EchoStar Commits to Business Services with $2 Billion Bid for Hughes

Event Summary

February 14, 2011 -- EchoStar has announced it will acquire Hughes Communications in a transaction valued around $2 billion. The transaction is expected to close later in 2011. Hughes ships satellite systems and operates both satellite and terrestrial broadband for enterprises, SMBs, and consumers; EchoStar is primarily a broadcast satellite operator and consumer-oriented satellite products vendor, with sister company DISH Network offering direct broadcast satellite (DBS) services.

Quick Take

Analytical Summary

• Current Perspective: Negative on EchoStar's bid to acquire Hughes, because even though both EchoStar and Hughes are in the satellite systems and services business, product/service-wise, the acquisition unlocks little extra value through synergy. Risk-averse large enterprise accounts will be looking for warning signs that EchoStar is backing off Hughes' equipment and customer service investments, and they may react to any danger signs by switching to other broadband options, hurting Hughes' enterprise business segment.

• Vendor Importance: Very high to EchoStar and Hughes Network Systems, because the acquisition will tie together the fates of the two companies. EchoStar's direct broadcast satellite (DBS) sister company DISH Network could piggyback Hughes consumer/SOHO satellite broadband Internet sales to its pay TV services, the way Hughes Network Systems and DirecTV did up until those two companies were split in 2005.

• Market Impact: Moderate on the business network services market, because broadband network aggregators – independents EarthLink/New Edge Networks and MegaPath, as well as incumbents AT&T, Verizon, and to an extent Qwest – can play up fear, uncertainty, and doubt in the wake of a pending EchoStar acquisition of Hughes. The growing mix of terrestrial wireless and wireline broadband availability makes satellite a less vital component even for highly distributed enterprises, which lets IT decision-makers consider other options for access providers.

CLIENTS ONLY

Competitive Strengths and Weaknesses

Response & Recommendations

Buyer Actions

Analytical Perspective

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