Competition Drives Digital-Sub Growth

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Consumer demand for digital-video service continued to grow in the first months of 2000, driving subscriber growth for both digital-cable and direct-broadcast satellite providers.

The National Cable Television Association reported last week that its members deployed digital-cable service in just under 1.1 million U.S. households in the first three months of this year, bringing the digital-cable count to more than 6 million homes.

NCTA spokesman Eric Glick said the association predicts that the industry could see 9.8 million digital-cable homes by the end of the year, citing figures from Paul Kagan Associates Inc.

DBS providers DirecTV Inc. and EchoStar Communications Corp. signed 860,000 net new subscribers between them during the first quarter of 2000. In addition, DirecTV converted another 275,000 of its PrimeStar by DirecTV medium-power satellite customers to its high-power DBS service.

Last week, DirecTV announced that it acquired 180,000 net new customers in April, or 27 percent more than in April 1999. The company also converted 130,000 customers from PrimeStar service to high-power DirecTV.

DirecTV has about 8.5 million customers, including some 800,000 who are still with the PrimeStar service.

EchoStar late last month signed its 4 millionth Dish Network customer. Between the two companies, the DBS providers control more than 12.5 million multichannel-video homes.

On the surface, DBS and digital cable seem to be running neck and neck in terms of recent subscriber-acquisition counts. But it's not necessarily a fair comparison.

Because DBS is a national service, it's hard to compare its numbers to digital cable, which is still deployed region by region, Cable & Telecommunications Association for Marketing senior vice president Seth Morrison said.

On the other hand, most digital-cable subscribers were upgrades from among cable's 60 million-plus homes, Alpert & Associates president Mickey Alpert pointed out, while DBS counts first-time subscribers.

Morrison said the cable industry has reason to be upbeat about the digital-cable-subscriber numbers reported by the NCTA.

"Clearly, all of the research we've done says that once customers get digital, they're happier," he said. But he also advised cable operators to step up their marketing efforts and reach beyond the early adopters. "You can't take your foot off the gas," he added. "The risk is that we're in a more competitive world."

As cable customers make the decision to upgrade to digital cable, they're at risk of going one step further and upgrading to DBS, Alpert said.

"With digital cable, you're still providing a hybrid service of analog and digital," he said, adding that customers who want digital picture quality on all of their channels may opt for DBS.

The NCTA also reported last week that U.S. cable operators deployed high-speed cable-modem service to 445,000 new customers during the first quarter, a record increase for the industry during a three-month period.

If the rate of deployment continues, the association said in a press release, there could be 3.6 million cable-modem customers in the United States by the end of this year.

DBS has been behind the curve when it comes to two-way Internet access, but both EchoStar and DirecTV parent Hughes Electronics Corp. plan to address the issue with new two-way satellite services later this year.

Alpert doesn't expect DBS to tally a large number of high-speed Internet customers during 2000. "This is the wrong year to look [at numbers]," he said. "This is the year to get ready to promote the hell out of the services next year."

Both the cable and DBS industries have run into problems in recent months keeping enough digital set-top boxes on hand to meet subscriber demand, but analysts believe increased production by equipment vendors is starting to ease the situation.

Finding enough installation help to deploy all of the new hardware is also an issue. Some cable operators are experimenting with self-installation to more quickly meet demand. But as DBS dishes become more sophisticated-either by adding uplink capabilities for broadband services or multiple-look angles to access additional satellite channels-self-installation becomes a less practical option.

Dove Associates Inc. managing director Bob Davis said more consumers might be willing to adopt digital cable if the industry can move the technology out of stand-alone set-top boxes.

"From a consumer perspective, homes are getting pretty crowded and complicated, between VCRs, digital boxes, DVD players and home-theater" components, he said. "People are feeling a little overwhelmed."

He added that for cable customers who still don't have analog-cable boxes, getting them to take digital boxes could be an issue.

Local-to-local legislation passed late last year has played a big role in boosting DBS-subscriber numbers, DirecTV and EchoStar executives have said in recent weeks.

Last week, DirecTV announced that it would add 12 new local-to-local markets between June and September, including Salt Lake City, Indianapolis, Milwaukee and Charlotte, N.C. The company plans to have local channel service available in 35 markets by late September.

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