Rupert Murdoch's DirecTV ( DTV) is linking up with rival EchoStar Communications ( DISH) to launch a nationwide wireless broadband network, TheStreet.com has learned. Seeking to keep pace with peers in the telecom and cable TV industries, DirecTV is building a network to offer its own wireless broadband services to consumers, according to two people familiar with the deal. These people say that DirecTV is working with EchoStar and seeking final bids from tower companies in a push to put the network together. DirecTV, the satellite TV provider controlled by Murdoch's News Corp. ( NWS), wants to profit from offering the so-called triple threat of television, telephone and Internet services that some rivals already dangle before consumers. Operators like the triple threat because it increases both revenue and customer loyalty. So far satellite companies have not been able to fully capitalize on this so-called bundling push because of their lack of two-way transmission capability. If News Corp. is able to build out wireless data service through DirecTV, it could mark a large change in the competitive landscape. "This could re-focus attention on satellite at a time when it is being largely ignored as a competitive threat to cable," said one analyst. A News Corp. rep referred calls to DirecTV. DirecTV and EchoStar representatives weren't immediately available for comment. News Corp. Chairman Murdoch said late last year that his wireless strategy would become apparent within the next couple of months. He said the company could invest $1 billion in such plans. One source said, however, that the deal could be even bigger. While both DirecTV and EchoStar offer high-speed data services through co-marketing agreements with telcos, they are discovering the myriad advantages of in-house triple-threat service. Cable system operators like Time Warner ( TWX), Comcast ( CMCSA) and Cablevision ( CVC) have been competing with big telcos like Verizon ( VZ) and AT&T ( T) on the triple-threat push.
"What they're realizing is that by bundling services, the cable companies have some pricing flexibility," says one analyst. "If you take a single service provider and then bundle others with it, that decreases churn by 50%." That analyst estimates that EchoStar and DirecTV would each be on the hook for an initial $1 billion to create the wireless network. That person also sees the companies hooking up with Intel ( INTC) to use its WiMax technology. Trying to create such a network would involve installing or leasing terrestrial base stations across the country in the form of transmitter towers so that DirecTV can offer wireless broadband. An earlier initial request for quotes went out in late 2005, followed by a more formal request for proposals, sources close to the deal said. Asked how many tower companies had the infrastructure to achieve full nationwide coverage, the analyst said, "not many." Some of the leading tower companies mentioned by sources as being in the mix include Crown Castle ( CCI) and SBA Communications ( SBAC) and American Tower ( AMT). A deal could add up to billions of dollars over several years, including the cost of transmitters that would be installed on towers and rental costs. Of note, tower rental companies are fixed-cost businesses and adding a huge rental contract on an existing network would boost profits. "We're talking about thousands of towers and most fall in the range of $5,000 per tower, per month," says a source. As new content distribution models such as wireless and IPTV emerge, sources speculate this could be a two-pronged strategy -- enabling wireless broadband for DirecTV subscribers and also giving News Corp. an in-house broadband network. That network could be used as the gateway to distribute its content, and also more control of its overall destiny.
"He's trying to do the same thing he's done with television," said one person familiar with Murdoch's plans, "controlling both content and distribution." It is unclear what short-term impact a significant capital expenditure such as this would have on DirecTV or News Corp., both of which have significant cash on hand. But with cable valuations already under water, DirecTV teaming up with EchoStar and building out a broadband network could put more pressure on rivals. On Monday News Corp. was unchanged at $16.71. DirecTV was down a penny to $13.93 and EchoStar down 2 cents to $27.79.