inc., the largest provider of wireline and wireless telephony
service in the country.

In a research report, Oppenheimer & Co. analyst Thomas Eagan said that
the BellSouth-DirecTV alliance is just one more in a string of recent deals that
will lead to more confusion for customers.

'In our estimation, these partnerships don't usually amount to much,' Eagan
said in his report. 'And we wouldn't be surprised if this deal, like many others
that preceded it, is disbanded in 18 months.'

Eagan said that Comcast Corp. and Cox Communications Inc. are the two cable
MSOs that would be most impacted by the deal, because they have the most
customers in BellSouth territory.
Investor reaction to the deal was
lukewarm.

BellSouth stock was down 38 cents each Wednesday to
$25.39 per share, while Hughes Electronics Corp. (DirecTV's parent) rose 22 cents to $14.48.

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