Mum's the word

Reportedly interested parties were fiercely guarded last week about discussing speculation that EchoStar Communications is courting telcos for financial backing in its bid to purchase satellite rival DirecTV.

No one is talking, but the strategy makes sense for EchoStar and telcos, analysts said. By taking an equity stake in EchoStar, telecommunications companies would gain an alternative distribution channel and be able to offer a broader range of services.

“A logical choice for EchoStar right now are companies close to the telephone industry,” said Jimmy Schaeffler, an analyst with Carmel Group. “They need to ally with somebody that has financial and strategic wherewithal.”

Reports suggest EchoStar — the No. 2 U.S. satellite TV provider with more than 5 million subscribers — is in advanced discussions with SBC Communications and two other RBOCs about potential partnerships. Representatives of SBC, BellSouth, Qwest Communications and Verizon Communications declined to say whether negotiations have begun.

But a source close to the matter said the rumors are receiving more attention than they deserve. “It's really gotten blown out of proportion,” the source said. “There are no active, ongoing discussions at this time.”

A spokeswoman at EchoStar also declined to comment whether the company is reaching out to RBOCs for financial support. “When you're negotiating, you don't want to give a road map of where you are and what you're doing,” the spokeswoman said.

News Corp. and its Chairman Rupert Murdoch appear to be holding most of the cards in landing the No. 1 U.S. satellite company and its more than 10 million subscribers. With backing believed to total $5 billion from Microsoft and Liberty Media, News Corp. looks poised to enter the U.S. satellite ring.

A spokeswoman for General Motors, whose Hughes Electronics division owns DirecTV, declined to comment on EchoStar and said the company was “well into discussions” to combine the Hughes division with News Corp.'s Sky Global but would not disclose details.

EchoStar said it has $1.3 billion in cash available and recently secured an additional $1 billion in convertible note sales. An EchoStar spokeswoman said the company continues to search for funding.

“You can expect EchoStar to turn over any rock it can in search of capital to help bring this deal closer to reality,” said Steve Vonder Haar, an analyst at The Yankee Group.

If it can establish itself as a credible bidder, EchoStar could help its long-term competitive position by forcing News Corp. to inflate the price it must pay for DirecTV, Vonder Haar said.

Odd bedfellows?

1998 SBC signs deal with DirecTV to offer video services to multi-dwelling units

1998 Verizon's Bell Atlantic subsidiary signs deal to offer DirecTV service to single family residential customers

1999 Bell Atlantic begins aggressive marketing campaign through region, offering free installation of DirecTV

1999 SBC expands deal with DirecTV to include all customers in Southwestern Bell, Nevada Bell and Pacific Bell territory

1999 Bell Atlantic begins offering integrated phone/TV service such as caller ID via TV

1999 MCI WorldCom agrees to transfer DBS assets to EchoStar in exchange for 1.7 million shares of EchoStar