European Satellite Operator Plans a Foothold in Limited U.S. Market

Published April 30, 2002

SES Global SA, the 800-pound gorilla among European satellite operators, will announce on Thursday a novel but risky bid to jump into the U.S. direct-to-home broadcast market.

SES proposes to eventually beam hundreds of channels of entertainment potentially reaching millions of American homes — the first time U.S. customers are served from a foreign-licensed satellite. The initiative, which seeks to replicate its profitable European business model, envisions offering consumers a more flexible range of programming and pricing than do current U.S. satellite TV operators: Hughes Electronic Corp.’s DirecTV and EchoStar Communications Corp.’s Dish Network.

This business model, which also features fast Internet access, hasn’t been tested in the U.S. and will require SES to forge partnerships with content providers who will then market their programming in ways that won’t interfere with any existing deals with DirecTV and Dish. However, SES could face an uphill fight to snare new content or entice programmers away from those systems. The content providers will have to do the brunt of the marketing.

But SES does have a track record. Serving as a wholesaler of satellite capacity by creating an “open” platform accessible to many different programmers able to tailor offerings to targeted consumers is at the heart of SES’s profitable European service, which reaches about 87 million homes. The company counts heavyweights such as Viacom Inc., News Corp. and Vivendi Universal SA among its media partners.

The timing of the move, expected to be announced at an industry conference in Carmel, Calif., is canny. Entrenched U.S. rivals, Hughes and EchoStar, which package and directly market all of their broadcast offerings, will find it hard to strenuously object to competition from SES. That is because they are in the midst of executing a merger agreement that has met with substantial antitrust concerns.

The move underscores the aggressive strategy of Luxembourg’s SES, which is publicly traded on European exchanges, and which plans to expand its services into North and South America and Asia.

SES Americom, the company’s U.S. unit based in Princeton, N.J., is prepared initially to invest about $250 million to launch a new satellite aimed exclusively at the U.S. market. Dean Olmstead, the unit’s chief executive, won’t identify potential content providers. But he says SES has gotten an “extremely favorable reaction” from some big players. “There is a real need in the marketplace to have new entrants able to provide a different kind of programming and some niche channels,” Mr. Olmstead said.

Unlike current programming options in the U.S. that entail a monthly fee, some of the proposed channels or packages available through SES would be free to viewers and are envisioned to carry advertising, SES officials said, while others are likely to be pay-per-view or subscription-only. Foreign language or ethnic channels, for instance, may be offered along with interactive game channels and an array of offerings from both established and start-up media companies.

In the short term, though, it is the regulatory wrinkles more than the content that are likely to raise hackles at DirecTV and Dish, which together claim more than 17 million U.S. subscribers. After months of on-off potential partnership talks with EchoStar and others, SES has opted instead to launch a new satellite into an orbital slot recently licensed by the government of Gibraltar. The satellite would be sandwiched between existing Hughes and EchoStar slots, and located closer to those competing satellites than U.S. regulators have previously allowed for fear of potential signal interference.

SES maintains it has done the engineering work to demonstrate “there is absolutely no valid concern” about interference, adding that its plans still could fit into a possible SES-EchoStar joint venture down the road. Phil Spector, a Washington attorney who represents SES, says the staff of the Federal Communications Commission has been “very receptive and favorably disposed to encouraging competition” through “this creative approach.”

A sister SES satellite covering the U.S., already under construction and licensed by the FCC, is slated to provide Internet links through a single residential antenna. Earlier this month, the company embarked on a European Internet-via-satellite venture with two other firms. Despite its reputation as perhaps the industry’s most financially and technically conservative operator, SES is now squarely in the forefront of so-called broadband projects providing businesses and consumers two-way Internet access via space.

EchoStar declined to comment. A Hughes spokesman said that given the assumption that there won’t be any signal interference, “such a move proves there are many potential opportunities” for additional competition and “we welcome such competition.”

The U.S. service could be available as early as 2004, about the time Hughes is expected to ramp up its own Internet-access system. EchoStar Chairman Charlie Ergen has threatened to pull the plug on his company’s comparable efforts if federal regulators block the controversial merger of EchoStar and Hughes.

Together, the firms so far have signed up only about 150,000 subscribers for accessing the Internet through satellites — compared with initial estimates of rapidly attracting millions of users. The SES proposal hopes to avoid those pitfalls by relying on simpler satellites, advertising revenue and less-expensive receiver equipment to hold down consumer costs.

Andy Pasztor is a staff reporter for The Wall Street Journal.