DBS Going Interactive by Ken Freed. . The Dish Network launches OpenTV in 2000. DirecTV launching AOL-TV in 2001. Two-way Ka-band after 2002.

If the American cable industry now fears competition from DBS, digital broadcast satellite industry plans for interactive broadband services may feel downright terrifying.

DBS services today have about 12 million subscribers in the U.S. direct-to-home market. Cable claimed about six million digital cable households at the end of the first quarter, and the NCTA predicts 10 million digital subs by the end of 2000. NCTA reports that digital satellite presently gain five new U.S. customers for every one new digital cable customer. SkyReport predicts about 25 million DBS households by 2007.

The picture for American DBS is not entirely rosy. Lawsuits between DirecTV and Echostar contend sly and perhaps illegal marketplace infringements. Foremost among the charges are recent allegations that DirecTV essentially bribed retailers into removing Echostar's Dish Network satellite receivers from store shelves. Also, there are disputes between DBS companies and SBCA, the Satellite Broadcast Communication Association, the trade organization that's supposed to represent them in Washington.

Despite internal DBS politics, as American cable keeps delaying the national rollout of interactive TV (iTV) while the OpenCable box evolves, American DBS is already interactive. Just like satellite operators beat cable and terrestrial TV operators onto the "level playing field" in the UK and western Europe, American DBS players are seeking market share ahead of cable.

 

OpenTV on Dish Network

Interactive DBS historians may mark 1 May 2000, the day Echostar's Dish Network launched initial OpenTV services, backed by a free equipment offer. Charlie Ergen's Denver company, which competes worldwide with Pace as a satellite set-top manufacturer, is telling U.S. retailers to expect full rollout of OpenTV this summer for all 20-inch Dish 500 DVB reception systems,

Already operating are the OpenTV interactive program guide (IPG) and interactive weather. "You can press a couple buttons and get your current weather conditions with a five-day local forecast," said Doug McGary, director of interactive services at Echostar in Denver. Initial services do not yet need the Dish 500's phoneline return path, but this will soon change. "We'll announce more interactive services as we go along."

Echostar is offering an introductory special of a free Open-TV compatible 20-inch "Dish 500" receiver system with a phoneline return. Until expiration, the offer is good upon presentation to any participating Dish Network dealer of a current cable bill, plus your one-year commitment to credit charges for Dish programming at $39.95 a month. Non cable subscribers can apply for a rebate. Echostar receivers not supporting the Open TV service (so far) include the WebTV box, the Echostar PVR box with a hard disk, and the recently released Dish 6000 HDTV box. Porting OpenTV to any set-top box is technically doable if the business case merits.

Any Dish 500 receiver lets viewers see local channels. For $5 a month and an FCC waiver, under the Satellite Home Viewers' Act, DBS customers may be authorized to decode the local ABC, CBS, NBC and Fox affiliate signals for the 28 U.S, markets now being embedded in the broadcast datastream. Add a dollar more to get PBS. The WB and UPN networks are available on superstations. Local TV access varies in each new market the FCC authorizes for "local into local" satellite broadcasts. This "solution" evolved after the FCC ordered DBS to stop the unregulated carriage of broadcast networks via superstations. DBS was bypassing the local network affiliates' advertising, costing them revenues, so the FCC called a halt. From the instant the network channels went dark, customer outcry was deafening.

 

DirecTV Faces Fresh Players

Playing catch up with Echostar in the iTV game is market leader DirecTV and one-way DirecPC, part of Hughes, part of General Motors. In affiliation with AOL Time Warner, DirecTV plans to launch AOL-TV multimedia services by mid-2001.

According to Hughes Network Systems vp Dave Raymond, the AOL-TV box with a phoneline return will use the Liberate ATVEF middleware, Microsoft friendly, to support a TiVo PVR hard drive for basic video-on-demand, Wink e-commerce, walled-garden AOL web browsing and email using a wireless keyboard, NTSC-ATSC off-air reception, and an interactive guide with picture-in-picture screen control. Prices will range from $29 to $129 per month.

"We can't sit idly by and rest on our laurels," said Global DirecTV chair Eddy Hartenstein at the 7th annual Denver DBS Summit. "We've tried before to do too much too quickly, and I've taken calls myself when our customers suffered [e.g., the shutoff of broadcast network superstations]. We've now hired 5,000 customer service representatives where before we had 800. We've all been taught a more important lesson. A small change in our business that affects our customers can bring us to our knees if we are not careful. We can't take anything for granted any more."

DirecTV must compete with independent Echostar, yet now both ventures face competition from three more entrants into the U.S. digital satellite marketplace, the third being the most significant.

First is a direct-to-home (DTH) service from AT&T HITS, the "headend in the sky" built by TCI, which gave up its PrimeStar DBS operation for the AT&T merger, leaving DirecTV and Dish bidding for former PrimeStar customers. Announced in May at the NCTA show, the HITS2HOME service targets cable operators with rural and town systems too small for affordably upgrading the plant for digital HITS feeds. They can add about 140 channels of digital programming to their analog service without buying new headend equipment, rebuilding the network or using any plant bandwidth.

HITS2HOME digital signals are received by the cable customers directly on a home satellite dish. The digital and analog signals are integrated in a dual-source set-top receiver being manufactured by venture partner Motorola, which recently acquired the legendary cable vendor General Instrument, producer of the digital headend equipment on which HITS runs. A proprietary AT&T interactive program guide seamlessly lists channels for both analog and digital services. Local operators can brand the service with their own logo.

Cable systems in 39 markets have already launched HITS2HOME during beta-testing. Now the national marketing begins. As HITS adds interactivity into its cable headend feeds over the next year or two, the iTV services from AT&T likely will become available to HITS2HOME subscribers. Essentially, the cable giant again is in the DBS game, but now with a new face and form, playing only with the grace of the FCC. Monopoly ploys will be opposed.

A second new player is BellSouth, which in May announced a new DBS venture with GE Americom, owned by General Electric, which owns NBC. Marketed to 14 million TV households in BellSouth's telecom service area, the regional DBS service may expand into the neighboring regions, conceivably reaching 50 million homes. Telco entry into DBS builds upon existing telecom interests in "wireless cable" (MMDS) data and video ventures. DBS insiders voice their doubts that the regional telephone operating company understands the satellite business well enough to survive. Time will tell, Bell.

Both HITS2HOME and BellSouth DBS are backed by substantive empires, and they will influence market development. But the third new player on the list, despite underfunding, is the one to watch.

 

Two-way Broadband DBS

An upstart startup by old hands in the space bird business, iSKY in Denver plans to launch two-way Ka-band satellite services by 2002. Starting with broadband Internet before moving into interactive TV, iSKY is planning to deploy three satellites covering North, Central and South America. Global reach is contemplated.

At higher frequencies than the Ku-band now employed by DBS, Ka-band systems theoretically can support full broadband Internet access, full-function VOD, enhanced and individualized programs, all e-commerce (or "T-commerce"), even multiplayer games, doing this despite the latency lags that may always inhibits IP telephony on DBS. Two-way Ka-Band positions DBS in the same league as digital cable, which holds onto a thin lead in signal response time.

The FCC has assigned to iSKY the Ka-band spectrum from 20 to 30 GHz as a fixed-satellite service (FSS) licensed for the orbital locations of 73 degree west longitude and 109.2 degree west longitude. iSKY has an exclusive license for commercial Ka-band capacity on the TeleSat ANIK F2 satellite at 111.1 degrees west longitude. Loral Space Systems is the prime satellite contractor for construction of iSKY's first Ka-band satellite.

Once all three Ka-band birds are orbiting above the Americas, iSKY's spotbeam satellites will interact with clusters of home transceiver dishes within a 400 mile footprint per beam, that radius adjustable. iSKY's rectangular 26-inch dishes will have double or triple LMBs at the apex for linkages with multiple satellites through a DOCSIS modem in the set-top box.

Founded as Ka-Star in April 1995 by chairman David Drucker, who helped found Echostar and then negotiated the licensing and launching of Echostar I, the young company became iSKY after a NewsCorp investment. President and CEO is Thomas Moore, earlier the vp at CableLabs in Colorado responsible for DOCSIS development. Serving as vp of technology is Robert Luly, the visionary satellite communication systems designer.

iSKY's minority investors include NewsCorp via TV Guide, AT&T via Liberty Media, Kleiner Perkins, TRW, and others, their investment amounts undisclosed. Echostar alone reported its play, paying $50 million for a 12 percent stake, indicating iSKY's valuation. According to business development vp Brad Greenwald, iSKY thus far has raised half of the $750 million needed to start North American Ka-band interactive services.

Observed Bob Luly at the 2000 DBS Summit in May, "Even without inroads into digital video services, we can see a U.S. market for Ka-band Internet services of 25 to 30 million customers. We feel there are enough customers out there among the 'information have-nots' for iSKY to become a force in the marketplace."

When iSKY enters the interactive TV business, public demand for 2-way Ka services may grow. Down the road, DirecTV and Dish Network also are expected to launch Ka-band bidirectional satellites for Internet and interactive TV services. As a string of Ka-band birds circle the world, how will digital cable compete?

Quality customer service may well be the deciding factor.

"Whether you're talking about cable, satellite, terrestrial, ADSL, MMDS, or any other platform," warned Carmel Group president Jimmy Schaeffer, "your competitors will walk all over you unless you learn how to make interactive TV work for you."
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