Copyright 2003 Newsday, Inc.

Newsday (New York, NY)...02/11/2003

SBC Communications shares dropped yesterday and those of DirecTV parent Hughes Electronics jumped amid reports that bidding for the nation's biggest satellite TV provider may heat up.

Wall Street analysts were skeptical that an acquisition of DirecTV by SBC, which reportedly has held preliminary talks with Hughes, would pay off.

SBC's actions also put a new spin on the prospects for other players, including Cablevision Systems Corp., which is preparing to launch its own satellite this spring for a planned new nationwide service and which also reportedly has expressed some interest in DirecTV.

Analysts said SBC is seeking to combat what it must perceive as a growing threat from the cable industry, which offers bundles of video, high-speed Internet and, increasingly, telephone service. But it is questionable how much of a marketing or cost-saving boost such a merger could provide, the analysts said.

"Telephone companies have not had a successful track record merging their empires with other types of network and media companies," Banc of America Securities analyst David Barden said in a report.

SBC's interest complicates the long-stalled effort by Rupert Murdoch's News Corp. to gain control of DirecTV and add it to his TV programming and network empire and his satellite TV operations outside the United States. Analysts said News Corp., which is partnering with John Malone's Liberty Media, appears to be a better fit with DirecTV, which has 11.2 million subscribers, than SBC would be.

Analysts say a single satellite would not be adequate to make Cablevision a strong player in satellite TV but that a deal to gain control of DirecTV would present antitrust problems for Cablevision, the biggest cable operator in the New York City metropolitan area. DirecTV and EchoStar, which were trying to merge, agreed last year to help support Cablevision's new service, but that deal fell through along with the merger.

Hughes, which is controlled by General Motors, gained 5.2 percent, or 51 cents per share, to $10.26. SBC fell by 3 percent, or 77 cents, to $24.41. EchoStar, the second biggest satellite provider, gained 91 cents to close at $25.61.

Cablevision, meanwhile, gained 80 cents, or 4.9 percent, to $17.05 as Merrill Lynch analyst Jessica Reif Cohen upgraded the stock to a "buy" recommendation and said it has become less likely the company will start a satellite service, which could cost billions of dollars, on its own. She said it is more likely Cablevision will sell the satellite, which is scheduled for launch in early May, to EchoStar or DirecTV for up to $ 500 million.