An upcoming Federal Communications Commission (FCC) spectrum auction could provide an opportunity for the two leading U.S. satellite television providers to break into the broadband Internet market , according to industry analysts.
Englewood, Colo.-based Echostar Communications Corp. and competitor DirecTV Group of El Segundo, Calif., have created a joint venture to bid in the Aug. 9 auction of radio spectrum in the 1710-1755 megahertz and 2110-2155 megahertz bands. The frequencies have been reserved for advanced wireless services, which include everything from mobile Internet and messaging services to full-motion video , according to an FCC fact sheet on the auction.
Robert Mercer, director of public relations for DirecTV, confirmed the partnership July 19 but would not comment further, citing FCC restrictions. Echostar spokeswoman Kathie Gonzales also declined to comment.
Many analysts believe the auction could enable Echostar and DirecTV to bundle broadband services with their satellite television packages without having to sign partnership agreements with outside suppliers.
“This is an opportunity for them to develop a low-latency broadband service to compete against the ‘triple-play’ packages offered by phone companies,” said Paul Glenchur, an analyst with the Washington-based Stanford Washington Research Group. He was referring to packages which include television, telephone and Internet service
Jimmy Schaeffler, president and chief executive officer of the Carmel Group of Carmel, Calif., said DirecTV and Echostar could use the spectrum auction to end their dependence on other companies for offering broadband services.
For example, Wildblue of Englewood, Colo. has separate distribution agreements with both Echostar and DirecTV to bundle the services together.
“Right now, their fate is not in their own hands, and they need to change that,” Schaeffler said.
But the auction is just one possible route DirecTV and Echostar could take to develop an independent broadband offering. Another possible avenue is to buy a wireless broadband provider, such as Clearwire of Kirkland, Wash., said J. Armand Musey, president of Near Earth LLC, a Washington-based satellite telecommunications consulting firm.
“It seems [the satellite TV companies] are taking kind of a Chinese menu approach to how to solve the bandwidth issue,” Musey said in an interview.
But not everybody sees the virtue of having an independent broadband capability. Max Engel, a San Antonio-based analyst with the market research firm Frost & Sullivan , thinks a partnership is a better method for the companies to achieve their broadband goals.
“I don’t think this is the best way to go,” Engel said of the auction. “I think they would do better to partner with a broadband provider who doesn’t currently offer video.”
Meanwhile, DirecTV and Echostar will have plenty of competition in the auction. As of early July, at least 81 participants were registered to participate , with more than 100 others having submitted incomplete applications that need to be revised.
Craig Mathias, an analyst and founder of the Ashland, Mass.-based Farpoint Group, said the auction is expected to draw aggressive bids from a wide array of wireless and broadband providers, and could bring in $15 billion or more, Mathia said.
Analysts said a DirecTV-Echostar joint venture likely would have the resources to compete successfully in the auction, provided both companies are committed to obtaining the spectrum . “My guess is they’re going to come at this with both horns headed forward, spend a lot of money and be very aggressive,” Schaeffler said.