Re: Cringely on "Pirates" and the AOL-Hughes Deal.
Mon, 28 Jun 1999 01:11:33 EDT

In a message dated 6/27/99 10:45:48 PM Eastern Daylight Time, writes:

> I also agree with Cringely: AOL's "investment" in Hughes stinks like
> yesterday's diapers. To me, AOL pumping $1.5 billion into Hughes is all
> about the leverage AOL can bring to the table to bully every telecom
> player except for AT&T. The big get bigger, and the small get crushed.
Your argument, as does Cringley's, seems to be that AOL underhandedness (lack
of REAL interest in satellite access) is proved by its rejection of Echostar,
because Echostar is cheap. I would counter that Steve Case is interested in
aligning his company with a leader in an emerging technology, technology that
exceeds the reach of Echostar, which would be Hughes. If either you or
Cringley have something more . . .

About the bubble bucks, Rohit - did AOL issue more stock to pay for the so
called Hughes "bonds"? Edgar says NO. I have no problem with what AOL is
doing, especially with all the talk - bits and bits of it - warning of the
internet bubble's imminent burst. AOL is not a bank, doesn't look like a
bank, doesn't act like a bank.

Milton Freeman discusses healthy corporate self-interest:


> Direct TV has satellites capable of carrying about 200 video channels,
> though this number keeps increasing with improving technology. At least
> 175 of these channels are in constant use, with the rest devoted to a
> variety of video and data services, including the Direct PC Internet
> service. AOL is paying $1.5 billion ostensibly for access to some form
> of Direct PC for AOL customers.
> That's fair enough. But Direct TV's big competitor is another fleet of
> satellites called EchoStar and home of the Dish Network. EchoStar has a
> capacity of 2000(!) channels with only about 175 in constant use. With
> ten times the capacity of Direct TV, EchoStar is trolling for data
> customers. AOL could have the same deal with EchoStar that it purports
> to have with Direct TV WITHOUT having to cough up the $1.5 billion.
> Is AOL stupid? Hardly. As we frequently see, there is more to this deal
> than the principals are saying.
> AOL is investing in Hughes, buying special shares that carry a 6.5
> percent dividend. That's about what AOL pays to borrow money at the
> prime lending rate. And since the collateral is Hughes, itself, this
> investment presumably won't hurt AOL in any way. It will be able to
> borrow just as much as ever. I'm willing to bet, too, that Hughes -- or
> Hughes's GM parent -- has guaranteed AOL will not lose on its
> investment. So there is only an upside for AOL in this deal. If Hughes
> stock goes up, AOL makes money on an investment that costs them nothing.
I believe Rohit referred to special shares as "bonds" or "bond-like" shares.
But, according to the agreement,
> But doing a favor isn't enough to make AOL bother to do this deal. The
> other reason is to scare the very people who ought to be worried about
> the prospect of satellite access taking over the Internet -- the
> telephone companies and major fiber supplies like Qwest and Level 3.
> This AOL investment looks on the surface like a major commitment. It
> isn't, of course, but it looks like one. And the next time AOL
> negotiates with any non-satellite network providers, Steve Case and
> company will demand (and get) enormous concessions.
> And THAT's why the deal had to be done with Hughes and not with
> EchoStar. A threat without that $1.5 billion behind it wouldn't be
> viewed as a threat. Going with EchoStar would have gained AOL only
> satellite Internet access, which probably isn't of real interest to
> Steve Case at all.

> So we have a bizarro TV movie and a bizarro Internet deal. Nothing is as
> it seems.
> There must be a lot of bad kryptonite going around.