BellSouth Corp. struck a marketing alliance last Wednesday with No. 1 direct-broadcast satellite service provider DirecTV Inc., agreeing to bundle its voice and data offerings with DirecTV's video service.
Many saw the move as an effort by BellSouth to preserve its local telephony subscriber base and stave off high-speed data competition from cable operators.
The deal is similar to one that direct-broadcast satellite rival EchoStar Communications Corp. reached last month with SBC Communications. BellSouth will bundle DirecTV's video product with its voice and data offerings — dubbed "BellSouth Answers" — at a discount and on a single bill.
BellSouth will market, sell and schedule the installation of DirecTV equipment. DirecTV will do the actual installation of video hardware in the customer's home.
BellSouth is expected to begin marketing the service early next year, at about the same time EchoStar's SBC agreement kicks in.
Customers who choose a package of BellSouth's local and long-distance telephone service, its high-speed digital subscriber line data service and its wireless telephone service, along with DirecTV would receive a discount. The companies didn't say how much those discounts would be or how they would be shared between BellSouth and DirecTV.
While DBS service providers have had joint ventures with regional Bell operating companies in the past, those deals have failed because they were little more than resale agreements.
BellSouth had one of those resale agreements with EchoStar in the past. On a conference call with reporters, BellSouth chief product development and technology officer Bill Smith said those EchoStar customers will not be moved over to DirecTV.
Smith also said both parties have an incentive to make this deal work.
"We see some significant value in having a broad, robust and market-leading video offering in that bundle," Smith said. "We hope DirecTV feels the same way in reverse.
"We've got an opportunity here to join forces to provide an integrated response to an increasingly competitive marketplace. That is far more important today than it has been in the past."
BellSouth has about 45 million customers in nine states: Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.
DirecTV executive vice president of sales, distribution and customer acquisition Steve Cox said he sees the agreement as a compliment to satellite-delivered high-speed data service, not as a replacement.
"We do believe there is and will remain a role for satellite-delivered broadband," Cox said. "We think there are plenty of customers that won't be reached with DSL that will remain very good candidates for satellite-delivered broadband. I think the two are complimentary to each other, not an either/or."
Cox said that DirecTV is open to similar deals with other regional Bell operating companies, but declined to say which telephone companies the DBS giant is talking to. DirecTV currently has resale agreements with Qwest Communications International Inc.
Speculation is that DirecTV will next forge a deal with Verizon Communications Inc., the largest provider of wireline and wireless telephony service in the country.
In a research report, Oppenheimer & Co. analyst Thomas Eagan said the BellSouth-DirecTV alliance is just one more in a string of recent deals that will lead to more confusion for customers.
"In our estimation, these partnerships don't usually amount to much," Eagan said in his report. "And we wouldn't be surprised if this deal, like many others that preceded it, is disbanded in 18 months."
Eagan said that Comcast Corp. and Cox Communications Inc. are the two cable MSOs that would be most affected, because they have the most customers in BellSouth territory.
Investor reaction was lukewarm. BellSouth stock was down 37 cents each in 4 p.m. trading Wednesday to $25.39, while Hughes Electronics Corp. (DirecTV's parent) rose 22 cents to $14.48.
Hughes fared better the next day (Aug. 28), rising 30 cents to $14.78, while BellSouth fell slightly (8 cents) to $25.31.