Frustrated by delays in government decision-making,
PrimeStar Partners L.P. announced last week that it will go ahead with plans to roll up
the cable-backed partnership into a single, national entity called PrimeStar Inc. next
While the direct-broadcast satellite company has said since
June that it would roll up the partnership, the new plan calls for the roll-up to happen
independent of the Federal Communications Commission's ruling on the fate of the
license transfer at 119 degrees west from Tempo Satellite Inc. to PrimeStar.
The move will give PrimeStar economies of scale, a single
national pricing strategy, a national contact point to help drive consumer-electronics
retail distribution and a churn-reducing equipment-purchase option for consumers across
It will also remove some of the uncertainties that have
plagued PrimeStar employees. Industry observers said the lack of focus caused by the
pending move of PrimeStar's headquarters from Bala Cynwyd, Pa., to Denver played a
role in the company's lagging subscriber-acquisition numbers. In January, the company
netted only 15,000 subscribers.
'We believe that this will be the last time we'll
be discussing'the maladies of PrimeStar,'' said Dan O'Brien,
president and chief operating officer of PrimeStar Inc., who spoke to reporters last
Instead of becoming a publicly traded company, PrimeStar
Inc. will initially be rolled up as a privately held subsidiary of its largest partner,
TCI Satellite Entertainment Inc. (TSAT), which also owns Tempo. If the government OKs the
license transfer for 11 high-power transponders at 119, publicly traded TSAT would be
merged into PrimeStar Inc., which would then become a public company.
In the short term, the rolled-up company will focus on
PrimeStar's current medium-power service. In mid-April, O'Brien said, PrimeStar
will also launch its first high-power service with a more competitive 18-inch dish. The
company does not have to wait for an FCC ruling because it has access to the Tempo
transponders through a long-standing lease option.
PrimeStar will launch the service at 119 reluctantly. To
avoid the possibility of losing the DBS license altogether, Tempo must meet an early-May
due-diligence date by having an operational DBS service from the 11 transponders there.
'We had tried to put off 119 as long as possible to
let the FCC make a decision,' O'Brien said, speaking about the agency's
pending decisions on the 110 and 119 slots.
It's still possible that PrimeStar could have its
due-diligence date lengthened, although O'Brien said there are no plans to ask for
such an extension. Reasons for an extension could include technical problems with the
Loral satellite launched at 119 and uncertainties over whether PrimeStar will retain
control of the spectrum at 119.
There is wide speculation that PrimeStar will be required
to divest 119 as a condition of gaining access to 28 high-power transponders at 110 now
controlled by News Corp. -- with which PrimeStar plans a merger, given government
Until the FCC and the Department of Justice rule on
PrimeStar's bid to take over the spectrum at 110, PrimeStar intends to keep a low
profile with its service at 119. The service would offer at most 120 channels, compared
with the more than 200 that a service at 110 could boast.
O'Brien said PrimeStar plans to distribute no more
than 10,000 high-power receiving systems for its service at 119 until there is a decision
about 110. The hardware would probably roll out at retail only in one region, rather than
nationally, he added. And O'Brien expects no trouble getting the 10,000 high-power
boxes by April; 7,000 have already been built.
PrimeStar's real high-power hopes are pinned on a
favorable FCC ruling on 110. O'Brien said he's confident that the government
will rule on 110 by April. A favorable ruling in that time frame would allow PrimeStar to
meet an August satellite-launch window and to start marketing the service by late October,
A later decision could put the August launch window at
risk, he added, and it would likely push back a 110 service introduction to early next
Two weeks ago, sources close to PrimeStar said they
expected the DOJ to seek a consent decree for approval of PrimeStar's News Corp.
deal. They said the most likely scenario was for PrimeStar to divest some DBS spectrum and
to adhere to programming-nondiscrimination terms beyond the 2002 sunset in the 1992 Cable
An April decision on 110 could also give PrimeStar time to
abort its 119 service launch if the company is asked to divest the 119 spectrum.
PrimeStar doesn't want to launch at 119 and then have
to restructure its high-power business, said DBS-industry analyst Jimmy Schaeffler,
chairman of The Carmel Group.
'They would lose a lot of money and confuse the hell
out of everybody,' he said.
Even without a launch at 119, PrimeStar would eventually
have to migrate its existing medium-power subscribers -- now around 2 million -- over to
the service at 110. O'Brien expects such a migration to take more than two years to
PrimeStar plans to stop marketing its medium-power service
once it launches a business at 110. That's still six or seven months away, however,
under a best-case scenario. The benefits that PrimeStar will realize from an integrated,
national company would help the medium-power business, too, O'Brien said.
TSAT shareholders will be asked to vote on the PrimeStar
roll-up by March 6. TSAT will have the largest ownership stake of the partners, at an
estimated 36 percent, depending on capital invested and number of subscribers when the
roll-up goes through in late March.
Other ownership rates are expected to be: the Time Warner
Cable/Newhouse partnership at 31 percent; Comcast Corp. at 10 percent; MediaOne and Cox
Communications Inc. at 9 percent apiece; and GE American Communications at 5 percent.
Mickey Alpert, president of Washington, D.C.-based
consultancy Alpert & Associates, said that while the roll-up is a necessary first
step, 'they still have this big cloud hanging over them as to whether and under what
conditions the government allows them to do 110.'
Alpert's 'best guess' is that PrimeStar will
get approval for 110, but with conditions on everything from divesting 119 and agreeing to
strict programming-access rules, to assigning independent board members.