SBC Communications Inc. and EchoStar Communications Corp. have renewed their co-branding and co-marketing agreement, continuing to offer customers direct-broadcast satellite, telephone and high-speed data service despite EchoStar’s recent comments about the arrangement’s declining effectiveness.
There will be some operational changes going forward that could make things work better for both parties, the companies said.
HOT START IN ’04
SBC and EchoStar first announced the co-branded SBC/Dish Network package in late 2003. It started out hot, with EchoStar signing on a hefty 101,000 video customers in the second quarter of 2004.
But shortly after the service launched, SBC announced plans for its own video, voice and data network, called Project Lightspeed, and de-emphasized the EchoStar relationship.
Customers signed through the SBC/Dish package dwindled to 97,000 in the fourth quarter of 2004, 71,000 in the first quarter of 2005 and 10,000 in the second quarter of 2005.
EchoStar chairman Charlie Ergen told analysts on Aug. 9 the deal was on hold. “Any business deal has to work for both parties, and that particular program hasn’t worked for either one of us for the last couple of quarters,” Ergen said during an earnings conference call.
Going forward, SBC and EchoStar will operate the service along a more traditional sales agency approach.
Customers will still have a single point of contact, a single SBC bill and will still qualify for bundled discounts. SBC representatives will continue to process SBC/Dish Network customer orders and schedule service installation, and customer care will be handled as it is today.
SBC said in a statement that operational changes will be implemented in October and will be transparent to customers.
EchoStar spokesman Steve Caulk wouldn’t elaborate on the new approach, but said it’s hoped the changes will jump-start subscriber additions. “We had to find a way to make the relationship work better,” Caulk said. “That’s what we did.”
In a research report, CS First Boston cable and satellite analyst Carrie Hart described the new deal as more in line with traditional RBOC/DBS agreements. Hart said EchoStar will pay SBC an upfront fee (probably less than $150) for every gross addition, plus a monthly residual amount estimated at between $3 and $5 per gross add.
EchoStar also will fund subscriber acquisition costs, not SBC, but won’t have to share revenue from those customers.
“While the economics of the new agreement are less attractive to [EchoStar] than the old one, the benefit to [EchoStar] is a reacceleration of SBC net adds,” Hart wrote.
SBC spokeswoman Anne Vincent confirmed SBC will no longer shoulder SAC costs. “It will generate less revenue, but it will also significantly reduce our expenses since the customer subscriber acquisition costs are now going to EchoStar,” she said.
SBC: NO LIGHTSPEED IMPACT
Vincent said SBC’s IPTV video product — which will get a “controlled market launch” late this year or in early 2006 — didn’t affect the decision to cut a new agreement with EchoStar.
Vincent said the IPTV product will be available to 18 million homes next year. She said subscribers in markets where the fiber-delivered video service won’t be available will be offered SBC HomeZone, integrating video content delivered to EchoStar satellite dishes with broadband DSL content.
SBC plans use to a single receiver, being developed by 2Wire Inc., to integrate the EchoStar-delivered video programming and broadband content.
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