EchoStar Rekindles Its Interest in Broadband

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EchoStar Communications Corp., owner of the Dish direct-to-home satellite television service, has more satellites on order than it knows what to do with, but the two-way broadband services scheduled to be offered to U.S. consumers starting late this year is one of the targeted markets, said EchoStar Chairman Charlie Ergen.

Ergen, who has been debating for years what to do about commercial satellite broadband service for consumers, said he remains skeptical about whether the technology will ever find a mass market given the spread of cable and DSL broadband links.

But with cable and telephone-company competitors all offering broadband connections, and with an estimated 10 million U.S. homes unlikely to have access to terrestrial broadband anytime soon, Ergen appears ready to commit himself.

“We expect that we’ll re-enter [the satellite broadband] market sometime later this year, but in a small way,” Ergen said in a March 17 conference call with financial analysts, referring to the company’s former investment in U.S. satellite broadband suppliers StarBand and WildBlue Communications — both long since written off.

“We think we have several main customers who may be interested in that niche. We are looking at that. And there are certainly partnerships you can do with people who have infrastructure in the ground.”

In a March 16 filing with the U.S. Securities and Exchange Commission (SEC), Littleton, Colo.-based EchoStar said it had four satellites on order — including two that had not been announced. EchoStar 10, under construction at Lockheed Martin Space Systems, is expected to launch late this year. EchoStar 11, being built by Space Systems/Loral pending the approval of Loral’s bankruptcy court, is scheduled for launch in 2007.

EchoStar disclosed in its SEC filing that it ordered two additional satellites from Lockheed Martin in December 2004 and March. Both are Ka-band spacecraft intended for the two-way broadband Internet market, as well as video distribution. Both are expected to be placed into orbit in 2008.

In addition, the company has leased substantial capacity on two satellites expected to launch in 2006. One is an SES Global-owned spacecraft, and the other was not identified pending regulatory approval of the deal.

Added to these six satellites is Cablevision Systems Corp.’s Rainbow-1 satellite, already in orbit, which EchoStar agreed in February to purchase for $200 million as part of Cablevision’s attempt to shut down its Voom high-definition television satellite business.

Cablevision continues to struggle with its chairman and founder, Charles Dolan, who wants to keep Voom’s remaining assets to build a satellite-television business in direct competition with EchoStar and DirecTV Group of Los Angeles. Dolan has agreed to use his own stock in Cablevision to keep Voom alive and Wall Street analysts have voiced concern that he may be willing to sell Cablevision to finance Voom.

Ergen tactfully did not say whether he thought Dolan’s Voom could survive. But he expressed admiration for a man who built a company from scratch and then risks it all on a new venture.

“I’ve always respected Chuck Dolan as being a true visionary,” Ergen said. “Obviously it says something when you would take something you spent your whole life building, and sell it to get into another side of the business. … It says a lot about the satellite business.”

Asked what he planned to do with all this new satellite capacity — EchoStar’s capital expenditure in 2005 will surpass $1 billion as a result — Ergen answered bluntly.

“We’re not ready to label what we’re doing with them,” he said. “Part of it is, we don’t exactly know. For example, the Voom satellite puts a whole new dance into play. We’ve certainly been aggressive in our satellite procurement.”

He was just as frank about how a company like EchoStar will address a market in which broadband Internet, digital television and telephone services are offered from the same platforms — cable, DSL and, in the future, by satellite.

On broadband in particular, Ergen said the return on investment is not certain, arguing for caution in deployment. “We don’t have it figured out. I don’t think anybody can tell you honestly they’ve got it figured out. There’s going to be a lot of roadkill in the telecommunications business, and our job is to make sure it’s the other guy.”

Ergen repeated his call for a single, global broadband-transmission standard as a way to reduce the cost of broadband investment. At least three standards are currently competing, a situation that EchoStar does not believe is financially tenable given the size of the broadband market.

Ergen was similarly cautious about the introduction of high-definition television (HDTV), a bandwidth-hungry application that partly explains why EchoStar has so many new satellites on order.

DirecTV, which has invested more than $1 billion in HDTV satellites, the first of which is scheduled for launch in April, has been more aggressive than EchoStar in preparing for HDTV.

Ergen conceded this, but said EchoStar was moving slowly because of delays in the introduction of MPEG-4 compression technology, which will enable consumer set-top boxes to handle HDTV transmissions much more easily than today’s MPEG-2 (the acronym stands for Motion Picture Experts Group).

“We haven’t announced a lot of plans” on HDTV introduction, Ergen said. “We don’t like to put our cards down before the money’s on the table. [MPEG-4] chipsets have been delayed by the vendors, so we’re treading water. If you put an MPEG-2 box out there that you have to transition to MPEG-4 later — there’s no way it’s economic.”