DirectTV Chief Walks Fine Line as Sale Looms

When Roxanne Austin was promoted to president of DirecTV in June, the nation’s leading satellite television provider was in a bad slump. Costs had rocketed, the company’s growth rate was slowing, and shares of DirecTV’s parent, Hughes Electronics Corp., had dropped to new lows.

Austin made quick and sweeping changes, ranging from using in-house sales teams for the first time to requiring customers to sign up for a year’s worth of DirecTV service. The moves earned her the nickname “Hurricane Roxanne” within the ranks of the El Segundo-based company.

“We had to change, and we had to change fast,” said Austin, 41, who was plucked from her job as chief financial officer of Hughes to turn around DirecTV. “DirecTV is one of the most successful start-ups of all time. But what worked in the first few years was not going to make us successful going forward.”

Yet even as DirecTV announces today its second consecutive quarter of financial improvements, including adding 405,000 subscribers, the overshadowing question is whether Austin can keep up the momentum amid the pending $30-billion sale of Hughes to rival EchoStar Communications Corp.

In October, General Motors Corp. agreed to sell its controlling interest in the company to EchoStar, bringing to a close a yearlong takeover battle that proved a distraction for Hughes’ top management and was a factor in DirecTV’s slide.

Hughes shares gained 44 cents on Monday to close at $16.70 on the New York Stock Exchange. EchoStar rose 33 cents to $28.92 on Nasdaq.

The EchoStar deal makes Austin’s job particularly challenging because it could ultimately cost thousands of jobs at DirecTV if approved, or lead to turmoil if it is scuttled by federal regulators and the company has to go it alone.

“This is a real strange Alice-in-Wonderland time at DirecTV,” said Jimmy Schaeffler of Carmel Group, which tracks the satellite industry. “Roxanne has to make her new bosses at EchoStar happy, all the while wondering whether she should be looking for another job and knowing the deal is not a slam dunk with regulators in Washington.”

Austin has restored some faith on Wall Street that the company is back on track. DirecTV’s 10.7 million U.S. customers make it the country’s third-largest pay television provider, after AT&T; Broadband and Time Warner Cable.

“So far, she has proven that DirecTV can stand on its own,” said Vijay Jayant, an analyst at Morgan Stanley. DirecTV “has got to work as if there is a deal, but ... disprove sentiment that EchoStar wins either way by weakening the competition in the event that the deal is not approved.”

The deal faces serious scrutiny by the Justice Department because EchoStar is DirecTV’s only satellite competitor in the U.S. Together, the two companies would serve more than 17 million households--one in every five pay television homes.

EchoStar is expected to downsize the combined company considerably.

Although DirecTV has about 3,000 employees worldwide, perhaps the most vulnerable are the 1,200 in El Segundo. EchoStar’s home base in Littleton, Colo., will be the headquarters.

EchoStar Chief Executive Charles Ergen is known for an entrepreneurial zeal and lean operating style that contrasts with DirecTV’s more bureaucratic culture. While DirecTV employs droves of corporate lawyers, EchoStar has just a few. Ergen is also famous for making employees share hotel rooms when they travel.

Sources said Austin was a fervent backer of the EchoStar deal, believing that the cost savings to Hughes shareholders outweighed the regulatory hurdles.

In a recent interview, Austin refused to discuss the merger, but acknowledged the management challenges it presents. “You’re always going to have anxiety in a merger,” Austin said. “We have one job we’re focused on every day whether the merger goes through in nine to 12 months or not. That is to make DirecTV better.”

Before joining Hughes, Austin was a partner at Deloitte & Touche and a specialist in aerospace and defense and in mergers and acquisitions.

While there, Austin, a native of Calico Rock, Ark., decided she would rather run a business than be a consultant.

“I wanted to be the decision maker,” Austin said.

Described by colleagues as determined and outspoken, Austin joined Hughes in 1993, assuming the titles of treasurer, chief accounting officer and controller before rising to CFO in 1997. Austin was involved in several mergers that helped reshape Hughes from a defense contractor into a satellite service provider.

Her first shot at running DirecTV came in 2000, when Hughes Chairman Michael Smith decided to bring in a president to free CEO Eddy Hartenstein from daily operating duties.

Hartenstein backed Austin for the job, but sources say he was overruled by Smith, who favored veteran telecommunications executive Odie Donald.

But analysts say Donald could not navigate the complicated politics of the organization or the mounting troubles at DirecTV. One problem was a high churn rate because subscribers were canceling service after becoming dissatisfied with DirecTV’s spotty installation service and consumer help lines. And TV piracy was soaring, with DirecTV losing $150 million to theft of its signals in the second quarter of last year.

As a result, DirecTV spent $575 to generate each new account in the second quarter, compared with EchoStar’s $513.

“Odie wasn’t the right match for the job,” Schaeffler said. “Roxanne is a dynamo. She brings an unusual understanding of the Hughes and the GM cultures and is well-respected in the ranks because of her knowledge and experience.”

O’Donnell was swept out just months after Smith in a management restructuring last summer.

“Things were somewhat dysfunctional because of what was going on at the top of the organization,” said Austin, referring to her predecessor’s tenure, calling her own appointment a “whirlwind of a week.”

On vacation, she drafted a lengthy handwritten blueprint for DirecTV’s turnaround that is now known within the company as “Roxanne’s Hawaii Manifesto.”

Most of the initiatives are well underway. To reduce commissions and subsidies, Austin renegotiated contracts with distributors and manufacturers of the dishes and set-top boxes.

Austin also reduced the work force by 10%, the first layoffs in DirecTV’s seven-year history.

Customer policies are also friendlier. DirecTV no longer charges a fee for downgrading to a cheaper package of channels. Customers who don’t want to purchase a dish and set-top box can now lease the equipment--a practice that has contributed to EchoStar’s growth.

Rewards came almost immediately, as churn rates and costs declined.

The company will announce today that it will begin delivering local channels in 10 additional cities this year, bringing to 51 the number of markets where it delivers local broadcast signals.

“These [local channels] are key to our growth in 2002,” Austin said.

So too, she said, is high-definition television channels that will distinguish DirecTV from cable. DirecTV will offer exclusive 24-hour coverage of the Winter Olympics in HDTV.

“We’ve only scratched the surface,” Austin said. “We still have improvements to make, but we’re heading in the right direction.”