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SBC Emerges as a New Suitor for DirecTV

Challenge to News Corp. is surprising because the telecom firm's core business is under attack.

February 08, 2003|Sallie Hofmeister | Times Staff Writer

SBC Communications Inc. is giving News Corp. some competition in its bid to acquire DirecTV, the nation's leading satellite television provider.

SBC is in preliminary talks with General Motors Corp. to buy the automaker's El Segundo-based subsidiary, Hughes Electronics Corp., which owns DirecTV, according to several sources close to the companies.

Although some analysts questioned whether the interest of the nation's second-largest provider of local phone service should be taken seriously, the discussions were seen as a further setback to News Corp.

The media conglomerate, which had seen itself as the only logical buyer, wants DirecTV to fill the gap in its global satellite operation. Its network stretches from Asia through Europe and to Latin America -- but has no U.S. presence.

News Corp. Chairman Rupert Murdoch first began negotiating to buy DirecTV in fall 2001. But he saw that deal evaporate when Hughes attempted to merge with satellite TV rival EchoStar Communications Corp. Federal regulators rejected that marriage last year, giving News Corp. a second chance.

The company had a preliminary meeting with GM in December to revive a deal. But source say News Corp. has grown frustrated by the pace of negotiations, which have been slowed while Hughes attempts to flush out other bidders.

At a GM board meeting this week in New York, directors authorized Hughes management to hold discussions with News Corp. and San Antonio-based SBC, the largest local phone service provider in California, sources said.

The board also told management to pursue potential financial investors interested in buying all or part of GM's controlling 30% stake in Hughes, which is worth about $4.5 billion.

Murdoch has said he is interested in buying only GM's controlling share, with the help of his partner, Liberty Media Corp.

It is unclear, however, whether SBC would buy only GM's 30% stake or the entire public shareholder base of Hughes.

Hughes shares rose $1.05 to $10.80 in after-hours trading after a report of the SBC talks was posted on the New York Times Web site. In regular trading on the New York Stock Exchange, Hughes slipped 15 cents to $9.75. Hughes has a stock value of nearly $14 billion.

SBC and News Corp. executives declined to comment. A GM spokeswoman said the company was continuing to explore all options.

Analysts were surprised that SBC might venture into satellite television when its core local phone business is under attack by an array of telecom and cable competitors.

"Why would they do it?" asked Blair Levin, an analyst at Legg Mason who covers telecommunications. He said Wall Street had expected the company to put its money into phone expansion by buying the rest of Cingular Wireless -- its joint venture with BellSouth -- or another regional or long-distance phone provider.

Already, SBC Chairman Edward E. Whitacre Jr. has acquired two other Bell companies -- Pacific Telesis in the West and Ameritech in the Midwest.

But if SBC is serious about bidding for DirecTV, Levin said, it could indicate that telephone companies have not given up on the prospect of competing head-to-head with cable firms. "This would suggest that they see their biggest threat as cable," he said.

The Telecommunications Act of 1996 promised more rigorous competition between cable, local phone service and long-distance providers by allowing each into the others' businesses.

But the act has been widely judged a failure. Cable phone service accounts for only about 1% of all telephone lines in the U.S. And despite billions of dollars invested over the last decade, phone companies have failed to enter the pay-television field.

In the late 1990s, SBC did strike a marketing deal with DirecTV, enabling it to add television to its bundle of services in competition with cable. But the effort flopped, leading some analysts to believe that SBC is now merely a stalking-horse for GM to extract a higher price from News Corp.

"It just doesn't make sense," said Stephen A. Blum of Tellus Venture Associates, a satellite consulting firm in Marina, Calif. "You can't find a single success story in television among the phone companies."

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