Hughes Shuttering a Fast ISP Unit

DirecTV parent Hughes Electronics GMH said Friday that it would shut down a high-speed Internet service it acquired less than two years ago.

The move, says Hughes, reflects the company's efforts to improve its efficiency in the wake of the dissolution earlier this week of Hughes' intended merger with Dish Network parent EchoStar Communications DISH.

It also reflects the direct broadcast satellite service's continuing difficulties in expanding from the multichannel television business into high-speed Internet connections. Hughes continues to offer a separate satellite-delivered Internet service.

Shares in Hughes were trading at $10.49 Friday afternoon, down 41 cents.

As part of the shutdown of the DSL-based DirecTV Broadband, expected in about three months, Hughes says it will record a fourth-quarter 2002 charge to earnings before interest, taxes, depreciation and amortization of between $100 million and $150 million. Separately, Hughes says it expects to record a noncash charge of $108 million to write off the goodwill associated with DirecTV Broadband.

DirecTV launched its DSL business in April 2001 with the $179 million cash acquisition of Telocity, which at the time said it offered high-speed Internet service in areas covering 40% of the U.S. population. Hughes says it will try to move its 160,000 current DirecTV Broadband subscribers to alternative service providers before it shuts down.

Hughes says it will lay off roughly half of the DirecTV Broadband employees starting in 60 days; the remaining will wind down the businesses over the 90-day phaseout period.

The company blamed the shutdown on a shifting telecom market and the current regulatory environment. "DirecTV Broadband cannot operate profitably now or in the foreseeable future," said DirecTV CEO Eddy Hartenstein in a statement.

When DirecTV announced in December 2000 its intention to buy Telocity, it hoped to be a nationwide, one-stop source for video and data, providing Internet access by both satellite and DSL. "This acquisition is strategically important for Hughes and DirecTV," said Michael Smith, Hughes' then-CEO.

Hughes' Internet-via-satellite service, Direcway, also boasts 160,000 subscribers. While that service isn't affected by today's announcement, says Hughes, Direcway's subscriber acquisition costs are too high to push its growth heavily.