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Dr. R.H. Rusli

A Rivalry Between Direct Satellite and Cable TV.
Editorial Department

For many years, the cable and satellite industries have struggled for the hearts and wallets of world consumers with ever-escalating offers of more and more television. Particularly in the late 1990's, as satellite dishes shrank to the size of pizza pans, satellite companies wooed millions of customers from their cable lines with the promise of more, and better, TV.

But now, the video wars are only one front in a larger cable-vs.-satellite clash over the digital future.
Even as digital cable upgrades are eroding satellite's longstanding dominance in television programming, cable modems are shaping up as the nation's preferred medium for high-speed Internet service.

With the satellite companies scrambling in respond, both camps want to assemble in broad packages of video, Internet and even futuristic interactive television services with the hope that it will allow them to capture a sizable consumers' entertainment and communications budgets.

Meanwhile, media mogul Rupert Murdoch's News Corporation could soon reach a deal to merge its global satellite operations with DirecTV, the US dominant consumer satellite provider, according to people close to the negotiations. The companies declined to comment on those talks.

It is expected that as early April 2001, General Motors' Hughes Electronics unit, DirecTV's corporate parent, is expected to complete its acquisition of Telocity Inc., a small but fast-growing provider of high-speed Internet access over standard phone lines.

If the deals come to pass, DirecTV will have rearmed with a new Internet weapon and a new corporate partner with deep pockets and a fearsome reputation for tackling the competitor out. At that point, the arena could be set for the satellite-cable battle to continue more fiercely than ever.

"We've launched ourselves officially internally from being a digital-video service to being a digital-services company with a whole bunch of things that go beyond traditional video," said Larry Chapman, president of DirecTV Global Digital Media. "The cable guys are also introducing increasingly sophisticated set-top boxes that go beyond traditional one-way video."

To invigorate its cyberspace strategy, Hughes has agreed to acquire Telocity for $179 million in a deal that would give Hughes a legitimate high-speed Internet option — something that DirecTV has lacked. Telocity is a company that delivers high- speed, or broadband, Internet access service to about 47,000 customers in roughly 150 local markets, using the advanced telephone technology known as digital subscriber line.

To date, D.S.L. is the primary competition to cable modems in providing broadband Internet access. Many Internet experts prefer D.S.L. to cable because D.S.L. can in some ways offer better security than cable and can often deliver bandwidth more reliably.

The main drawback is that for technical reasons D.S.L. is usually unavailable to homes more than a few miles from the closest telephone company switching station. Moreover, Telocity's current subscriber base is tiny, and its geographic reach makes it potentially available to only 40 percent of the United States population — undermining the nearly geographic ubiquity of DirecTV's satellite "footprint" across the nation.

Still, Telocity gives Hughes's DirecTV a far stronger Internet presence than it would have alone. "It's an opportunity for Hughes to go back to their existing customer base and sell them an additional service," Patti Hart, Telocity's chief executive, said. "It's also an opportunity for them to go to people who may not be DirecTV customers and perhaps get them to sign on with this multiple service offering." Ms. Hart said that in the future the companies hope to offer a single set-top box that provides satellite decoding and also functions as a D.S.L. modem.

The cable companies will not be standing idle. Indeed, AT&T, the nation's largest cable operator, remains certain that it has the ultimate advantage.

"As we introduce our digital service, high- speed Internet and telephone service, we're changing the basis of competition from video only to being more a bundled broadband supplier that brings all of these services together better than anyone else," said Doug Seserman, senior vice president for marketing and sales at AT&T's cable operation.

The competition between cable and satellite is spreading to many fronts. The satellite companies, for example, are beginning to offer receivers that have built-in digital video recorders that can search for and record programming based on the user's tastes and that let viewers pause programming even during live broadcasts.

Cable operators, meanwhile, are going to be aggressive in offering services like video on demand, said Tom Eagan, who follows both satellite and cable for UBS Warburg. The big question in all this is how — or whether — a merger of DirecTV with the News Corporation's global satellite business, Sky Global, would affect the competitive landscape in the United States.

If Hughes and the News Corporation complete their deal, some media executives expect DirecTV, under Mr. Murdoch, to become more aggressive in chasing subscribers. In Britain, for instance, where Mr. Murdoch controls the British Sky Broadcasting Group satellite service, he has given away set-top boxes and paid heavily for exclusive rights to sports programming. But cable competitors argue that Mr. Murdoch can do little to expand DirecTV's lure beyond entertainment.

"He brings a lot of content and a big wallet," said Mr. Seserman of AT&T. But he said the News Corporation could not do much to help DirecTV expand into new types of services. "It's not like DirecTV's combining with AOL or something."

Certainly satellite TV, which is digital, has some advantages in local markets where cable is still analog and still offers far fewer channels than satellite does. But cable has been upgrading to digital at an increasingly rapid rate in recent years.

Digital cable is available today to 80 percent of homes that can get cable — up from 60 percent in 1999 and only 27 percent in 1998, said Dennis Leibowitz, a media strategist at Credit Suisse First Boston.

As a matter of fact, it is consumers who will determine of how the competitive battle plays out. And it is difficult to say whether consumers will prefer to buy their cable and Internet access service from a single provider or to shop for each service independently.

"There are two entirely opposing views about this," said Michael Goodman, a senior analyst at the Yankee Group. "One view is that consumers like the idea of a single service provider. But on the other side of that thesis is the reality that you may have to give something up to go to the single service company, and consumers may not want to do that."

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