DTH: The war started

The reciprocity protocol in Direct To Home Satellite Service (DTH), establishes the conditions and technical criteria for the use of satellites licensed in the United States and Mexico to provide video service of the two countries; for example, the protocol allows Mexican companies, with foreign participation of up to 49 percent, to download signals from U.S. satellites in national territory, and companies from that country to download signals from Mexican satellites in their area.

This protocol, whose main point is to allow U.S. companies to market DTH in Mexico and Mexican companies to reach U.S. markets, was signed by the two governments on Friday, November 8, 1996 and confirmed in a press release of November 12, by the Department of State in Washington D.C. (U.S.) in which, the signatories, commit to expand the opportunities of consumers in both countries to receive video programming using the latest in satellite technology.

The bilateral treaty was negotiated between the Ministry of Communications and Transportation (Mexico) and the Federal Communications Commission (U.S.), establishing a minimum quota of 20 percent of national programming, and reserving for the State, the power to authorize or prevent the transmission of violent programs, obscene or not in the interests of the country. The protocol is part of the Satellite Reciprocity Treaty signed between the two countries in April '96.

Currently in the United States there are three companies that already operate the DTH service: SKY, Echostar and Direct TV, and it is expected that MCI Communications Corporation will soon enter the competition. In Mexico, there were originally four concessionaires for the transmission of DTH: Televisa (SKY), Medcom (Telered), Multivisión (Direct TV) and Grupo Acir.

However, of these four, only two effective rivals remain, as Televisa merged with Medcom and the Acir Group project was halted.

Televisa, which has for its SKY project with partners such as TCI, News Corp. of the United States and O'Globo of Brazil, reached an agreement on October 22, 96, with Medcom (Telered) who has as allies Cientific Atlanta, Technologies, Systems and Applications and Echostar, to unite their projects of transmission of the DTH service. The intention of both companies was to create a single operator in America, Asia and Europe.

The Sky-Telered merger was surprising news considering the old quarrels that Clemente Serna (President of Medcom) and Emilio Azcárraga (President of Televisa) supposedly had, but it is understood if it is appreciated from the perspective that both groups reduce, with the merger, the amount of their investment and the risk when facing the competition. Together they would be able to lower their costs and offer advantages over their closest competitor, Direct TV de Multivisión.

The union of both platforms gives Medcom participation in the projects that SKY already has in the United States, Latin America and, eventually, Africa and Asia; In the same way, the new allies expressed their desire to unite plans for programming, commercialization and standardization of technology and began to sell the new pay television satellite service, starting in the second half of November 96. As part of the strategy, the seven transporters that each company has contracted on the Solidaridad II satellite and that serve to transmit the signals in Mexico will join.

As for digital compression technology, both companies have differences, so they will have to decide which one will be used.

On the other hand, the SKY Medcom alliance seeks to participate in the privatization of Telecommunications of Mexico (Telecomm), to have sufficient satellite structure in its DTH services.

Although the final scheme of the alliance has not been defined, both companies can operate with their respective concession, until they have a standard scheme of an operating company that is located above both firms and that can be listed on the Stock Exchange. The Ministry of Communications and Transportation (Mexico) indicated that the alliance can work, initially using the seven transporters, as well as the transmission of 200 channels.

Multivisión, by Joaquín Vargas, could agree an alliance with Televisión Azteca who in the past, won the Anglo-Dutch firm Ole van der Straaten with which it increased its number of triple A advertisers. Organización Cisneros de Venezuela and TV Abril in Brazil, immediately began their operations in Mexico, as a result of the signing of the satellite protocol. The new service is offered by Galaxy Latin America, a multinational company formed by the aforementioned Direct TV allies, through the local operator, the Galaxy Group of Mexico.

Direct TV will cover 50 percent of the satellite TV market in Mexico and is expected to reach 20 or 25 percent in the next five years with direct-to-home television, an average of five million households.

Direct TV has a long history in the field of DTH and sustainable competitive advantages both technologically and from a programming point of view. Direct TV's total investment in Latin America is $800 million, of which $20 million has been invested so far in Mexico.

Direct TV is considered sky-Medcom's main rival in the continental American market, as both companies provide similar service in the same area. In the United States, Direct TV, a firm of Hughes Communications (a subsidiary of General Motors), has been operating since 1994. Direct TV currently provides its streaming service to two million subscribers spread across the United States, Brazil and Venezuela. In just eleven months it has increased the number of users by 100 percent.

As for the Acir Group, chaired by the Mexican businessman Francisco Ibarra, it informed Telecomm, the company in charge of renting the satellite transporters, of its lack of capacity to sign a formal contract and requested the indeterminate postponement of its project, which represents one less competitor for SKY Medcom and for Direct TV.

Companies engaged in the battle will seek to access a market of between six and eight million households in the next five years, growing this segment at a rate of 2 percent per year, which means for the year 2001 or 2002 a total of 17 million users, little more than what free-to-air television has today.

Both SKY of Televisa, and Direct TV of Multivisión, began the promotion of sale of equipment to receive the DTH. Both firms say that people are very interested in hiring this service, despite the fact that the approximate cost of the equipment is 800 dollars.

Direct TV whose investment was 800 million dollars to open more than a hundred radio and television channels, already sells the equipment but does not charge for the signal. Sky, meanwhile, began selling equipment on 1 December 1996.

Undoubtedly, the territory to be won will be in terms of the prices offered. The technology can become cheaper, which in the midst of the competition should also reduce the 800 dollars with which the possession of this new alternative on television began.