Hughes Electronics added what it hopes will be a key piece of its broadband answer to cable's integrated video/data networks by buying residential DSL service provider Telocity for $179 million in cash.

Hughes plans to integrate Telocity's existing DSL-based network – now serving about 40,000 customers – with its DirecTV satellite service and use it complement its evolving DirecPC data-via-satellite service that recently became available as a two-way satellite service.

"The most important aspect of this transaction is to make DirecTV an even more competitive service offering with cable," said Eddy Hartenstein, senior executive vice president of Hughes Networks. "We can jumpstart our own broadband business by marketing to our own installed base of over 9 million customers."

The acquisition shows that the satellite provider takes cable's broadband data threat seriously. It is akin to DirecTV's efforts to get access to local broadcast signals to offset cable's "hometown" advantage. It also indicates that two-way satellite services, while technologically feasible, are not as economically sound as wireline solutions.

"We've always believed that … it was necessary to have a terrestrial platform to complement DirecPC," agreed Michael Smith, Hughes Networks' chairman/CEO. "As a result of this acquisition, we will have a terrestrial capability in areas where DSL is available (and) DirecPC in areas where it isn't."

The purchase price, which breaks down to about $2.15 per share of Telocity stock, highlights the volatility and declining value of the data-based services marketplace

"While other DSL companies and ISPs are struggling today to survive, we've been given this extraordinary opportunity," admitted Patti Hart, Telocity's chairman/CEO. "This transaction strongly positions us to be leaders, along with DirecTV and Hughes, in the expanding broadband market."

Hartenstein forecasted the addition of "3 to 4 million DSL broadband subscribers within the next five years," beginning with 150,000 to 200,000 subscribers added in 2001.