New Orleans-BellSouth Corp. announced plans last week to roll out its own direct-to-home satellite service in its nine-state Southeastern telephone-service territory early next year.
Following weeks of speculation on its satellite-video plans, BellSouth said it has signed a multiyear agreement with GE American Communications Inc. (GE Americom) to lease satellite spectrum on two satellites, the first of which is scheduled to launch into orbit later this year.
BellSouth plans to compete against cable and direct-broadcast satellite operators with a bundled offer of video, voice, wireless and data on a single bill. The company has more than 14 million local telephone customers. It also offers digital-subscriber-line data services, and it has aspirations to sell long-distance calls, too.
The company had been in discussions with "everybody and anybody we thought was a potential player" in the satellite industry, including DBS competitors DirecTV Inc. and EchoStar Communications Corp., BellSouth Entertainment president Bob Frame said last Tuesday during a conference call.
But in the end, the telco opted to craft its own service because it wanted the ability to tailor its own content to meet the demands of its customers.
BellSouth plans to make local-to-local service available to secondary markets, as well as primary markets, in its service territory, offering local broadcast channels to 90 percent of its region once the rollout is completed in the next two to three years.
Unlike today's local-to-local DBS services, which typically offer only the top four network affiliates in a given market, BellSouth plans to comply with must-carry requirements as soon as it launches in a town.
Frame said BellSouth would begin work on retransmission-consent agreements immediately. The company has conducted similar negotiations for its earlier Americast video services, he added.
Some analysts and competitors were skeptical about the decision to spend millions of dollars on a new service, rather than partnering with an existing brand name. "BellSouth is a little late to the game," EchoStar spokeswoman Judianne Atencio said, "and with a less robust product."
Cox Communications Inc. president Jim Robbins said in an interview at the National Show that he took the BellSouth news as a sign that the telco preferred satellite technology over the wireless-video technology it had used in most of its video markets.
"We welcome the competition, " Robbins added. "It will make us a stronger company."
Cox serves roughly 1 million cable customers in BellSouth's service territory, and it is also moving to bundled packages of video, voice and data.
Although its marketing plans and programming packages have not been finalized, BellSouth said it would likely continue branding its video service under the Americast name, as it does today with its 160-channel wired and wireless video services in 11 Southeastern markets. BellSouth has signed more than 120,000 Americast customers since it launched its video operations two years ago.
The company will continue to operate its existing wired and wireless video operations, at least until it can convert its current Americast wireless- video customers over to the new satellite service. The telco plans to roll out its satellite service on a market-by-market basis, but it declined to disclose its initial cities.
In addition to the DTH service, BellSouth's satellite deal with GE Americom allows it to have its own "headend in the sky" to serve local central offices where it offers wireline video services, Frame said.
"We've maintained a mosaic strategy throughout our video-entertainment services," vice president of operations Don Granger said. "Wireline is still part of the plan, and eventually, there will be more of that."
He added that BellSouth would be more likely to bring wireline video services to newly constructed markets, rather than facing overbuild situations. Building new wireline systems is slow, Granger acknowledged, and that's one reason why BellSouth decided to include satellite in its video strategy.
"We needed something that would give us speed to market," he added, "something that we could integrate with our existing voice and data services."
BellSouth said it expects to finish rolling out its DTH satellite service to all of its Southeastern markets by the first half of 2002, once its second satellite has been launched and it is able to build the uplink centers necessary to deliver local broadcast channels.
The company added that the first satellites would use Ku-band satellite technology, but it did not immediately detail which orbital spectrum GE Americom was providing.
One marketing vice president at a top cable MSO said it would be difficult to comment on the potential threat from a BellSouth satellite service without knowing if the service was true high-power DBS. A medium-power service could require a larger dish than DirecTV or EchoStar's Dish Network service.
Officials at BellSouth were sketchy about the size of the satellite dish customers would need. Frame told reporters the service would require an elliptical satellite dish about 30 inches wide by 20 inches tall. But Granger said later that customers within its Southeastern footprint could use a dish as small as 18 inches in diameter.
Lehman Bros. Inc. senior vice president Bob Berzins was skeptical, noting that heavy rains in much of the Southeast would mandate larger dishes, rather than smaller dishes, to help prevent rain-fade outages.
BellSouth said it could eventually offer the service to consumers outside of its service territory, from Texas and Wisconsin through the East Coast. It has been in early discussions with possible service partners.
"We'll focus on customers who are loyal to us first before going outside of the region," Granger said.
The company plans to talk with a number of digital set-top vendors for potential hardware deals, including its current suppliers, Zenith Electronics Corp. and Pace Micro Technology plc, Frame said.
At the National Show, executives at both the Pace and Zenith booths were optimistic about extending their existing BellSouth relationships into the satellite realm.
"We'd want to follow them wherever they go," Zenith Network Systems president Bill Luehrs said. The company previously announced that it would manufacture DirecTV hardware for delivery later this year, and it has satellite deals with providers outside of the United States, too.
"Satellite is really where our strength is, where our history is," Pace vice president of North American new business development Neil Jones said, noting the company's work with international satellite operators.
BellSouth wants to incorporate multimedia and interactive-television features in the set-top boxes, which could include caller ID, video games, e-mail and possibly hard-drive storage capabilities.
Product distribution would start with all BellSouth points of customer contact, the company said, including its 750 BellSouth Mobility wireless phone retail stores. The company has not ruled out the possibility of forging distribution agreements with third-party retailers, although Frame stressed that its business plan is not dependent on retail.
The telco also hopes to do most of its satellite-system installation and service using BellSouth employees, rather than outside contractors.
BellSouth could have trouble negotiating retail-distribution agreements with larger consumer-electronics retailers, such as Best Buy Co. Inc. and Circuit City Stores Inc., B.G. Marketing Inc. president Barbara Sullivan said, because most have exclusive arrangements with DirecTV.
Although Frame would not elaborate on the company's financial projections for the new satellite business, he acknowledged a report in The Wall Street Journal that put potential revenues at $3 billion over the next several years.
Frame declined to discuss pricing for the new satellite service, but he confirmed that today's BellSouth Americast customer pays an average of $54 per month-higher than the multichannel-video average. "Our revenue per customer is growing, and it has continuously outpaced our expectations," he added.
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