DirecTV Group Inc. has officially pulled the plug on Spaceway, its failed high-speed Internet venture, and shutting down the operation will require the direct-broadcast satellite giant to take a $1.4 billion to $1.6 billion non-cash charge in the third quarter.
DirecTV had hinted about Spaceway’s demise back in the second quarter, when it said it could use two of the satellites earmarked for high-speed service to deliver HDTV signals.
The write-down is essentially for the satellites that were built for the project — Spaceway 1 and Spaceway 2 — which are nearing completion and were scheduled to launch in 2005. A third satellite was to be used as a ground spare.
In a securities filing on Oct. 22, DirecTV said its announcement that the Spaceway satellites would be used for other purposes “triggered a requirement to test the assets for impairment.” The assets were originally valued at $1.9 billion, DirecTV said.
DirecTV had big plans for Spaceway, which it saw as the answer to high-speed data service offerings from cable companies. DirecTV’s then-parent, Hughes Communications — later Hughes Electronics Corp. — first announced the Spaceway initiative, an ambitious program to bring voice telephony, video and high-speed data services to customers via satellite, in 1993.
Initially, Spaceway was to involve 20 satellites in 15 orbital locations worldwide, including the birds to be used for DirecTV video service.
Plans were significantly scaled back in later years. By 1997, Spaceway had been reduced to eight satellites and by 2003, it was further scaled back to three data-only satellites.
It became clear shortly after News Corp. purchased a 34% controlling interest in the satellite giant in December 2003 that the new owners were not as enthusiastic about offering high-speed Internet service via satellite.
Instead, DirecTV has concentrated on enhancing its video offerings by expanding the availability of local broadcast channels and rolling out digital video recorders, HDTV set-tops and high-definition DVRs to attract customers.
So far, it appears to be working. DirecTV added more than 400,000 net new subscribers in the second quarter — while the cable industry lost a collective 280,000 basic subscribers — and most analysts expect that growth to continue.
In a research report, Lehman Bros. satellite analyst Vijay Jayant predicted DirecTV would add about 470,000 new subscribers in the third quarter. DirecTV is scheduled to release its third quarter results on Nov. 2.
Jayant also expects DirecTV will have about 1.2 million DVR customers in the quarter.
DirecTV has expanded its relationship with several region Bell operating companies in the past year — particularly with BellSouth Corp. and Verizon Communications Inc. — and seems content to offer digital subscriber line service (and telephone service) in conjunction with the regional Bell operating companies.
Late last week, BellSouth said it had added about 90,000 new subscribers through its resale arrangement with DirecTV. BellSouth said that about 35,000 of those video customers were new additions, with 57,000 of them “opt-ins” — existing DirecTV customers that decided to add the video package to their current Bell South phone and data bundle.