SBC Links Up With DirecTV in Satellite Deal
Moving to add digital video to its service offerings, SBC Communications Inc. struck a broad marketing and distribution deal with El Segundo-based DirecTV Inc. that allows the phone company to package satellite television with its phone and Internet services in seven states, including California.
The pact, announced late Friday, represents a key step in positioning San Antonio-based SBC to challenge AT&T; Corp. and others for national dominance in the communications industry.
For DirecTV, it is the latest in a string of alliances with major phone companies that are aimed at attracting more customers to its satellite service. The company, a unit of Hughes Electronics Corp., has forged similar partnerships with Bell Atlantic, GTE and Cincinnati Bell.
SBC said it will sell DirecTV service and equipment to 18 million residential customers served by its PacBell, Nevada Bell and Southwestern Bell phone subsidiaries.
The company said it will gradually roll out the residential video service with digital TV service in California later this year.
Several cable companies, including Cox Communications and MediaOne, are already selling residential service packages that include video, local phone and Internet offerings--but only in a limited number of communities.
Financial terms of the SBC-DirecTV deal were not disclosed. One analyst said DirecTV typically pays its distribution partners a commission of about 19% of the total DirecTV revenue they bring in, but he added that such a payment structure may not apply to the new phone company deals.
Under the agreement, SBC will sell DirecTV at the same prices charged by consumer electronics stores and other distributors, which for years have served as DirecTV’s primary sales force. However, SBC is likely to discount the satellite dish price--or to provide the equipment for free--to customers ordering higher-priced service packages.
SBC already sells DirecTV service under a deal struck early last year, but that service is limited to apartment complexes in Texas, Oklahoma, Missouri, Arkansas and Kansas.
SBC, AT&T; and other telecommunications giants are gearing up for the day they can sell bundles of products--potentially including everything from wireless to Internet to video and phone services--in each others’ markets. Even though some regulatory barriers remain, SBC and its rivals are already jockeying for position.
Having watched AT&T; secure cable services and a crucial wire to homes through its cable company purchases, SBC and other phone companies are working to shore up their weak areas.
SBC, which sells local phone service in California through its Pacific Bell subsidiary, has expanded its local phone service turf through acquisitions, and has also invested in Williams Communications, a national fiber company, to help jump-start its long-distance business once it wins approval to join that market.
The video business, however, has been a weak spot for SBC ever since it pulled the plug on several costly cable efforts two years ago. The company’s only remaining video service is through a small cable operation it inherited when it purchased Connecticut’s Southern New England Telecommunications.
SBC is awaiting approval to buy Chicago-based Ameritech, another Baby Bell. That purchase would include Ameritech’s cable operation, Americast, which has more than 200,000 subscribers in Illinois, Michigan and Ohio.
SBC said it has no plans to sell the DirecTV service--which competes with cable--in regions where it owns cable units. Friday’s deal helps bring into place SBC’s video strategy.
“SBC needed a direct broadcast satellite partner, and DirecTV is as good as it gets,” said Brian Adamek, an analyst with Yankee Group. “It’s a smart move, and I think we’ll see more of the DBS companies embracing the Baby Bells.”
DirecTV said its phone company deals are helping the satellite company expand its reach into markets not tapped by its traditional sales channels.
“Our experience shows that our telephone partners attract a different customer than those attracted by our retail partners, so this is a way to enlarge the pie,” said Helen Latimer, vice president of special markets for DirecTV. “We also share a common competitor in cable.”
On the New York Stock Exchange, SBC shares rose $2.19 to close at $59.19, while GM Hughes Electronics, the parent company of DirecTV, rose $1.13 to close at $60.56.
