EchoStar shines on, Upstart DBS company may make a good match with Sprint >BY SHIRA McCARTHY, Associate Editor-News

The importance of strategic alliances in a competitive telecom market was underscored last week by direct broadcast satellite company EchoStar Communications and interexchange carrier Sprint.

On one side of the bargaining table sits the country's third largest long-distance company, capital in hand but no video strategy since the wireline side of its joint venture with Tele-Communications Inc., Cox Communications and Comcast Corp. was dissolved last year.

On the other side is upstart DBS company EchoStar, which turned DBS giant DirecTV upside down earlier this year by slashing its dish package from $600 to $199. While EchoStar has a number of advantages over other DBS providers, including more channel capacity and one-stop shopping, it lacks capital and a well-known name.

"If this [alliance] does happen, it takes EchoStar to another level right away," said Jimmy Schaeffler, president and chief executive officer of the Carmel Group, Carmel, Calif. "It gives them instant credibility."

And while EchoStar may have preferred a relationship with larger IXCs AT&T and MCI-both of which already have DBS plans-Sprint is nothing to sneeze at. AT&T has a 2.5% investment in DirecTV, and MCI plans to roll out DBS service in conjunction with News Corp. in 1998.

Indeed, Sprint's customers are more technologically savvy compared with those of AT&T and MCI, making them more willing to subscribe to a DBS service, said John Aronsohn, senior analyst at The Yankee Group, Boston. "A lot of AT&T's customers are older and don't understand the concept of switching to alternative long-distance carriers," Aronsohn said. "Customers who are willing to switch to a smaller company like Sprint are also more technically sophisticated and more likely to adopt a new technology like DBS, which is a valuable market for EchoStar to go after."

From a financial standpoint, some sort of alliance is crucial for EchoStar, Schaeffler said. The company will owe $1.2 billion by March 2000. That makes a partner with deep pockets enormously appealing, especially as EchoStar gears up to go head-to-head against DirecTV, backed by AT&T, and Primestar Partners, owned by multiple systems operators TCI, Time Warner and Comcast.

A Sprint/EchoStar alliance could also give the IXC an instant national video strategy. Sprint's wireline joint venture with TCI, Cox and Comcast quietly faded into oblivion when the wireless side of the alliance was launched earlier this year, leaving Sprint scrambling for a way to offer its customers a full package of services.

"DBS makes a lot of sense for long-distance companies because both IXCs and the DBS companies have a national presence," Aronsohn said. "It's a lot easier for Sprint to ally with a DBS company than to go piecemeal across the country, trying to create partnerships with cable companies."

EchoStar's independence is also likely to be appealing to Sprint. Unlike its major competitors, EchoStar makes, sells, programs, distributes and services its own systems. "EchoStar has chosen to sell all of its own equipment and programming so that the end user only has to go to one source for everything," Aronsohn said.

Moreover, EchoStar has more bandwidth capacity than its competitors, which opens the door to new services, including local programming and utility monitoring, Schaeffler said. "With enough bandwidth, the possibilities are innumerable," he said.

Like any alliance in discussions, the EchoStar/Sprint deal could fall apart before it even begins. A Sprint spokesman refused to comment on the negotiations, but a source close to EchoStar confirmed that the two companies are talking.

EchoStar is talking to a lot of people, the source added. Industry experts speculated earlier this year that EchoStar might partner with U S West (Telephony, July 29, page 20). EchoStar's announcement last week that it successfully launched its second satellite, EchoStar-II, may lure other potential suitors as well.

1980 EchoStar Communications Corp. founded by Charles Ergen, Cantey Ergen and James DeFranco as a supplier of direct-to-home hardware and service 1987 Filed with the FCC for a direct broadcast satellite license, and EchoStar Satellite Corp. was established 1992 EchoStar granted a DBS orbital slot at 119° W longitude 1995 Digital Sky Highway (DISH) brand name created December 1995 EchoStar-I launched January 1996 EchoStar wins orbital slots at 148° W longitude at the FCC DBS spectrum auction March 1996 DBS service rolled out over EchoStar-I September 1996 EchoStar-II launched Fall 1996 EchoStar will add 60 new channels to its DBS service via EchoStar-II