Updated from 12:11 p.m.
reported decision to drop its Internet-via-satellite venture shouldn't come as too much of a shock to investors -- even if the report, which DirecTV dismissed Friday, turns out to be true.
In recent months, satellite TV operators have been far from enthusiastic about the business prospects of satellite-delivered broadband. They've focused instead on enhancing the video experience for subscribers. And instead of chatting up how they'll compete with cable operators in the Internet business, they've been happy to let telcos handle the job.
Nor have Wall Street's analysts been too wrapped up in the satellite broadband business. On recent conference calls, interest in DirecTV's proposed broadband business, called Spaceway, has focused mostly on what DirecTV could do with its Spaceway satellites other than delivering the Internet.
Furthermore, the prospective Spaceway doesn't appear to be highly valued among investors. After
The Wall Street Journal
reported Friday that DirecTV would be dropping Spaceway, one analyst -- Vintage Research's William Kidd -- wrote in a note, "No change to valuation. We continue to value Spaceway at zero." Kidd has a buy rating on DirecTV.
In a statement issued Friday afternoon, DirecTV CEO Chase Carey specifically denied that the company had scrapped plans to offer broadband access via its Spaceway satellites, which are due to be launched starting early next year: "In fact, the satellites are being designed specifically so they can be used for video or broadband."
DirecTV's shares dropped 21 cents to $17.54 Friday.
While DirecTV has spent more than $1.5 billion to develop Spaceway, the impetus came from the company's prior management. Carey, who took charge after Rupert Murdoch's
gained control of DirecTV in December, has been not quite so enthusiastic about Spaceway.
Speaking on the company's conference call for the fourth quarter of 2003 -- when DirecTV was still known as Hughes Electronics -- Carey said the costs of satellite broadband were materially higher than those of the wired broadband alternatives of cable modems and telcos' DSL. The only place where satellite might commercially work, he said, was in the 20% to 25% of U.S. homes where wired options don't exist.
"We look forward to developing Spaceway to its potential," Carey said, according to the CCBN transcript of the call, "but we'll broadly evaluate what is in the marketplace, and how do we bring the best option to our customers. I don't look at the consumer satellite broadband business as a place ... that we ourselves would be deeply subsidizing."
In the company's call for the first quarter of 2003, Carey mentioned that the company was looking at how it could use part of Spaceway's capacity to deliver high-definition television or local broadcast stations instead.
Meanwhile, Charlie Ergen -- CEO of DirecTV competitor
-- hasn't been too interested in broadband, either.
"The economics are still tough," Ergen said on EchoStar's fourth-quarter 2003 call, according to CCBN. "We're going to have to have some good, strong partners to help us."
Asked later about business opportunities for broadband in the U.S. and elsewhere, Ergen wasn't wildly enthusiastic.
If there's a business opportunity, we'd look at it," Ergen said. "But our focus realy is on ... getting to 10 million
video subscribers ... and how do we maximize our free cash flow while we're doing that. Pretty simple business."