El Segundo, Calif. – In the aftermath of its failed merger with EchoStar, Hughes Electronics said it will close its DirecTV Broadband high-speed Internet subsidiary in approximately 90 days and work toward transitioning existing customers to alternative service providers.
The broadband operation, which is based in Cupertino, Calif., was acquired by Hughes in April 2001 and currently serves DirecTV DSL service to approximately 160,000 customers.
‘Hughes and its subsidiaries have worked steadily over the past months to improve our businesses in anticipation of the merger with EchoStar,’ said Jack Shaw, Hughes CEO. ‘When the merger agreement was terminated earlier this week, we promised our shareholders and customers that we would move quickly to strengthen the profitability and efficiency of our company. This decision by DirecTV Broadband is the first of those moves.’
Eddy Hartenstein, DirecTV chairman, said the terrestrial broadband industry has ‘changed dramatically since we purchased this business nearly two years ago, and despite continuing subscriber growth, DirecTV Broadband cannot operate profitably now or in the foreseeable future.’
Hughes said it expects to record a fourth quarter 2002 EBITDA charge of between $100 million and $150 million from the closing. Hughes expects to record a non-operating charge of $108 million to write-off the goodwill associated with DirecTV Broadband in 2002.
Hughes said it will continue to offer its DirecWay satellite-delivered consumer broadband service, which currently has approximately 160,000 subscribers. The company will continue to add new DirecWay customers but will not increase the subscriber base aggressively in the near term to avoid the cash requirements from the subscriber acquisition costs.
Hughes and DirecTV said they will explore other strategic relationships that would allow the companies to offer broadband services via both terrestrial and satellite technologies.
Roughly half of DirecTV Broadband’s 400 employees were notified of layoff today, with a minimum of 60 days notice during which time they will continue to be paid, followed by receipt of a severance package. The remaining employees will work with customers during the approximate 90-day transition process and to wind down business operations.
Current DirecTV DSL customers should check the company’s Web site, www.directvdsl.com, for complete information on transition plans for their Internet service.