If regulators give EchoStar Communications Corp. approval to gobble up rival DirecTV Inc., integrating the two direct-broadcast satellite services may cause a case of technology heartburn.
With incompatible decryption systems, overlapping orbital satellite slots and different consumer equipment and offerings, EchoStar will have plenty of technical decisions to make. So it's no surprise that the two companies have already formed integration teams, according to EchoStar communications manager Marc Lumpkin.
"All of those types of questions are going to be answered over the next nine months, as our transaction team meets DirecTV's transaction team and the Hughes folks, and we come up with some plans," he said. "Obviously, there are a lot of folks that have to be involved along the way between the two companies to make sure all of the aspects of the company are covered."
Among the decisions faced by EchoStar: which digital encryption system to use. While both DBS providers use MPEG-2 (Moving Picture Expert Group) video transmission, DirecTV uses NDS America's proprietary encryption system and EchoStar employs Nagravision's standards-based system.
"The question, of course, is which standard do you actually go with?" said Pioneer Consulting LLC senior market analyst Michael Massey. "And the economies of scale that are present in the DVB industry probably makes more sense to go with the DVB platform, but of course the subscriber counts are greater on the DirecTV side."
EchoStar's Lumpkin said the boxes can be upgraded to support other platforms. But the greater question may be the company's more cautious view on interactive services.
DirecTV has the more varied service lineup of the two. It offers everything from basic video to full interactive services powered by boxes from Thomson Multimedia S.A., Philips Consumer Electronics Co., Sony Corp. and sister Hughes subsidiary Hughes Network Systems. It offers two interactive packages with Wink Communications Inc. and Microsoft Corp.'s UltimateTV software, respectively; a TiVo Inc. personal-video recorder package; and a high-definition TV offering.
DirecTV also has been working an AOL TV offering that taps such America Online features as electronic mail, chat and Buddy Lists. The rollout date for that last project has not yet been announced.
EchoStar, by contrast, has designed its own boxes, and recently boiled its lineup down to three models: a basic unit, a unit with personal-video recording capabilities and a unit that supports the HDTV format.
A fourth box that adds a data connection for DSL or Starband high-speed satellite Internet service that will debut by the end of the year.
The company has launched an interactive weather channel and plans to add an application that allows customers to access their accounts early next year.
In the company's quarterly earnings call, chairman Charlie Ergen said EchoStar was working with Wink and OpenTV on interactive projects, but noted that the economics of interactive TV are unproven.
One merger benefit would be the ability to consolidate satellite arrays. EchoStar has six satellites launched in several west orbital slots — one at 119 degrees, three at 110 degrees, one at 61.6 degrees and one at 148 degrees. DirecTV has five satellites — one at 101 degrees, three at 110 degrees and one at 119 degrees. A sixth spot-beam satellite is planned for launch later this quarter to comply with must-carry mandates.
"Obviously there is some redundancy in programming there, and space time is not cheap," Massey said. "That would certainly be one of the advantages in putting the two companies together, in reducing the number of spacecraft that are being utilized."
EchoStar would likely lean toward keeping its DBS bands in the 17-gigahertz range, Massey said.
But if so, EchoStar would be faced with the problem of getting 10 to 11 million DirecTV customers to reorient their dishes.
"A lot of times it is just hit or miss," Massey said. "Somebody, given their location, has a great line-of-sight and they just turn it on and it is not a problem. And then I know of other people that just could not get a strong signal."
DirecTV senior director of communications Bob Marsocci said it wouldn't be the first time DirecTV has faced such a transition. When DirecTV acquired PrimeStar, it converted about 1.5 million customers to DirecTV, swapping out hardware and re-pointing satellite dishes.
"What would happen is an installer would do that for them," Marsocci said. "It's not something that the consumer would be required to do on their own."