Hughes Mulls Future of DirecWay

In the aftermath of its failed merger with Echostar ,
Hughes Electronics says it is looking to get out of
its DirecWay satellite Internet service.

“Satellite delivered Internet is a costly business model and we would only
be able to continue in this business if the merger had gone through,” said
George Jamison, Hughes spokesman. He noted that DirecWay “loses money,” and that
while strategic decisions concerning the future of the DirecWay service have
not been made, they “will in the not-so-distant future.”

“The challenge for DirecWay is the upfront hardware costs and the monthly
service charges make it tough for us to get to a price point that’s
competitive with cable and DSL,” Jamison said.

Jack Shaw, chief executive officer of Hughes Electronics, told the
Wall Street Journal Thursday that DirecTV may shelve plans to offer its 11
million residential satellite television customers access to the Internet
through its satellite network.

In light of the termination of its merger plans with Echostar, Hughes is
looking for new strategic partners, but Jamison would not say if it was in
talks with other potential buyers.

Jamison said DirecWay Internet service has only around 150,000 subscribers,
and it has become obvious that garnering satellite Internet customers has
become more challenging, than originally expected.

“DirecWay isn’t doing well at all, neither are its satellite Internet
competitors Wild Blue and Gilat . They all faced major
technological problems that led to serious marketing, pricing and eventually
major financial problems,” said Rich Macary, managing director of Fat Pipe
Partners, a venture capitalist and consultant on broadband and satellite
deals.

“It was tough for Hughes to make it economically viable and they seem
unwilling to continue to subsidize it,” Macary said, adding that “Hughes may
pull back significantly on the marketing, R & D, and equipment subsidies for
their DirecWay service, and just collect revenues from their existing
customers.”

“This isn’t a good business to be in, because of the other forms of
broadband, namely DSL and cable modems, which offer greater bandwidth, ease
of installation, and lower costs for subscribers,” Macary said.

Jamison said Hughes will continue to invest for the rollout of the company’s
$1.8 billion planned next-generation satellite broadband service, known as
Spaceway, which is scheduled to debut in 2004.

Amidst federal inquiry about the details of the failed DirecTV-Echostar
merger, regulators asked General Motors officials, the parent of Hughes’
DirecTV unit, for its views on the prospects for the Internet over satellite
market. GM officials told officials in Washington that the satellite
broadband market had yet to materialize, and the focus of Spaceway will be
on small, medium and large businesses.

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