EchoStar Now a More Formidable Competitor to Cable Issuers

EchoStar Communications struck a major victory last week: it became a more vicious competitor to cable operators, and delighted satellite investors by making them 20% wealthier in a single day.

The satellite communications issuer announced a partnership with Gilat Satellite Networks Ltd. and OpenTV Corp. Gilat is a satellite equipment maker and OpenTV makes software for digital television. The upshot of the deal, according to high yield analysts, is that it enables EchoStar to offer high-speed, two-way electronic transmissions.

Until this deal was inked, satellite providers were only able to provide the high-speed service on a one-way basis into the consumer's home. The outgoing transmission, however, was typically over a traditional phone line. In fact, this has been one of the disadvantages satellites had competing against cable operators, because cable has been able to offer two-way, high-speed services.

Analysts last week said this will not really hurt cable issuers because they still offer a service that customers want and still are dominant in the high yield market. But the deal did prompt a 20% spike in EchoStar's stock in one day to $120.8125.

The bonds did not see a similar short-term hike, traders said, because the partnership is more of a longer-term story, but one in which the company has gained significantly. The 9.375% notes were trading at 97, said David Allen, an analyst at Morgan Stanley Dean Witter.

In addition to the partnership announced last week, EchoStar also said it will launch three new satellites, bringing its total number of satellites in space to nine. That will cost more than $1 billion, analysts said, and may parlay into future trips to the high yield market, as well as equity financing. But no matter how a package is structured, financing a large project will not be a problem for EchoStar.

Its stock has increased by about eight times over the past year, and it could finance almost "any project it wanted to," one analyst said.

EchoStar, whose officials could not be reached for comment, has about $2 billion outstanding in two debt issues.