DBS Faces Equipment Issues Like Digital-Cable Dilemmas

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The often-complicated cable-TV relationship between new
programming options and the requisite new customer-premises equipment is about to come
home to roost for direct-broadcast satellite system operators.

Many of the same issues that complicate the lives of cable
operators going digital -- notably, segmenting subscribers by new generations of digital
set-top boxes capable of receiving different services -- are now coming into play for the
DBS industry.

Both DirecTV Inc. and EchoStar Communications Corp. are
adding capabilities and expanding the use of orbital slots to deliver them.

In large part, new subscribers will segment themselves by
their choice of hardware.

But the addition of interactive service platforms -- such
as Wink Communications Inc., America Online Inc.'s "AOL TV" and Microsoft
Corp.'s WebTV Networks -- as well as local-into-local broadcast capabilities and
high-definition-television reception all raise new questions about the degree of
integration in receiver designs, hardware subsidies and, in some cases, the installation
of new, larger satellite dishes.

It's likely to be months before all of the equipment and
service options are addressed -- particularly with the uncertainties surrounding
legislation providing for local-into-local broadcast-TV service -- including any subsidies
or incentives to existing subscribers who upgrade their hardware.

With very few exceptions -- such as local-into-local
service from EchoStar -- the new interactive-service and programming options from DirecTV
and EchoStar will require new receivers. And most subscribers will require new satellite
dishes, as well.

Early next year, DirecTV is expected to add Wink-enabled
interactivity to its programming lineup, essentially by passing through Wink enhancements
transmitted by those broadcast and cable networks that have agreements with the Alameda,
Calif.-based interactive-platform developer.

Also in the first half of next year, DirecTV plans to add
its next interactive enhancement, AOL TV, in concert with the nation's leading
online-service provider.

Only Thomson Consumer Electronics has announced plans to
offer a box capable of receiving Wink-enhanced programming.

The new receiver, unveiled at the Satellite Broadcasting
& Communications Association's annual show last week, includes 2 megabytes of flash
memory -- instead of the 500 kilobytes standard in current boxes -- and additional
random-access memory so that the box can download a Wink interpreter, which is expected to
be ready later this year.

The memory upgrade was added specifically for Wink
capabilities, but it may not be limited to them, Thomson vice president for DBS-product
management David Spomer said. "We see that as a valuable feature for keeping the box
updated," he added.

That box, though, will be different from Thomson's DirecTV
receivers that are capable of receiving HDTV programming. "For now, we'll handle
[those capabilities] discretely," Spomer said.

The crossover will be local-into-local broadcast-reception
capability, which will be part of both Thomson's Wink-enabled and HDTV-capable receivers.

Both DirecTV and EchoStar have said that they will begin
carrying HDTV programming from Home Box Office and, potentially, other programmers later
this year, although the exact start date continues to shift.

And depending on the deliberations of the House-Senate
conference, both DirecTV and EchoStar expect to begin offering local-into-local
broadcast-TV service later this year or in early 2000 in markets representing
approximately 50 percent of U.S. TV households.

For HDTV, EchoStar will offer a "sidecar"
tuner/decoder that connects to the high-speed-data port on EchoStar's new "Dish
500" receiver, also unveiled at the SBCA show. The HDTV adapter will sell for
"less than $300," a spokesman said.

Hardware capable of receiving HDTV programming from DirecTV
will be more prevalent, with Thomson, Hitachi Ltd. and Toshiba America Consumer Products
all planning to ship digital-TV receivers with DirecTV reception built in.

Both Thomson and Mitsubishi Digital Electronics America
Inc. also plan to introduce set-top digital-TV/DirecTV receivers.

"We expect to announce similar agreements with other
hardware manufacturers soon," a DirecTV spokesman said.

Only Hughes Network Systems has announced plans for a
receiver capable of processing AOL TV content, although other manufacturers are believed
to be talking with both AOL and DirecTV -- among them Philips, which is developing a
dial-up set-top box compatible with AOL TV.

"[It depends on] what consumers want and to what
extent is DirecTV willing to subsidize these products," Philips Digital Video Systems
general manager Rudy Roth said. "This is a very complex business with all of these
deals and cross-relationships. All of these players have their capabilities, limitations
and business relationships."

To an extent, DirecTV appears to be segmenting -- and
dividing its business among -- its hardware vendors by interactive capabilities.

Thomson will introduce the first Wink-enabled box, while
Philips launches the first DirecTV receiver to incorporate TiVo Inc.'s
hard-disk-drive-based personal-TV service. HNS, meanwhile, has been ceded the initial AOL
TV receiver introduction.

"There are no immediate plans" to have a single
receiver with all three capabilities, a DirecTV spokesman said.

There are few indications of a similar strategy on the part
of EchoStar. Although EchoStar's contract manufacturer, SCI Systems Inc., was the first to
begin manufacturing receivers that can download OpenTV Inc.'s interactive-platform
software, Philips apparently plans to add that capability to its own EchoStar receivers.

"We have a relationship with OpenTV, and we are
developing products together with them," Roth said.

Changes in DBS receivers, meanwhile, will be matched by the
introduction of a new generation of somewhat larger satellite dishes that are designed to
see more than one orbital slot.

DirecTV subscribers who opt for local-into-local -- those
outside of New York and Los Angeles -- and those who add HDTV programming will need new
18-inch-by-24-inch dishes with dual LNBs (low-noise-block downconverters) to receive
signals from both DirecTV's main orbital slot at 101 degrees west longitude and the
119-degree slot it acquired from PrimeStar Inc.

The slot at 119 will be used for HDTV programming and
local-into-local service outside of Los Angeles and New York.

EchoStar is going with a 20-inch round antenna for
local-into-local service, with the dual-LNB antenna capable of receiving programming from
EchoStar's full-CONUS (continental United States) slot at 119 degrees and the 110-degree
slot it acquired from News Corp.

EchoStar, in fact, is moving some of its core programming
to 110 degrees from 119 -- a move that will require most, if not all, of its current
subscribers to either get new dishes pointed at 110 degrees or the new 20-inch dishes
capable of seeing both slots.

"We do expect to offer [incentive] programs" for
current subscribers, an EchoStar spokesman said, "most likely in the form of [free]
programming."

EchoStar's Dish Network subscribers, though, won't need new
receivers to watch programming transmitted from its communications satellites at 119 and
110 degrees, the spokesman added.

"And a lot of [subscribers] already have two
dishes" -- one for 119 degrees and a second pointed at EchoStar satellites at 148 and
61.5 degrees, which are currently used for niche programming -- he said.

Neither DirecTV nor its hardware vendors have publicly said
anything about incentives for current subscribers who need new dishes. But a DirecTV
spokesman noted, "We are looking at initiating some offer or incentive" for
those customers who may or may not encompass the new receiver, as well as the dish.

For both DirecTV and EchoStar, the use of two orbital slots
is almost certain to complicate the installation of satellite dishes. In the short term,
at least, there's widespread belief that the percentage of customers who opt for
professional installation will increase markedly from the current average of about 50
percent.

"It will be more complicated," Spomer said.
"We're going to recommend professional installation. We think this is going to follow
a curve similar to the early days" of DirecTV sales, when most consumers paid for
professional installation.

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