DBS Grew Too Much, Too Quick

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Denver-Direct-broadcast satellite operators paid a price for their rise to prominence, a leading DBS executive told a recent gathering of industry followers.

Speaking at the annual DBS Summit here, Hughes Electronics Corp. senior executive vice president Eddy Hartenstein warned against doing "too much, too quick," as DirecTV Inc. did by trying to swallow U.S. Satellite Broadcasting and PrimeStar Inc. in one gulp.

Hartenstein admitted that while DirecTV was adding subscribers in record numbers, its 1,800 customer-service representatives were being overwhelmed by an increase in calls from consumers who were suddenly unable to get through to the company's call centers.

"It taught us a valuable lesson: that a seemingly small change that affects something that has become a way a life for our customers can bring us to our knees," Hartenstein said, adding that DirecTV has virtually tripled its number of CSRs on hand.

And apparently not a minute too soon, since it reported a record 180,000 net new customers in April, or an 84 percent jump over the same period a year ago.

"And I think we [the DBS industry] are just coming into our stride," Hartenstein said. "I think we've proven that we can do anything cable can do, and do it quicker and better."

Nevertheless, experts said, DirecTV's service problems were still evident in the first quarter of 2000, as the company's churn rate climbed to 1.7 percent per month, up from 1.5 percent during the final quarter of 1999.

"But I don't think that raised many eyebrows," said Sean Badding, vice president of business development for The Carmel Group, a California-based research outfit. "And they expect churn to be back down soon to 1.5 percent, which is typical. The reason is that they're doing something about their customer-service problems, which they saw was the piece of the puzzle they needed to address."

Badding added, "As long as [churn] is 1.5 percent, there shouldn't be any concern about the business going forward."

Meanwhile, despite the belief that its still too early to tell, Hartenstein said DBS' growth spurt is being partially driven by the industry's newfound ability to deliver local programming to 50 of the nation's largest markets.

One of the early signs, he added, was an almost equal 50 percent take rate for local-into-local programming among existing and new DirecTV subscribers.

Another was a 20 percent "lift" in sales in many of the markets where DirecTV immediately began offering local-into-local programming following the passage of the Satellite Home Viewer Improvement Act late last year.

"All of the indicators are that [local-into-local] is a big plus," Hartenstein said.

Badding agreed, predicting that local programming will reduce DBS churn while driving up cable's subscriber-turnover rate among satellite customers who kept basic lifeline packages in order to get their local broadcast affiliates.

"If anything, local programming will solidify the customer base for DirecTV and EchoStar Communications [Corp.]," he added.

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