News that the nation's two DARS platforms are developing a unified standard for satellite radio was warmly greeted by Wall Street analysts. Development of the single standard, an effort that will allow consumers to purchase one radio capable of receiving broadcasts from both companies, was announced by Sirius Satellite and XM Radio last week. The agreement meets the Federal Communications Commission's mandate of interoperability between the two services, which some in the financial community said eliminates one of the challenges facing the two companies. "This interoperability feature is a requirement of the FCC license issued to the two DARS companies...thus the agreement had been expected," said Armand Musey of Banc of America Securities. However, the announcement "was sooner than most expected and should help to boost industry growth." Vijay Jayant of Bear Stearns increased the target prices for both companies on the single standard news. He raised XM from $48 to $57 and jumped Sirius' projected price from $55 to $65. "When interoperability occurs, each receiver will have the potential of getting 200 channels rather than 100 channels as previously envisioned," Jayant said. "Both managements estimate that the satellite radio potential would increase by about 10 percent from their current estimate of 43 million to 45 million potential subscribers." Tim O'Neil of Soundview Financial Group agreed, saying that a single standard "will cause an earlier ramp in adoption, a larger penetration rate and an improvement in gross margins. "On the negative side we would expect churn to slightly," O'Neil said. Radios with the single standard are expected to show up in second-generation equipment, which should be deployed in 2004. Both companies will contribute their technology and invest between $15 million and $20 million each in a joint venture that will develop the standard.

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Bill Allows For Comsat Purchase

Compromise legislation focused on the future of Comsat and Intelsat was struck by key members of Congress last week, paving the way for Lockheed Martin to complete its purchase of Comsat. Lockheed bought 49 percent of Comsat in September. To purchase the rest of the company, the aerospace giant needs Congress to lift restrictions preventing any entity from controlling more than 49 percent of Comsat. The House and Senate passed Comsat/Intelsat bills last year that would have removed the cap, but Lockheed didn't like language that would have eroded Comsat's stake in Intelsat, the inter-governmental satellite organization. Compromise legislation drafted late last week removed that provision. Under the compromise bill, Comsat, which controls 20 percent of Intelsat, would lose the sole authority to sell Intelsat's services in the United States. That would allow any company to negotiate directly with Intelsat to buy access. However, Comsat's competitors, which include the likes of PanAmSat and Loral Skynet, would be barred from investing in Intelsat. That protects Lockheed's interest in Comsat. The new legislation also requires Intelsat to go private by April 1, 2001. Intelsat also is required to conduct an initial public offering after Oct. 1 of this year and before Dec. 31, 2001.

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SkyBOX: The 96.6% Illusion

There's a number floating around Congress these days. Touted by powerful Senators. Calcified (as a friend of ours says) in FCC documents. Used by special interests to prove their case. Only one problem with this number: It's totally, demonstrably, false. The number is the famous 96.6 percent of all U.S. households passed by cable. Its current popularity in Congress stems from those opposed to loan guarantees for rural local-TV-on-satellite programs. (Hey, they can get it by cable, the argument goes, why should we help make delivery by satellite possible?) Now we're not taking a position here either for, against, or on top of the loan guarantees. But we do think the anti-interests in our marbled Capitol should at least use real numbers. After all, the difference between their 96.6 percent and the 94 percent or 92.7 percent or 90.3 percent that we find in other sources translates to millions of households. That's a lot of folks to write off on a wrong number. The best demonstration of this 96.6 percent illusion comes in a paper published by The Yankee Group. (AT&T, Media One and the Art of Counting Cable Customers, May 1999.) In it the authors note several key factors: First, the 66 (now 66.7) million subscribers reported by cable companies. A fairly reliable number, we think, given that it's the basis of payments to programmers. Second, the 95 million households which the cable industry reports as homes passed. Third, the 54.1 million subscribers claimed by the top seven cable MSOs and 87.1 million households which they say they pass. Stir these numbers together and you will discover that the rest of the cable operators (all those NOT in the top seven) must have 11.9 million subscribers out of a total of 7.9 million households passed. Wow! Talk about your hot sales force! They're closing 151 percent of their households! Or maybe, just maybe, the numbers are wrong. How can this be? Aside from sloppy analysis on someone's part, The Yankee Group suggests that the cable industry's reported subscriber base goes way beyond residential households. Through the accounting tool of Equivalent Basic Units (EBUs), hotels, motels, bars and restaurants can all sneak into the mix, seriously distorting the view of U.S. households actually passed by cable. In fact, The Yankee Group notes that in two of its recent surveys, only 90 percent of respondents said that cable was available in their areas. What's more, if the cable industry's own number of 95 million households passed is matched against the Census Bureau's most recent 102.5 million household proclamation (and this does not include all units), the homes passed percentage comes out at 92.7 percent. Beyond government bean counters, recent analysis from Wall Street's Morgan Stanley suggests a 94 percent household passed number while Merrill Lynch pegs it at 90.3 percent. So who's right? Well, no one really. The "homes passed" equation is a floating craps game, changing with the time of day and season. But, as virtually everyone working in the multichannel world is well aware, that 96.6 percent is laughably high. And we'd like to suggest that the powers-that-be in Washington stop using it as a rationale for their decisions.

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PEOPLE: Discovery Promotes Two