Sky boosts US presence with $1bn pact

Satellite and cable broadcasters in the US attempted yesterday to shrug off the prospect of fresh and potentially powerful competition from a new alliance between Rupert Murdoch's ASkyB and EchoStar of Colorado.

The deal, under which ASkyB will acquire 50 per cent of EchoStar, could transform the subscription broadcasting industry in the US. It is also designed to fill a critical gap in the global jigsaw of satellite services owned by Mr Murdoch, which includes BSkyB in Britain and JSkyB in Japan.

But the venture, which will trade under the Sky name, faces several hurdles. Satellite TV still lags far behind cable in the US and the Federal Communications Commission (FCC) is likely to scrutinise the deal.

The issue of foreign ownership, which has dogged Mr Murdoch's broadcast activities in the US, is almost certain to arise again. ASkyB's original US partner, MCI, will have 10 per cent of the venture. MCI, in turn, is in the process of merging with UK-owned British Telecom.

But there was a warm welcome for the $1bn (pounds 613m) pact from Wall Street yesterday. In early trading in New York, shares of EchoStar were boosted $8.50 to $26.50, while Murdoch's News Corporation was also trading higher.

Growth among the four main direct broadcast satellite companies in the US, among which DirecTV is the leader, has recently disappointed analysts. EchoStar, moreover, is the fourth in the pack with only 400,000 subscribers accumulated since its launch last March.

In combination, however, EchoStar and ASkyB could prove a highly potent competitor both to the other satellite players and to the terrestrial cable companies. Together, they will hold many more frequencies than any of their competitors, including DirecTV, with a capacity for 500 channels.

Most crucially, however, the new company says it will have an ability not enjoyed by the other satellite providers to relay, through new "spot- beaming" technologies, local television services to the largest US markets. Currently, satellite subscribers must use cable boxes or an antenna to receive local network affiliates broadcasting in their own areas.

Other industry leaders questioned the financial implications of such new technologies, however. "There will be an accumulation of costs ... that are going to translate to the consumer in terms of affordability," suggested James Gray, chairman of Primestar, the second-largest satellite broadcaster.

He also pointed to potential dangers in the FCC review in regards to the large concentration of satellite transponder capacity the new company will control.