SBC Communications Inc. announced a deal to co-brand EchoStar Communications
Corp.'s Dish Network direct-broadcast satellite service to its telephone
customers in return for a $500 million investment in EchoStar.
The agreement will give SBC exclusive co-branding rights for "SBC Dish
Network" in its 13-state service area. According to a press release, SBC has
about 56 million access lines. SBC anticipates offering the co-branded
television service in early 2004.
The investment is in the form of a 3% convertible note, due 2010, that is
convertible into 6.87 million shares of EchoStar common stock at $72.82 per
Wall’s Street reaction to the deal was lukewarm, with EchoStar stock rising
76 cents each to $36.09 per share in morning trading. SBC shares fell 16 cents
(0.66%) to $24.02 each.
SBC's interest in DBS is no secret. Earlier this year, published reports had
the San Antonio-based regional Bell operating company in talks to purchase the
No. 1 DBS service provider, DirecTV Inc. However, those talks fell through after
investors reacted badly to a possible deal, driving SBC's stock down 14% in
little more than one month.
Last year, EchoStar's attempt to purchase DirecTV parent Hughes Electronics
Corp. was thwarted by federal regulators due to anti-competitive concerns. In
April, News Corp. announced a deal to purchase a controlling interest in Hughes
for $6.6 billion. That deal is still pending.
The co-branding deal will be similar to an existing arrangement SBC has with
Yahoo! Inc. regarding digital-subscriber-line high-speed-data service.
SBC said in the press release that it would manage customer relationships in
the co-branding arrangement, allowing customers to place their orders, arrange
for installation and activate service with a single phone call. In addition,
customers would receive a single bill for their television, telephone and
"For the past several months, we've aggressively looked for the best way to
integrate television into our bundles of consumer services," SBC chairman Edward
Whitacre said in a prepared statement. "This first-of-its-kind milestone
agreement with EchoStar gives us what we've been seeking and puts us in a great
strategic position to compete with any provider -- telecom or cable company --
in the years ahead."
EchoStar will continue to sell its service in SBC service territories, but
the co-branding agreement is expected to give the No. 2 DBS provider a new sales
"By co-branding SBC and Dish Network services, our customers will have
greater exposure to the benefits of satellite TV with the added convenience of a
bundle," EchoStar chairman Charlie Ergen said in a prepared statement. "With
this partnership, we continue our efforts to make Dish Network even more
competitive with cable-TV providers."
Longer-term, SBC and EchoStar will work together to develop technology to
create new service bundles, including home networking.
In a research note, UBS Warburg LLC cable debt and equity analyst Aryeh
Bourkoff said that while deals of this nature have not worked in the past, the
SBC/Dish agreement could give SBC an advantage because it would enable it to
price the bundle aggressively and it could force cable operators to more
aggressively deploy telephone service.