SBC Chairman Ed Whitacre has scrapped just about every video venture the telco has been involved with, from a takeover of Cox Communications to a Midwestern cable overbuild. But he says he's really, really serious about video this time, cutting a $500 million deal to bundle EchoStar's Dish Network service with SBC's telephone services.
Under the deal, SBC will offer Dish Network to its residential telephone customers in a bundle including extra discounts on SBC's high-speed DSL data or Cingular cellular-phone products.
SBC and other telcos have had co-marketing agreements with EchoStar and DBS rival DirecTV before, which even SBC acknowledges have been only marginally successful.
The difference here is that SBC will be more intricately involved. It will handle sales, billing and installation; customers will no longer get a separate bill from EchoStar. Control of the customer relationship is critical to cable marketing executives.
Telco Qwest cut a less intensive, co-marketing agreements with EchoStar and DirecTV last week.
SBC had studied bidding for DirecTV, which is being acquired by News Corp. "We have made no secret of the strategic importance of video," Whitacre said.
The EchoStar move is a defensive one. SBC is losing 7%-9% of its residential access lines a year, says CSFB media and telecom analyst Lara Warner. Part is to Cox Communications, which asserts that it's getting 20% or more of the market where it delivers telephone service over its cable systems, notably in SBC markets San Diego and Phoenix. AT&T and MCI are also snagging local customers.
SBC wouldn't disclose many financial details, but Executive Director of Alliance Management Gordon Brown said that EchoStar is serving largely as a supplier of programming at a set price and thus is insulated from discounts SBC builds into its bundles.
Cable operators were underwhelmed by the announcement. "They've partnered with DBS before without much success," said Cox Senior Vice President of Marketing Joe Rooney. "We control everything in our bundle; it all comes over the same wire. It makes a difference."
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