Satellite TV Dishes Up Competition for Cable

Those miniature satellite dishes popping up on America's housetops herald a new kind of television.

They already offer better-looking pictures, clearer sound, and more channels than the average cable-TV service provides. Satellite television is becoming so popular that cable TV and other would-be competitors are moving to catch up. The result is a coming free-for-all in which consumers will get more and better channels at increasingly competitive prices.

"The person at home is going to love [television] from the year 2000 on, if they're not confused by all the offerings," says Mary Frost, a communications analyst at Price Waterhouse in New York.

Just as consumers today can choose their long-distance telephone service, they will have many ways to get television service. Besides traditional broadcast and cable companies, television is likely to be delivered on everything from telephone lines to satellite dishes.

The satellite offering - called direct broadcast satellite or DBS - is particularly intriguing because it already offers many of the advantages that other systems promise. "It's a taste of things to come," says Emily Green, an analyst at Forrester Research Inc., a high-tech research firm in Cambridge, Mass. "The real impact of DBS is that it has woken up the cable industry."

Only two years old, DBS has already snared more than 3 million customers in the US. In its first year, DBS equipment was the fastest-selling item in the history of consumer electronics, says Bob Marsocci, a spokesman for DirecTV Inc., a DBS programming provider. It even outsold the videocassette recorder in its first year.

By 2000, analysts predict that at least 10 million American households will be hooked up to it. One forecaster suggests that by 2005, the number of DBS homes could rival the 60 million households currently hooked up to cable.

Reasons for early success

One reason is simplicity. DBS is much easier to set up and operate than are the traditional satellite-TV services that have been around for decades. Instead of a dish measured in feet, DBS systems use satellite dishes measuring only 18 to 36 inches. Instead of a traditional analog signal, DBS television is digital, so the picture and sound is clearer in the same way that a music CD is usually considered clearer than a record. Instead of changing channels by moving from one satellite to another, as traditional systems do, the DBS dish is fixed and picks up all its programming from a single satellite.

Another reason behind DBS's rapid growth is its offerings. The two leading systems, DirecTV and PrimeStar Partners, offer anywhere from 95 to 175 channels - two to four times the number of channels from the average cable system. By loading their systems with pay-per-view movies and sports packages, the DBS systems have made a splash.

Big players move in

That is why several big-name telecommunications companies are moving into the business. In January, AT&T spent $137.5 million for a 2.5-percent share of DirecTV and is now reselling the service to its customers. The same month, MCI Communications bid $682 million for a slot in the sky to put up its own high-power DBS satellite. Two new DBS services. EchoStar Communications and AlphaStar Television Network, have begun operation.

General Electric and five of the nation's largest cable-TV systems, which own PrimeStar, have expanded the business focus from merely hooking up households not reached by cable to being an aggressive competitor operating nationwide.

Early next year, PrimeStar will launch a new satellite that will offer 20 more channels and allow customers to use 27-inch dishes instead of today's 36-inch versions.

The technology, meanwhile, is going mainstream. Radio Shack, for example, markets PrimeStar through its extensive national network of stores. While PrimeStar customers rent the equipment, DirecTV customers buy their equipment from either Thomson Consumer Electronics under the RCA brand name or Sony. At least eight other companies plan to manufacture DirecTV dishes. So prices, which have already fallen from $700 to $500, are expected to decline even further.

While DBS has quickly established itself as a bona fide competitor to cable TV, many analysts doubt it will match the cable business in the US. "There's too much leverage of the cable going into the home," says Ms. Green of Forrester. Cable companies will be able to offer telephone, data, and other interactive services over their wire in a way that DBS probably won't be able to match.

But other countries, where cable systems are often 20 years behind those in the US, show huge potential for growth. "Satellite TV is so much more efficient than laying cable," says Denny Wilkinson, senior vice president of marketing and programming for PrimeStar. "You think about wiring up 1 billion people in China; no one's ever going to do that.... Overseas [DBS business] will be 100 times bigger than [in] the US."