GM Hughes' Skyward Expansion
'Wireless Expressway' New Communications Strategy
There may not be a pot of gold at the end of the rainbow, but GM Hughes is betting there is one at the end of the information superhighway.
The company recently unveiled its billion-dollar wireless, interactive, satellite-based vision of the infobahn. Various companies have already staked out their own claims, be they interactive television, distance learning or telemedicine.
But this announcement from the world's largest manufacturer of commercial satellites heralds the first attempt by any one corporation to offer both a comprehensive blueprint and a commitment to build the final product.
GM Hughes' "Wireless Expressway" is an amalgamation of satellite-based services, including television, phone, fax, data, video conferencing, distance learning and cinema.
The company's chairman and CEO, C. Michael Armstrong argues that society must be broken of its "fiber fixation" - the notion that the infohighway will be comprised solely of fiberoptic cables. This fiberized vision, he said, limits the potential of the infobahn and places the financial burden on consumers rather than industry.
In a not-so-oblique dig at the Baby Bells, Armstrong said, "Private industry and not the utilities' rate payers should be charged with creating the infrastructure."
Current estimates of the time and money needed to wire the nation with fiberoptic cable are measured in billions of dollars and decades. But "Satellites are in service now and a whole range of new offerings will be here within a few years, not a few decades," he said.
Moreover, it's no secret that the RBOCs and cable companies have little interest in wiring the sparsely populated hinterlands, where the distances are wide and profit margins narrow. Satellites, Armstrong pointed out, could alleviate the growing concern over a society populated by info haves and have nots. But on a less altruistic note, GM Hughes is making its first major foray into consumer services for the most fundamental of reasons: it promises to generate riches worthy of Solomon. GM Hughes' "wireless expressway" features a number of components:
A national, satellite-based, direct broadcast service that will offer 150 channels of digital programming by year's end. Approximately 40 channels will be pay-per-view, which can be ordered via remote control from an on-screen menu. The system is billed as video on near-demand, allowing viewers to order movies running in cycles of approximately 30 minutes.
DirecTV has signed up 40 cable programmers and five major Hollywood studios to provide content, which the company boasts will feature CD-like audio quality and near laser disc-like resolution.
Subscribers will receive signals via an 18-inch satellite dish, which, together with a digital receiver and remote control will sell for $700. The company has signed distribution agreements with dozens of major retailers like Sears and Circuit City, as well as rural utility outlets.
The first DirecTV satellite was hurled into space last December, and the second is scheduled for a mid-year launch. DirecTV is winding down a 500-home pilot test, and initial broadcast of the service is slated to commence by the end of May.
A plan to deliver interactive communications services to business, schools and consumers courtesy of ultra-small aperture terminals - satellite dishes.
Spaceway will offer users bandwidth-on-demand, or the ability to send or receive audio, video, image and data. The system will handle data transmission rates upwards of 1.5 megabits per second, and can service approximately 600,000 subscribers nationally.
Spaceway is designed to accommodate applications such as telemedicine, video conferencing, computer networking and telecommuting. Pending approval by the Federal Communications Commission, this twin-satellite system is expected to be airborne by 1998.
American Mobile Satellite Corp., a private consortium of Hughes, McCaw Cellular, Mtel and Singapore Telecom, will become the first company to shower all 50 states, Puerto Rico, the Virgin Islands and all 200 miles of territorial waters with mobile telephone, fax, and data services in 1995.
The only FCC-licensed company approved to provide a complete array of satellite services, AMSC's dual-use phones will switch from cellular to satellite service in the parts of the country not served by cellular telephone service - nearly half the country. AMSC has distribution agreements with more than 150 cellular carriers covering an area with a population of nearly 190 million people.
Hughes Network Systems will offer a variety of wireless digital communications products, including private networks through very small aperture terminals, fixed wireless digital telephone systems and cellular digital packet data network overlay systems.
CDPD is a wireless method of transporting and routing data packets between mobile users and mobile or fixed-host terminals, as well as analog cellular networks.
The system will allow cellular phone users to access remote databases and perform remote computer functions from their vehicles.
Galaxy Classroom is a non-profit satellite distance learning network serving 40 disadvantaged elementary schools in 21 states.
The two-year old program has been produced by public television stations, broadcasting non-commercial video devoted to language, math and science.
GM Hughes, which has been funding the program, and is looking for additional sponsors to help pick up the tab, wants to sign up 1,000 new schools this year, when programming will begin by broadcast over DirecTV satellites.
The network allows children to communicate through E-mail and faxes with kids in other classrooms.
Not content to concentrate on home theater, GM Hughes is also targeting the 25,000 commercial theaters nationwide with a system designed to transmit high-definition film via satellite.
Digital Cinema, as it is known, will convert movies into a digital format, compress and encrypt them for satellite distribution nationwide.
The Big Buzz
While the "wireless expressway" is made up of many parts, DirecTV has generated the biggest buzz. It is far and away the most significant piece of the pie in terms of earnings potential, and will, to some extent, take on the cable and telephone companies in the battle for interactive hearts and minds and wallets.
"We are capable of doing many of the same services that are talked about by cable," said Tom Bracken, director of communications for DirecTV. "But we will wait and see what the consumer wants before we commit to any interactive services."
He said Hughes has built capabilities into the system that will allow the company to upgrade and integrate new software as needed. DirecTV, he said, also enjoys the advantage of time and ubiquity.
"We are nationwide from day one, and will deliver service to many areas where they (cable and telcos) will not go because of the cost," said Bracken. "We will never be the size of a Bell Atlantic or a TCI, but we will be there sooner."
Larry Plumb, a Bell Atlantic spokesman, said DirecTV is a video delivery system particularly well-suited for rural areas.
"There is competition, but it's not worrisome, it's yet another application," said Plumb. "We take this very seriously and are interested, but people don't buy the transmission, they buy the services."
Robert Rosenberg, president of Insight Research Corp., said GM Hughes has an edge price-wise over wired competitors.
"The capital costs are so much less (than fiberoptic), so they can charge lower rates," said Rosenberg.
"Ultimately, their success depends on delivering the advertising at a cheaper cost than the competition, and establishing the distribution channels to mass market the receiver dishes, and that is no inconsequential feat," Rosenberg said.
Bracken said GM Hughes will target rural areas during the first several months of service, but by the fall, will aggressively target urban areas and consumers dissatisfied with cable TV service and its cost.
Market research, he said, indicates an existing demand for satellite TV service among 10 percent to 15 percent of TV households nationally, or 10 to 15 million potential subscribers.
DirecTV's break-even point is 3 million subscribers, which they expect to achieve by the end of 1996, and another 7 million by the end of the century.
"I think that's a pretty ambitious goal," said Becky Diercks, program director of wireless research with the Business Research Group.
Only two kinds of technology have attracted a 10 million customer base in less than a decade, she said, VCRs and cellular phones.
"We are projecting a 10 million subscriber base by 2000," said Richard Dore, a spokesman for GM Hughes Electronics. "At those levels, we will double what GM Hughes Electronics is making now, which is in the $800-900 million range."
But for GM Hughes to reap these rewards, they will have to convince millions of people to cough up $700 for a DirecTV system. Is that a realistic expectation?
"Absolutely," said Bracken. "We have done a lot of research that indicated $700 in the consumer electronics world is reasonable and affordable for the target audience we are going after."
Not everyone is so sure.
"If somebody is going to shell out $700 bucks and then a monthly fee, unless they offer something compelling, they (consumers) will just not buy that," said Diercks, who believes DirecTV may be better suited for rural areas where interactive telcos and cable companies fear to tread.
"I think the technology is viable, the question is the penetration they can achieve," said William Gaik, an analyst with Deloitte & Touche. "It is clearly going to be more of a marketing than a technology challenge."
And Gaik is also not so sure marketing a $700 up-front charge will be all that easy. "It seems like a pretty hefty front-end cost," he said. "It may be worth it."