WSNet Launches Nation's Third Digital Satellite Video Service

Digital Satellite Service Designed for Private Cable, Wireless Cable, and Small and Rural Cable Companies
by Joel Schofield

Move over DirecTV and EchoStar, there is a new player on the field. After its recent announcements of new strategic initiatives with Motorola Corporation, AT&T and Loral Skynet, and the close of a $52 million round of private equity funding, Austin, Texas-based WSNet is positioning itself to become the nation’s third provider of satellite-delivered digital cable programming. The business-to-business company, which currently distributes cable programming to nearly 750,000 subscribers through its base of 1,700 affiliates, plans to launch its new digital satellite television service beginning in May 2000.

The service, which has not yet been named, will use a single mini-dish antennae, and will be sold through established video service providers including private cable operators serving multi-dwelling/multi-family units (MDUs/MFUs), small and rural cable operators, as well as wireless cable operators, allowing these businesses to provide a privately branded digital service to their subscribers while still achieving their current profit margin.

The groundwork for these new services was begun when WSNet signed a long-term agreement with Loral Skynet for the use of transponders on that company’s Telstar 6 satellite. These transponders enable WSNet to deliver more than 50 channels of digital video programming, significantly increasing its satellite television program offerings. Additional support for the plan was added when WSNet inked a long-term programming transport agreement with AT&T’s Headend-In-The-Sky (HITS®) for its HITS²HOME® service. With the HITS agreement, WSNet will supplement its 50-plus channel service with up to 140 additional channels available from HITS.

These agreements enable WSNet to offer customers a digital video service with over 190 channels, including almost 100 video channels, 30 digital music channels, 40 premium multiplexes, a variety of pay-per-view services and special networks.

"The issue in the private cable business has been that you need a much more robust channel line-up than you can afford to deliver with a C-band type infrastructure on a small headend," said Cary Ferchill, President and CEO of WSNet. "So if you have 300-500 customers you can not really justify putting out 190 channels, certainly you can't digitize it on-site and you really can't even afford to add enough C-band equipment to deliver that many channels. At the same time, you still have to have an operator in place to maintain the systems, hook the system up, deal with maintenance problems and a host of other issues.

"DirecTV and EchoStar have great systems in place that are well aimed at dealing with consumers, but that doesn't work for MDUs. Those that have tried it have found that you can't make enough money at it. There’s not enough margin in the product to make a living at it. Our goal was to design a product that recognized the natural division of responsibilities so that you can have an operator that provides the maintenance, customer service and capital at the local level while we provide the same product that you can get from a DBS company."

"There really won't be a distinction between us and EchoStar or DirecTV as far as the program offering," said Mark Sherman, WSNet Executive Vice President of Business Development. "There will be a distinction in that we are not trying to compete with them head-up for consumers. We are providing a private label product where our operators will basically fund the marketing, customer service, installation and capital piece of the business. We are a business-to-business video distributor."

More than private cable

The new digital service is designed to reach more than just private cable operators (PCOs). It is seen as a digital solution for any provider with similar characteristics to PCOs such as small and rural cable operators. "We found that other people are in similar positions as MDUs, such as small and rural cable companies that may have 300 people on a headend," said Ferchill.

"A lot of them have no business maintaining a headend. If you are in a small town with a population of 1,000 and you have 300-400 subscribers on your headend, a lot of those guys are in the same position as MDUs are in where it doesn't make any sense for them to be operating off a headend and they want to deliver 190 channels. We see these people as now being able to come in and give subscribers a box and an antenna and being able to eliminate their headend. This will provide small and rural operators the ability to deliver digital service to their customers in a cost-effective manor."

Bundled Services

The ability to deliver bundled video, voice and data services is becoming the end goal of many operators. WSNet feel that their new digital service will play a significant role in an operator’s bundled offering. "In the short term, we see ourselves as the video portion of bundled services," said Ferchill. "Bundled services are going on already and the video side is what is making operators the money right now; however, it is not making them enough money. With our new digital solution, we can make that video portion of the private and small operators’ bundle that much more profitable."

"At the same time, we do have plans to identify the right solution for data and even telephony down the road," said Sherman. "It is a question of market timing for us. Three years ago, if you had tried to put together this type a of digital video solution you couldn't have. We feel that right now there are so many different alternatives on the broadband data side, that it is unclear which ones will have the operating economics to make it a viable alternative for private cable and other operators.

"There is a lot happening in the Internet space on the delivery side whether you are looking at a DSL, wireless, cable modem or satellite platform. Right now it is not clear to us which ones are right. In our opinion, each platform might be right for a certain customer in a certain market. As a distributor, we will be partnering with different types of data providers to make it easier for our customers to buy them rather than having to go out and negotiate with each one.

"The value that WSNet brings is that we represent 750,000 subscribers to cable programmers and because of that we are able to negotiate some very economical packages that we pass on to our customers. We expect to be able to do the same thing on the data side," Sherman added.

Moving forward

Following the launch of the digital offering in May, WSNet will begin an extensive educational and training period to help operators deliver a top-quality package. "We see education and training as the next step," said Ferchill. "There is an education process and we are going to spend the next nine months involved with getting the message out to the operators making sure they understand the economics and raising the quality of the operators.

"We heard the real estate industry loud and clear when they said they want quality operators with quality service, so there are requirements we are going to put on operators in order to be able to carry this package.

"We want to see more operators entering this industry and we will do our part to ensure that both new and established operators are given all the tools they need to provide the level of quality service that the real estate industry demands."