Hughes deal to speed up cable mergers, new services

By : |October 29, 2001 0



Reshma Kapadia

NEW YORK: Cable companies may consolidate and offer new services faster
following the proposed $26 billion merger of General Motors Corp.’s satellite
unit and EchoStar Communication Corp., analysts said Monday.

                                 

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Cable operators and satellite companies have always been rivals, but
EchoStar’s purchase of Hughes creates an even more formidable rival to companies
such as AT&T Broadband, AOL Time Warner Inc., Charter Communications Inc.,
Comcast Corp., and Cox Communications Inc. However, most analysts do not expect
the deal to weigh on cable operators in the near term, but it may get the flame
burning under new services.

"If you think about what DirecTV did to cable, it made them step up
their game a little bit," said Richard Gay, partner in consulting firm Booz
Allen’s Communications, Media, and Technology practice. With this deal, cable
operators will have a more formidable and identifiable rival but they will have
time to make strides and push through new services, such as video-on-demand,
while EchoStar and Hughes sort out details of the merger, which will likely
entail a lengthy regulatory review.

"One could paint a scenario that this is good news for the cable
companies because there is potential for divergence of focus in the (satellite)
industry as they focus more on deal-oriented issues versus the nuts and bolts of
day-to-day things. It could put them behind (in terms of service and
technologies)," said ABN Amro analyst John Martin.

Morgan Stanley Dean Witter analyst Vijay Jayant said the deal will help
satellite providers cut costs as they remove duplicate channels and rework
retail pacts. The savings in costs and bandwidth will open the door to
investments in new services, such as high-speed access and interactive
television, and some flexibility in pricing.

PWC Consulting’s global lead strategy partner Saul Berman said the
consolidation could also result in higher prices, as has been the case in the
digital subscriber line market. While some analysts said cable operators had a
window of opportunity to deploy new services to better compete with a stronger
satellite opponent, Berman said it involved more than just making decisions to
do so, such as getting in infrastructure in place.

"There’s also a strategy issue. How do you respond? Do you consolidate,
get more aggressive, or continue to try to go ahead at a steady pace and try to
assure returns to your investors," he added.

Consolidation could ensue

Analysts also said the deal could spark a more frenzied wave of consolidation
among cable operators. "This is a capital-intensive, got to get a bang for
your buck climate. This is not going to be the last deal we are going to
see," Gay said.

AT&T Corp.’s cable unit, the nation’s largest, has been in a courting
dance with Comcast. The two companies signed a confidentiality pact late
September, which could pave the way for talks on Comcast’s $37.8 billion offer
to buy AT&T Broadband.

But most analysts said this deal would not alter the course of the talks
surrounding AT&T Broadband since those discussions had likely factored in
some sort of a deal for Hughes.

Better Charlie than Rupert

EchoStar’s victory over Rupert Murdoch’s News Corp Ltd., which was also
bidding for Hughes, bodes better for the cable industry, analysts said. "I
think the cable industry would rather have Charlie Ergen at the head of this
instead of Rupert Murdoch. Charlie is an economical animal and there’s some
question that Murdoch… could give the product away. (The new entity) would be
much more economically irrational which would be to the detriment of the cable
operators," said Merrill Lynch analyst Jessica Reif Cohen.

Reif Cohen agreed that the EchoStar outcome was one of the better scenarios
for cable operators. "News Corp. is a super-aggressive marketer with much
stronger cross-promotion platforms such as networks, TV stations and
cable," she said.

Most analysts said the deal would have little short-term impact on the cable
sector. "If you’re not an upgraded cable operator, offering a suite of new
services, then it’s going to be very difficult to compete versus this kind of
entity," said CIBC World Markets analyst Jeff Wlodarczak. "But, if you
are a fully upgraded cable operator, I don’t think they are going to be quaking
in their boots."

(C) Reuters Limited.

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