DSS Finally Rings up Bells

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DirecTv Inc. and U.S. Satellite Broadcasting added a pair
of potentially significant distributors last week in deals with two regional Baby Bells.

The "multiyear" agreements with Bell Atlantic
Corp. and SBC Communications Inc. provide the direct-broadcast satellite services with
feet on the street for installation and service calls in 18 states and the District of
Columbia. Prospective customers will be able to order both DirecTv and USSB with one call,
and they will receive monthly charges for both services on one bill. There is no equity
involved.

The telcos will also offer to lease customer-premises
equipment to consumers, minimizing the upfront expense. And they will sell and install
off-air antennas for local signals.

Local connections are the key to making these resale deals
more significant than DirecTv's and USSB's earlier alliance with AT&T Corp.
AT&T gave a huge boost to DBS stocks two years ago, when it bought a 2.5 percent stake
in Hughes Electronics Corp.'s DirecTv for $137.5 million. But AT&T's
marketing effort fizzled, as DBS proved a tough sell for the long-distance giant.

AT&T severed its marketing deals with the DBS firms in
December, and it sold back its DirecTv stake at a modest profit. That opened the door to
deals with other telcos: AT&T was the exclusive telco distributor, with the regional
exception of Cincinnati Bell Telephone Co.

BellSouth Corp. has also expressed interest in DBS, along
with its wireless and wired cable deployments..

USSB spokesman Patrick Milan said the deals will create
distributors that can match cable operators' local connections. And Bell Atlantic
Video Services president Dick Beville declared that his company's offering "will
basically be a cable-replacement product."

The deals could bolster cable's arguments in
Washington, D.C., that the industry does, in fact, have substantial and growing
competition. Reregulatory moves have been gaining steam because competition hasn't
checked rate increases.

"Sounds to me like competition," Cable
Telecommunications Association (CATA) president Steve Effros said about the telco-DBS
plans. "I want to hear [Federal Communications Commission chairman] Bill Kennard and
[Rep.] Ed Markey [D-Mass.] say this isn't competition."

Markey recently introduced a bill to remove a scheduled end
to rate regulation, and Kennard has been considering moves to enhance cable competition,
such as tightening programming-access rules.

Some analysts agreed that the long-awaited telco-DBS deals
would be a big positive for the Digital Satellite System purveyors. Robert Kaimowitz,
managing director at C.E. Unterberg, Towbin, said the deals were "very positive"
and a harbinger of other uplifting events for DBS. He said he sees Congress and the FCC
moving to aid DBS, for example.

Other DBS analysts said the deals were positive for DirecTv
and USSB, but they felt that the impact was questionable. "It's like they'd
signed up a couple of regional retailers," said Steve Blum of Tellus Ventures
Associates. "It's not that big of a deal."

Media Group Research's Curt Alexander said the Bell
ties were "marginally better than the AT&T deal because at least you do have
someone with some local knowledge" in the case of the Bells. DirecTv and USSB also
ensured that other DBS competitors -- notably EchoStar Communications Corp.'s Dish
Network -- won't be sold by the two Bells.

But it remains to be seen if the telcos have the will and
the ability to sell DBS effectively, Anderson said. The lack of integrated local
programming is still a weakness, he added. And Anderson said he doesn't think that
the one-stop-shopping benefits of bundling telephone and video services matter much to
consumers.

The Bells will be paid a commission when they sign up a
customer, and they will be paid a share of ongoing revenue from that customer, company
officials said. That is similar to the arrangements that DirecTv and USSB make with other
"agents."

SBC -- which briefly tried distributing DirecTv and USSB in
Oklahoma and Texas before the AT&T-DirecTv deal broke -- said it will focus on
apartments and other multiple-dwelling-unit markets. It will include the digital TV
services in its "SmartMoves" package of telephone, data and video services to
MDU complexes. Up until now, SBC has provided the video via fiber, spokesman Larry Solomon
said. Existing customers in Dallas, Houston, Kansas City and Austin, Texas, will be
converted to the satellite service, he added. SBC plans to expand SmartMoves to other
cities, such as Little Rock, Ark.; St. Louis; Tulsa, Okla.; and San Antonio.

Bell Atlantic intends to aim first at single-family homes,
although it intends to branch into MDU sales later.

Bell Atlantic has installed DSS and off-air receiving
equipment in "several-hundred" homes. The Philadelphia-based telco said it will
launch DSS sales in two unnamed markets this summer.

Beville said the plan is to pass through DirecTv's and
USSB's pricing, with a "modest" equipment-lease charge for consumers who
don't want to buy the equipment. He said Bell Atlantic is still negotiating with
equipment suppliers, but it expects to select a single DSS manufacturer.

SBC is in the process of acquiring Southern New England
Telecommunications Corp., the Connecticut-based regional phone company that is building
cable systems in that state. SNET spokeswoman Beverly Levy said last week that the DBS
deals don't affect SNET, which is still an independent company and which will
continue its cable rollout.

Beville said last week that Bell Atlantic still believes in
pushing fiber as deep into the local loop as possible, at which time video applications
would be possible. But he said he believed that video over fiber is "a few years off,
at the earliest."

Ted Hearn contributed to this story.

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