DBS Players Upbeat at SkyForum


New York -- PrimeStar Inc. executives gave away few clues
at a DBS-industry conference last week on their quest for a high-power satellite, amid a
general feeling of optimism about the industry's future.

At the SkyForum conference here, PrimeStar chairman and CEO
Carl Vogel ducked questions from analysts and reporters, refusing to comment on the
details of a proposed deal to buy out cable's ownership stakes in the company or on
the chances that the U.S. Department of Justice would approve such a deal.Widespread
reports have Rupert Murdoch's News Corp. and Tele-Communications Inc.'s Liberty
Media Group stepping up to buy out the five cable operators that hold interests in
PrimeStar. Earlier this year, the DOJ filed an antitrust suit against PrimeStar's
plans to merge with News Corp.'s American Sky Broadcasting Inc., claiming that
PrimeStar's cable owners would not use the direct-broadcast satellite spectrum at 110
degrees west longitude to compete aggressively against cable.Vogel said he wants to put
together a deal that makes sense for PrimeStar's existing investors and its new

"We think that it can work, and we're putting it
before the Department of Justice," he said. "Those talks are ongoing, and
I'm sure that my friendly competitors will do everything that they can to stop
us."Vogel may have been referring to his former boss, EchoStar Communications Corp.
chairman and CEO Charlie Ergen, an outspoken critic of Murdoch and his deal with
PrimeStar. News Corp. and EchoStar are expected to go to court over their failed
partnership deal.."I don't think that it solves anything to have Murdoch and
[TCI chairman and CEO John] Malone running things," Ergen said, when asked about the
latest PrimeStar reports. "About one-half of the programming that you'd want
would be controlled by that one company."PrimeStar president Dan O'Brien said
last week that even if the DOJ approves a proposed PrimeStar ownership arrangement, the
Federal Communications Commission could still voice concerns over program access if TCI is
part of such a deal.

"That was an initial concern with the FCC in earlier
talks," before the DOJ filed its antitrust suit, O'Brien added. O'Brien
said PrimeStar holds launch windows for December and February, pending government go-ahead
to place a satellite at 110 degrees. If government approval were granted quickly,
PrimeStar could move its in-orbit satellite from 119 to 110 in a matter of weeks. But most
industry observers ruled out any chance of PrimeStar coming to market with a high-power
DBS service in time for this year's holiday selling season.DirecTv Inc. president
Eddy Hartenstein told reporters that he is more comfortable with having Murdoch involved
in high-power DBS than with having the spectrum at 110 remain in the hands of the cable

"We've suspected all along that someone would
compete at that spectrum," he said. "If it's [News Corp.], so be it."

Like Vogel, O'Brien declined to detail specifics of
any proposed ownership deals, such as whether any other international players are
interested in signing on as equity partners. He did say that there's a lot of
interest in general from financial players."The capital markets are certainly not our
friends at the moment," Vogel told SkyForum attendees. But he predicted that the
market would not stay stuck in its doldrums."We're very fortunate that we raised
our capital in 1998," Ergen told reporters following SkyForum. The company's
first bond offers are due in 2004.During a one-on-one interview with The Yankee Group
analyst Bruce Leichtman at SkyForum, Ergen could not predict when the company would hit

"We've clearly got our head above water," he
said, "while we had been drowning at this time last year."Ergen conceded that
from a purely economic standpoint, EchoStar's local-into-local business is

"There's no way to justify millions of dollars
when the law is against us," he admitted. "But for a company that really wants
to provide a true alternative to cable, you've got to provide local. We'll fight
until we have a definitive answer."Last Tuesday, EchoStar added Pittsburgh to its
growing list of markets that offer local-into-local broadcast channels -- the 13th of 20
cities that the company hopes to have on board by the end of the year.DirecTv expects to
report earnings breakeven for the full year next year, Hartenstein said.

"I think that we've hit the right level for
marketing and subscriber-acquisition costs," he added, placing the latter figure at
$400 to $425 per subscriber.Vogel said PrimeStar has the highest subscriber-acquisition
costs in the DBS business --about $700 per subscriber -- due to the high cost of
professionally installing a medium-power dish. He predicted that PrimeStar could cut those
costs in half with a move to high-power.In the meantime, PrimeStar is "losing money
on every subscriber that it signs up today," one Wall Street analyst said, adding
that even if government approval for a move to high-power was a given, PrimeStar's
business challenges would be far from over.