DBS Firms Duke Out Differences at SBCA

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Las Vegas -- DirecTV Inc. -- the biggest direct-broadcast
satellite provider, with about 7 million customers -- found few takers for its legislative
initiative with broadcasters at last week's Satellite Broadcasting & Communications
Association convention here.

The agreement -- which DirecTV praised as a way to
accelerate DBS legislation -- was attacked by independent retailers, analysts and EchoStar
Communications Corp. chairman Charlie Ergen, a DirecTV rival.

Amid the hoopla, some took time to note that despite
reported attendance of 5,338, floor traffic was light at a Las Vegas Convention Center
packed with 147 exhibitors.

Meanwhile, DirecTV president Eddy Hartenstein was being
accused of striking a deal with the National Association of Broadcasters that benefits his
company at the rest of the industry's expense.

Reaction wasn't long in coming: Hartenstein's opening-day
keynote address was disrupted by a retailer who approached the stage, handed Hartenstein a
DirecTV lapel pin and declared, "Your company can no longer represent me."

Afterward, John R. MacDougall, president of MacDougall
Electronics in Miami, said DirecTV "sold out 2,000 independent retailers" for
the sake of its shareholders. "I haven't heard retailers talking about anything else
at this convention," he added.

The DirecTV-NAB proposal to a House-Senate conference
committee weighing satellite legislation eliminates a provision prohibiting broadcasters
from demanding higher retransmission-consent payments from DBS providers.

But the proposal leaves intact DBS must-carry requirements,
as well as distant-network-signal standards that prevent small retailers from selling DBS
systems.

"This was an absolutely ludicrous position to take
unless his motivation was covering his ass and covering his company's ass,"
MacDougall said.

Others objected to DirecTV's acting on behalf of the entire
industry.

"We don't want DirecTV talking for us," said Mary
Lowder, who operates a small satellite-TV dealership in Woodsboro, Texas, with her
husband, James.

DirecTV is believed to have struck retransmission-consent
deals with many broadcasters on its own, partly due to the fact that General Motors Corp.
-- which owns DirecTV parent Hughes Electronics Corp. -- is a huge broadcast-advertising
player.

EchoStar, on the other hand, needs the anti-discrimination
provisions to cut broadcast-carriage deals on affordable terms.

"There's no question that DirecTV decided they knew
what was best for the industry when, in fact, they knew what was best for
themselves," Alpert & Associates president Mickey Alpert said.

Ergen took every opportunity to fire back, noting that GM
can threaten to lift network advertising in order to secure favorable retransmission
terms. "They're not going to have any trouble getting retransmission consent,"
he said, "but we don't have that kind of market power."

Hartenstein defended the deal as the best way to achieve
legislation that would allow DBS to offer local-into-local programming to 50 million
households.

"How can an agreement that would enable the satellite
industry to provide local channel services to consumers be construed as selling the
industry down the river?" he asked.

Hartenstein argued that digital programming has narrowed
the gap between cable and satellite, and that "DirecTV is willing to give
ground" in order to get legislation "off of dead center."

However, most attendees said DirecTV undermined the SBCA by
not including the trade group in its talks with the NAB.

Hartenstein said DirecTV wanted to avoid putting the SBCA
in a position of choosing sides between the industry's two major DBS-platform providers

While trying to put the best face on the controversy, SBCA
president Chuck Hewitt said the agreement addressed "certain key points," but he
admitted to some "glaring holes."

"The broadcasters were very wise -- it's called divide
and conquer," he added.

Hewitt conceded that the SBCA won't get much help from
DirecTV in lobbying for changes in the bill. But behind the scenes, one industry observer
said Hewitt was not happy that DirecTV had negotiated an agreement without input from the
SBCA.

Not all observers, however, condemned DirecTV.

"DirecTV sees the subscriber-acquisition window
closing quicker than it would like," said Jimmy Schaeffler, a DBS analyst with The
Carmel Group. "They don't want to wait another day, another minute, before acquiring
more subscribers. Studies show that subs want local channels from DBS operators. Deliver
that, and you deliver subscribers."

Ergen, meanwhile, warned a Tuesday-morning audience that a
consolidated cable industry posed formidable competition, even as EchoStar's and DirecTV's
customer bases are growing rapidly (partly as a result of cannibalizing former PrimeStar
Inc. subscribers).

He also said EchoStar's efforts to offer local-into-local
in rural areas were badly hurt by DirecTV's accord with the NAB.

"Anybody who doesn't live in a big city with 3 million
people got sold down the river on this deal, because the compromise DirecTV agreed to is
going to prevent consumers from receiving distant signals," he added.

Retailers appeared unified behind Ergen.

Lowder argued that DirecTV only plans to launch
local-into-local in major markets.

"Down around Corpus Christi [Texas], it might be years
before we have local-to-local," she said, "but it's the rural people who need
it, and they won't buy until they can get local channels."

Meanwhile, a dealer from Tucson, Ariz., pointed out that
the NAB deal would not eliminate the waiver that consumers need from local broadcasters if
they want to get distant broadcast signals.

And a Miami dealer called the compromise another way for
DirecTV to squeeze the small retailers it already ignores in favor of the large retail
chains that get the best promotional deals. "I think it amounts to unfair trade
practices," he said.

Besides answering questions about the controversy,
Hartenstein found time to outline DirecTV's marketing and distribution agreement with
regional phone provider SBC Communications Inc.

Under the terms of the deal, SBC will begin offering
DirecTV programming this fall to 18 million residential phone customers served by its
Southwestern Bell, Nevada Bell and Pacific Bell subsidiaries.

Hartenstein declined to discuss financial terms, but he
said SBC would purchase, install and service equipment that will be sold or leased to
consumers.

SBC already sells DirecTV as part of its
"SmartMoves" program -- a package of communications, entertainment and Internet
services offered to multiple-dwelling units. DirecTV has similar marketing arrangements
with Bell Atlantic Corp. and GTE Corp.

"The thing they've all latched on to is that they're
not wed to the notion of a hybrid fiber [coaxial] solution to [entering] people's
homes," Hartenstein said.

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