End of the Rainbow DBS?

Cablevision project delayed; FCC deadline looms

New York-area cabler Cablevision got the FCC’s blessing to again delay the launch of its floundering Rainbow DBS project until Aug. 31, but the likelihood of its actually bowing a programming service or even finding a buyer for the bird seem to be dwindling by the day.

The FCC approved a request to put back the launch of the Rainbow I DBS satellite to late August based on mechanical grounds. The regulator also approved several alterations to the satellite’s configuration that would allow for spot beam delivery of local programming. However, sources near the company indicate that are no plans afoot, nor a budget in place, to launch a consumer service by Dec. 31, as required in order to retain its FCC-granted DBS license.

Rainbow DBS, whose chances of mounting a serious threat to a News Corp.-backed DirecTV or EchoStar are now considered improbable by most analysts, has limited options for the satellite, given the glut of satellite capacity currently available on the market, and even fewer once it launches the bird.

JPMorgan analyst Jason Bazinet said that while it is conceivable EchoStar (which currently uses a similar spectrum) or DirecTV could be interested in the satellite and its allotted frequencies, the probability of an imminent sale is not high. The satellite could be worth less once it takes flight, Bazinet explained, since a buyer would then either be stuck with the orbital position into which it will be launched or else have to reduce the useful life of the satellite by moving the bird to a better location.

Other possible uses for the satellite include using the bandwidth for high-definition telecasts or for general wholesale capacity.

On Wednesday, Standard & Poor’s issued a detailed analysis on Cablevision’s BB Negative Outlook credit rating, citing that the DBS project “may prove a distraction to management” as the company focuses on aggressively increasing its digital cable business. The ratings arbiter is also concerned that the company has yet to articulate a definitive strategy for the DBS investment and warned that its credit profile could weaken if Cablevision spends more on DBS than expected or is unable to stem cable subscriber losses, which have totaled 45,000 since the start of 2002.

Company would not elaborate on its DBS plans beyond saying it was pleased by the FCC’s acceptance of its request. Cablevision has earmarked $75 million this year to get the bird into orbit.

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