Business May Be Good, but Satellite TV Stocks Slipping.

After a wave of consolidation, two U.S. companies have the "direct broadcast satellite" business to themselves, and they're selling TV subscriptions like gangbusters.

Together, Hughes Electronics Corp.'s DirecTV in El Segundo and EchoStar Communications Corp. will gain 3 million new subscribers this year, boosting their combined total to 14.5 million, in the estimate of market researcher Yankee Group.

It's a stellar year. So why are the two companies' stocks trading at steep discounts from their prices only five months ago?

Hughes, which trades as a tracking stock of its parent company, General Motors Corp., is off about 28 percent; EchoStar has fallen by 43 percent from its high in late March.

Investors may be leery of a costly battle for market share. DBS companies are spending at least $400 to $500 for each new subscriber in the face of stiffening competition from the cable-TV industry. Cable-TV operators are rolling out digital set-top boxes as quickly as they can, to match the crystal-clear signals and quantity of channels offered by DBS.

Digital cable will gain more subscribers this year than DBS, according to Yankee Group senior analyst Michael Goodman. He projects at least 4 million new digital-cable subscribers, for a total of about 7.6 million by year's end.

Paul Kagan Associates of Carmel, Calif. sees an even greater gain - 6 million digital-cable subscribers in 2000. And by the year 2009, Kagan predicts that 56.6 million, or 80 percent of the nation's cable-TV households, will be equipped with digital set-top boxes.

No one is predicting an abrupt end to the DBS business. Indeed, both Yankee Group and Kagan Associates foresee about 25 million DBS subscribers by 2005.

But some analysts expect the number of new DBS subscribers to peak this year, leveling off or declining slightly in 2001 and subsequent years. Accordingly, EchoStar and DirecTV are engaged in a costly race for market share, fighting each other as well as the cable industry.

Last week, No. 2-ranked EchoStar began offering a "bounty" to retailers who persuade DirecTV subscribers to switch to EchoStar's "DISH" network service. EchoStar has also begun a program letting subscribers rent, rather than buy, the equipment needed for its service. Such campaigns are part of the company's "subscriber acquisition cost," which EchoStar said may average $450 or more for the full year.

DirecTV pays close to $500 per subscriber, in part because it pays higher royalties to big chain stores like Best Buy Co. Inc. and Circuit City Stores-Circuit City Group to sell its DBS system on an exclusive basis.

Nonetheless, DirecTV has whetted the interest of financier Carl Icahn, who notified GM last week that he intends to buy more than $15 million of the automaker's common stock. Icahn, with a track record of pressuring companies to boost their stock values, could push for a full spinoff of Hughes, analysts speculate.

GM has already taken some steps to appease shareholders, who want Hughes' shares in more hands to gain visibility. GM completed an exchange offer in May that cut its Hughes stake to 30 percent from 62 percent.

DBS stocks reached their heights in late March. EchoStar's price surged after the U.S. Senate approved a bill that would create a $1.25 billion loan-guarantee program to encourage DBS companies to retransmit local TV signals in rural areas.

Hughes was boosted by a CNBC report -- labeled "false" by News Corp. -- that the Rupert Murdoch-controlled company was working on an unsolicited bid for GM to gain control of its satellite assets.

DBS stocks may have slumped since then but, with names like Icahn and Murdoch stirring the pot, you can be sure that speculative trading in the shares is far from over.