For two years, BellSouth Corp. and four of its local-phone company brethren have struggled to break into the television business. But hobbled by flawed radio-wave technology, their Americast consortium has snared only 350,000 subscribers. It's been left in the dust by satellite-TV giants DirecTV Inc. and EchoStar Communications Corp., not to mention the cable companies.
Despite this poor showing, Atlanta- based BellSouth still sees a bright picture in TV. BUSINESS WEEK has learned that on Mar. 22, it will sideline its languishing Americast service, in which it's invested at least $50 million. Making the boldest move yet among the Baby Bells into the entertainment business, it plans to begin offering satellite TV.
CROWDED SKIES. At first, BellSouth plans to focus on signing up customers within its nine-state Southeast franchise, offering essentially the same programming as DirecTV. But by ditching the radio-wave technology--which couldn't penetrate hills or dense foliage--in favor of leasing space on a Loral Space & Communications Ltd. satellite, BellSouth eventually plans to market its new service from Texas to New England.
Certainly the timing is good. Analysts predict the satellite-TV market will grow 25% this year, to 15 million subscribers. But BellSouth will find the heavens pretty crowded. Leader DirecTV has locked up two-thirds of all digital satellite-TV subscribers, and now ranks just behind cable giants AT&T, Time Warner, and Comcast. "I'm skeptical that BellSouth, at this late stage in the game, can gain any significant market share," says CS First Boston analyst Ty Carmichael. Adds David Woodrow, executive vice-president at cable operator Cox Communications: "It only fragments the market, and in a fragmented market, a name brand such as ourselves usually does well."
BellSouth execs aren't discussing the venture. But the company is clearly counting on its own strong brand and service reputation among its 24 million customers to attract a big base of satellite TV users. Some analysts believe BellSouth can save millions by using its existing army of sales, marketing, and installation workers. "BellSouth doesn't need 2 million subscribers to break even," says Andy Belt, executive vice-president of consultancy Renaissance Worldwide Inc. "All they need is good penetration in a handful of key markets."
Still, if the opportunities are so rich in TV, why aren't other phone companies jumping in? With long-distance carriers, cable companies, and others threatening BellSouth's local-phone franchise, no one disputes the carrier needs new services. But critics worry that this move will distract it from a bigger concern: the need to bulk up in a rapidly consolidating industry. It will have to capture lots of TV subscribers to put that fear to rest.