EchoStar Aims for PrimeStar Subs

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The ink had barely dried on DirecTV Inc.'s agreement
to buy PrimeStar Inc.'s medium-power satellite-subscriber base when EchoStar
Communications Corp. offered its own incentives to poach those subscribers.

Charlie Ergen, EchoStar's chairman and CEO, wasted no
time in announcing the bounty program to his retail base through an on-air chat with
subscribers last Tuesday -- just four days after DirecTV's announcement to buy
PrimeStar.

Analysts said Ergen wanted to exploit the estimated
two-month window of opportunity before DirecTV's deal is expected to close, after
which DirecTV will own PrimeStar's subscriber base and have the upper hand in
marketing to them directly.

In a bounty program set to start today (Feb. 1) and run
through March, EchoStar will offer its dealers -- as well as PrimeStar retailers --
several hundred dollars to convert recent PrimeStar subscribers to EchoStar's Dish
Network direct-broadcast satellite service.

Additional subsidies will allow dealers to offer free
hardware and installation to PrimeStar's medium-power customers at no upfront cost.

EchoStar is also in the midst of a general free-hardware
promotion, but that requires new subscribers to pay for the equipment first and then wait
for a rebate check after paying for two months of programming. First-time subscribers must
also commit to a $48-per-month programming package.

In contrast, targeted PrimeStar customers only have to
commit $19.99 per month, which is lower than PrimeStar's monthly basic service.

Dealers are allotted a $200 spiff for each PrimeStar
subscriber converted to Dish Network, on top of the standard incentives that EchoStar
offers as compensation.

Michael Byrd, president of DBS Satellite, a Southern
California satellite dealer, said EchoStar will also offer an additional $50 for each
PrimeStar conversion if the dealer signs a contract promising not to sign those customers
back to DirecTV at a later date. The dealer gets another $100 if it performs a credit
check and finds that the converted customer has a good credit rating.

Targeting customers with good credit might help EchoStar to
avoid some of the problems that PrimeStar has had recently with heavy subscriber churn. It
also leaves its competitor, DirecTV, paying top dollar for some of the less-than-desirable
prospects.

Some dealers will use EchoStar's extra monetary
incentives to spice up their own offers to their customers. Byrd, for example, said he
plans to add $50 in programming discounts for PrimeStar customers who switch to Dish
Network. He added that he'll take advantage of EchoStar's co-op advertising
funds to promote the offer aggressively.

"There will be a lot of conversions going on,"
Byrd said.

Lou Kerner, an analyst for Goldman Sachs & Co.,
estimated that EchoStar could take 15 percent or more of PrimeStar's customer base.

Kerner added that DirecTV is strongly positioned to
transition the majority of the PrimeStar subscribers over to its own DBS service.
"People are inherently lazy," Kerner said. "Most people will put off the
decision-making period for as long as they can."

DirecTV would not comment last week on EchoStar's new
bounty program. Observers said it's unlikely that the company will respond directly
with a similar consumer or dealer offer, since it has already committed to paying more
than $1 billion for the customer base.

DIRECTV'S EFFORTS

But DirecTV is by no means out of the DBS-marketing game
entirely. The company has a joint promotion with U.S. Satellite Broadcasting that offers
new subscribers $200 in free programming. Byrd said that given the low cost of hardware
today -- he can sell a DirecTV system for $99 -- that's a better offer for the
consumer than the EchoStar deal, in some cases.

But one glitch in converting PrimeStar customers to DirecTV
could be the fact that longtime PrimeStar customers have been grandfathered into
eligibility for East and West Coast distant-network feeds. Byrd said it's much harder
for DirecTV to turn on those network signals today. And, at least in his market, EchoStar
has the advantage of offering the local Los Angeles broadcast signals over satellite.

Mark Pagon, president, chairman and CEO of Pegasus
Communications Corp. -- which resells DirecTV programming in certain National Rural
Telecommunications Cooperative territories -- said his company will respond to
EchoStar's bounty program with a competitive dealer offer of its own.

DirecTV is expected to ask Pegasus and other NRTC members
to help fund the PrimeStar buyout, although no deal has been announced yet.

"A complication for us in terms of the DirecTV
purchase is that we didn't feel that we'd have to buy the customer list to
convert the customer," Pagon said. "We don't want to be a bad partner, but
we don't want to spend money on something that we don't have to."

Pagon said that given EchoStar's bounty program,
there's no guarantee that DirecTV will be able to convert all of the PrimeStar
customers that it has paid for. In addition, Pegasus plans to convert many PrimeStar
customers on its own in the weeks or months before the deal between DirecTV and PrimeStar
closes.

To get the financial backing of NRTC members, DirecTV may
need to offer them stakes in new programming services, including premium channels from its
USSB acquisition and the newer services that it plans to launch at 110 and 119 degrees
west longitude. The original agreement with the NRTC allows its members to sell only
programming delivered from the 101 orbital spectrum.

TRANSPONDER SWAP?

Some analysts predicted that as part of a next wave of
intraindustry deals, DirecTV and EchoStar might negotiate to swap some of their DBS
transponders so that each would wind up controlling one complete full-CONUS (continental
United States) slot and a good portion of a second.

Such an arrangement is not likely to be announced before
the government approves several recent deals: EchoStar's acquisition of 27
transponders at 110 from News Corp.'s American Sky Broadcasting Inc.; DirecTV's
acquisition of five slots at 101 and three slots at 110 from USSB; and DirecTV's
acquisition of 11 transponders at 119 from Tempo Satellite Inc.

Steve Blum, president of Tellus Venture Associates, said
EchoStar would want the 11 transponders at 119 because that's where its core business
is today.

Without a transponder swap, DirecTV would have DBS
frequencies at all three full-CONUS slots, and it would need to develop new technology
that would allow a single 18-inch dish to see signals from all three locations.

With all of the DBS focus directed at internal competition,
some industry observers are concerned that DBS players might lose sight of the bigger
picture.

"The cable audience is much larger than the 2 million
PrimeStar-subscriber base," said Barbara Sullivan, president of Denver-based B.G.
Marketing.

"We hope that DirecTV and EchoStar will concentrate on
going after cable subscribers, and not on taking potshots at each other," said Mel
Hunger, executive director of the Key America Buying Group.

But cable executives at the MSO level are not letting up
their guard.

"My view is that whether there are one, three or five
companies in the market, DBS has been competitive for us," said Jim O'Brien,
president and chief operating officer of Jones Intercable Inc. "Now there are two
powerful competitors instead of three, but all of our customers still have a choice. We
have to do a better job to entice our customers to stay."

Chuck Ellis, executive vice president of Time Warner Cable,
agreed. "With consolidation, the DBS companies will operate with greater
efficiencies, more marketplace presence and more market clout," he said. "The
market is getting more competitive every day."

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