[Satellite News – 1-18-08] DirecTV, which has nearly 17 million subscribers to its satellite broadband service, hopes to improve that number greatly within the next few months as the company’s deal with Current Group takes effect.

DirecTV signed a wholesale distribution deal with Current in August, which will enable DirecTV to offer its customers Current’s Broadband over Power Line (BPL) high-speed Internet service and voice over Internet Protocol (IP) services. DirecTV customers will be able to access the Internet by plugging a BPL modem into virtually any outlet in their home.

The deal with Current is a sign that the satellite operator could be getting ready to have a more progressive broadband strategy. With U.S. telecommunications companies such as Verizon and AT&T firmly adding TV services to their offerings to become triple-play providers, the heat is on the satellite pay-TV players to develop a triple-play strategy of their own.

DirecTV initiated the service in Dallas in the middle of December and will actively market the service beginning in February, said Evan Grayer, DirecTV’s vice president of broadband.

“Broadband over power lines is a technology that has been around for a long time,” Grayer said. “It hasn’t really scaled up just yet. We think the opportunity with Current is a great one. We think this has the potential to expand nationally and be a competitive broadband service, but we are starting small.”

Rolling out broadband over power line services requires a lot of infrastructure, so DirecTV will gauge the success of the effort in Dallas carefully before moving forward in other markets, Grayer said.  “It depends on how things go and the response of the utility companies around the country to the success we hope to demonstrate through our rollout in Dallas,” he said. “It is not exclusively up to us. We hope to have tremendous success in Dallas and leverage that success to bring us into other markets, but there is no guarantee.”
   

Looking For Best Triple-Play Approach

Deciding on a broadband approach is one of key issues facing DirecTV and other satellite pay-TV operators, but there likely is not a one-size-fits-all solution, Grayer said. The operator’s current approach falls into two categories – a sales channel where DirecTV offers someone’s else service such as DSL and also wholesale relationships such as the one with Current and Clearwire.

“Is the only solution to have your own broadband infrastructure? That is a potential answer, but that is not necessarily the only answer,” Grayer said. “Are partnerships the way to go? That is one potential answer, but paying attention to this question and having a clear and executable strategy is definitely important to DirecTV. We have a variety of options open to us. We have DSL, power lines, wireless, etc. Could they morph into one dominant approach going forward? Yes, that is a possibility, but that decision has not been made yet. Right now, we have the benefit of strong relationships with the telcos and a handful of long term options open to us.”

In the United Kingdom, BSkyB has invested in telecommunications infrastructure with its acquisition of Easynet. DirecTV is exploring a similar move as one of its options, Grayer said.

“If the right opportunity arises, we are definitely open to that. But there has been no decision made at this point,” Grayer said. “The difference between the U.S. and U.K. markets has to do with regulatory differences. In the U.K. market, BT has certain obligations that do not apply to the [telecommunications] providers here. That type of service would be much more difficult to pull off here. I am not saying it is impossible.”

    DirecTV has deals in place with some telecommunications companies that allow DirecTV to offer triple-play services. Grayer believes these deals mean DirecTV already offers a competitive bundle. “If you look out across the landscape of offers, is that we have the one of the strongest and most valuable offers of TV plus Internet plus phone out there in the market,” he said. “The consumer can get the lowest price by getting their services through DirecTV, even if they are getting the services from two different service providers rather than through one cable bundle.”

However, as the telephone companies push their own triple-play bundles, it is the satellite operators who most likely will get squeezed out, Spencer Wang, a media equity analyst at Bear Stearns, said in a research note.

“Increased competition will likely put pressure on subscriber growth, upgrade and retention costs, [average revenue per user] growth, subscriber acquisition costs, and churn,” Wang said. “Without a bundled offering of communication services, we view DirecTV as structurally challenged versus its competitors. Consumers appear to be increasingly interested in purchasing bundles of services. Without such an integrated offering, we believe that it will be harder for [direct broadcast satellite] operators to grow their businesses.”