DBS Eyes Record Sales in 2000

On the heels of its hottest holiday selling season to date,
the direct-broadcast satellite industry is expected to set yet another
subscriber-acquistion record this year.

Once December subscriber tallies are announced this week at
the Consumer Electronics Show in Las Vegas, DirecTV Inc. and EchoStar Communications Corp.
are expected to count more than 3 million new customers for the year between them.
Analysts predict they'll beat those numbers in 2000.

By the end of November, DirecTV had added 1.381 million net
new high-power customers for the year, a 42 percent increase over the same period a year
earlier. That's not counting the customers that DirecTV transitioned to high-power
from the medium-power PrimeStar service it acquired earlier in 1999. In November, DirecTV
signed 150,000 net new high-power customers, and converted an additional 77,000 from the
service, now called PrimeStar by DirecTV.

EchoStar Communications Corp. added 1.31 million new
customers in the first 11 months of 1999, for a 70 percent increase over the same period
in 1998. In November, the company added 137,000 subscribers.

Between the two companies, DBS already boasted more than 11
million homes at the end of November. And cable operators waiting for the DBS growth spurt
to slow may have to wait a little longer.

Both DBS companies saw strong holiday sales, said Bear
Stearns & Co. analyst Vijay Jayant, who estimated December acquisition numbers at
200,000 for DirecTV and 180,000 for EchoStar.

At least a portion of the holiday DBS sales figures are
likely to carry over into January as well, according to DirecTV spokesman Bob Marsocci. He
cited increased demand for professional installation coupled with winter's shorter
daylight hours.

DBS subscriber acquisitions could top 3.25 million in 2000,
according to Goldman Sachs & Co. analyst Lou Kerner. He estimates that EchoStar will
score 1.5 million adds for the year and that DirecTV will gain 1.75 million subscribers,
plus convert another 900,000 PrimeStar customers to high-power service.

If so, the DBS head count would rise to about 17.5 million.

Steve Blum, president of California-based Tellus Venture
Associates, predicted that DBS should sustain growth in the range of 3 million customers a
year for the next five to six years, assuming that local-to-local channels become widely
available in the next two years. If not, sales figures could start to drop off after two
years, Blum said.

Local-channel availability will open up the DBS market to a
group of consumers who stopped listening to the sales pitch when they heard they
couldn't get their hometown stations, Blum said.

"It will be a group that will sustain growth, but not
boost it," Blum added.

At the end of last week, local-to-local channels were
already available in 17 DirecTV markets and 18 EchoStar markets, with more announcements
promised by both.

Some cable operators who had used the lack of local
channels as a primary weapon in their competitive arsenal against DBS were forced to
retool their consumer advertising.

AT&T Broadband & Internet Services wasted no time,
showing three updated anti-DBS ads last month at the Western Show, just weeks after
President Clinton signed a bill authorizing the widespread delivery of local broadcast
signals over satellite.

AT&T Digital Cable spots that had once claimed that
"you can't get local channels" over satellite now warn, "You
can't get local channels without paying more."

And it's true: DirecTV charges $5.99 for a local
package that typically includes four network feeds from ABC, NBC, CBS and Fox affiliates,
plus a national PBS feed.

EchoStar charges $4.99 for local network feeds. In a few
cases, there's an independent station thrown in, too. The national PBS feed is sold
à la carte for $1 extra.

In most of its initial local-to-local markets, DirecTV is
offering a free trial of the local channels, available at its core service at 101 degrees
west longitude for larger cities.

But in two of its newest local markets -- Raleigh, N.C.,
and Greenville, S.C. -- the local channels are beamed from 110 degrees west, which
requires a new satellite dish and receiver, the "DirecTV Plus" system.

Most of EchoStar's local markets, except Los Angeles
and New York, also require existing customers to upgrade to a larger or second satellite
dish, although they need not trade out their receivers.

The hardware-upgrade requirements play into another
competitive weapon cable has used against DBS: the fact that consumers may be forced to
pay for new equipment at the whim of their satellite providers.

Both DirecTV and EchoStar are helping to subsidize the cost
of the equipment upgrades with free, professional installation and hardware discounts to
customers who want new services.

DirecTV will offer to replace existing hardware with
DirecTV Plus systems for $49 for customers in Raleigh and Greenville. EchoStar will allow
current Dish Network customers to upgrade to its new "Dish 500" system, which
accepts signals from both 119 and 110 degrees, for a $24.95 shipping and handling fee, if
they commit to a year's worth of programming at $39.98 a month. A $99 option is
available for those who want to upgrade but don't want to commit for a year.

Product obsolescence has long been the battle cry of the
cable industry, but the other side of that coin is DBS companies' ability to add new
features quickly and deploy them nationally.

EchoStar last month added personal-video-recording features
to its DishPlayer system, which already included WebTV's Internet-over-television

Interactivity is expected to be a big focus in Las Vegas
this week. DirecTV plans to show its first AOL [America Online Inc.] TV boxes at the CES
this week, along with DBS receivers with built-in TiVo Inc. personal video recorders.

"I don't see these offerings as killer advantages
for DBS, because in some cases, cable can do these things better," Blum said.
However, DBS must continue to add new features or risk losing consumer interest, he added.

It's still unclear how interactive services will
affect the DBS companies' bottom lines, Jayant said, because in many cases revenues
from the new offerings will be shared with other parties.

As for cable operators' attempts to play on consumer
fears over product obsolescence, Blum said, the efforts are misplaced.

"If that logic held, [typewriter maker] Smith-Corona
never would have gotten off the ground because people would still be content to use
pencils," he said.

In any case, cable operators may want to reconsider some of
their attacks as they make the move toward retail sales of cable modems and digital
set-top boxes themselves.

"Once you start getting RCA and Philips and Sony and
everybody else pushing cable boxes, it will be a real boost for the cable industry,"
Blum said.