SBC Invests in EchoStar, Will Sell TV Service

Local telephone giant SBC Communications Inc. is getting into the television business.

California’s dominant phone company announced Monday that it struck a deal with EchoStar Communications Corp., which owns the Dish Network satellite TV service, so it could offer TV along with phone and Internet services in 13 states. SBC said it invested $500 million in EchoStar securities as part of the deal. Neither company released other financial details.

SBC figures its pact with EchoStar will nip the growing threat posed by cable companies -- rivals that are the dominant providers of broadband Internet service and have been gaining a toehold in the phone business.

Another major phone company, Qwest Communications International Inc., has the same hope: It said Monday that it signed joint marketing agreements with EchoStar and its main rival, DirecTV, for parts of its 14-state region.

Starting early next year, SBC will offer one-stop shopping: Customers will be able to call the phone company for all services -- installation, billing, repairs -- related to satellite TV, Internet connections and both wire-line and wireless phone service.

The SBC-EchoStar partnership “changes the competitive landscape of the industry,” said SBC Chairman Edward E. Whitacre Jr. EchoStar Chairman Charles Ergen called SBC a “natural partner.”

The arrangement is modeled after SBC’s partnership with Yahoo Inc., which provides content for the phone company’s digital subscriber line, or DSL, Internet service.

Although analysts view the SBC-Dish deal as positive moves for both companies, some say they aren’t convinced that it will help SBC retrieve local phone customers already lost to competitors. But Kevin Calabrese, an analyst at Argus Research in New York, said bundling services with one customer service number and one monthly bill would keep customers from defecting.

“Studies have found that the more you offer, the less they move,” Calabrese said.

Analyst Richard G. Klugman of Jefferies & Co. in New York praised the deal in a note to investors, emphasizing that SBC’s “modest $500-million investment” would have little effect on its earnings and a “limited downside risk if and when this venture fizzles out.”

Wall Street was cautious. SBC stock fell $1.05, or 4%, to $23.13 on the New York Stock Exchange. EchoStar rose 67 cents to $36 on Nasdaq.

Industry executives and analysts say the deal could be part of a courtship that could end in the marriage of SBC and EchoStar.

“Maybe this is the first step toward Ergen’s ultimately relinquishing all control through a sale,” said Jimmy Schaeffler of Carmel Group, which follows the satellite industry. He said it was out of character for EchoStar’s Ergen to give up control over any aspect of the business.

The telecommunications industry has been battered by slowing demand, enormous debt, a glut of fiber optic cable and price wars with wireless and cable companies -- all as Baby Bells such as SBC have been under pressure to open their local markets to competitors at low wholesale prices.

The satellite TV industry, which has 25% of the pay-TV market, also is facing stiffer competition from cable companies that have rolled out digital services that match the clear pictures and sound of satellite TV.

The SBC-Dish deal follows co-marketing efforts that the phone company has tried in the last few years both with Dish, which has 8.5 million subscribers, and DirecTV, which has 11.6 million. According to industry sources, SBC was negotiating this year to buy DirecTV, a unit of El Segundo-based Hughes Electronics Corp. that is now being sold to News Corp.

Since the proposed DirecTV-News Corp. deal was announced, Wall Street has speculated about whether EchoStar would be forced to sell out or merge to compete in a media world dominated by giants. EchoStar’s proposed acquisition of DirecTV was blocked by federal regulators late last year because of antitrust concerns.

The cable industry has spent $75 billion since 1996 to upgrade its systems with two-way digital technologies. Cable companies such as Cox Communications Inc. are selling bundles of voice, video and high-speed Internet access all on one bill.

Cox has had more success than any other company in picking off SBC’s customers. It has captured about a third of SBC’s telephone customers in the south Orange County and San Diego County regions where it offers cable.

SBC and EchoStar said they would spend the rest of this year getting their back offices and other operations in sync to make transactions appear seamless.