ECHOSTAR'S NEW ORBIT

By Stacy Perman

Charlie Ergen, 44, CEO of Echostar Communications Corporation, likes to play for an inside straight. Last week Ergen, who got into satellite TV in 1980 on the advice of a poker buddy, drew the perfect card. His cash-short EchoStar--by now a $250 million public company reaching 430,000 homes through pizza-size dishes--inked a deal with Rupert Murdoch's American Sky Broadcasting. ASkyB will pay $1 billion in cash and assets for 50% of EchoStar, creating a new direct-broadcast-satellite alliance called SKY that will be aimed at 75% of American homes.

With the capacity to offer 500 channels of crystal-clear digital TV, Internet services and, perhaps most important, locally broadcast network-TV signals that were previously unattainable by dbs, the venture becomes a formidable player in an industry poised for a shakeout. The dominant dbs players are DirecTV and PrimeStar, but now "ASkyB gets to jump into dbs in the U.S. right away, and EchoStar gets a strong partner with substantial resources," says Rick Westerman, an analyst at UBS Securities. Ergen thinks he has the cards to attack cable, which has 65 million subscribers, compared with dbs's 4.5 million. Says he: "Murdoch has the ability to make SKY in the satellite business what Coke is in soft drinks." He's already driven his Colorado neighbor TCI to distraction with low-price offers. That's why the venture was dubbed Death Star within the industry. EchoStar's stock headed skyward after the announcement by some 49%, up $8.75, to $26.75.

EchoStar's vital asset is satellite space, now in short supply. Applying what he calls "outhouse logic," Ergen acquired the right for a satellite slot from the fcc in 1987--eight years before he had the means to hoist a bird into orbit. But by last year, he had amassed 90 of the available 256 frequencies and six orbital slots, or, as industry insiders say, all the beachfront property in space.

While Ergen and Murdoch forecast a dish in every home, the new alliance must pass regulatory muster, and won't be delivering its full package until next year, giving the cable guys time to introduce their new digital boxes, which will increase channel capacity and improve picture quality. And just three days after SKY's birth, satellite rival PrimeStar announced it would boost channel capacity from 95 to 160.

The partnership between Ergen and Murdoch is a curious one. Says an insider: "They seem like oil and water together. Ergen's hand was really forced. Only time will tell." But both have played long odds before, and won.

--By Stacy Perman. Reported by Richard Woodbury/Denver

With reporting by Richard Woodbury/Denver