Dish Adds More Subs Than DirecTV

DirecTV Inc. may be getting more than its share of the media spotlight for its proposed plans to combine with News Corp.'s SkyGlobal Networks division. But with respect to financial performance, rival EchoStar appears to be stealing the show.

In a conference call with analysts last Thursday, EchoStar Communications Corp. chairman Charlie Ergen acknowledged that DirecTV parents Hughes Electronics Corp. and General Motors Corp. do not share Ergen's enthusiasm for merging the two U.S. direct-broadcast satellite companies.

"We think there are tremendous synergies for the companies and our customers," Ergen said. "We did not convince them."

Ergen did not go as far as to say his company was out of the race altogether, but said he did not want his management team losing focus by his commenting on a possible deal.

Those remarks may have been thinly veiled digs against DirecTV, which in recent weeks has admitted that its attention to the SkyGlobal deal may have contributed to its disappointing second-quarter results.

According to earnings reports issued by both companies last week, the DBS industry added 525,000 net new subscribers during the second quarter.

EchoStar outpaced DirecTV, gaining two-thirds of the net new customers for the quarter with 350,000 for its Dish Network service, compared to DirecTV's 175,000.

DirecTV still leads in overall subscriber count, ending June with 10 million customers, versus 6.07 million for Dish. But analysts predicted that EchoStar could continue to outpace DirecTV in net subscriber additions, especially if DirecTV fails to bring its subscriber churn under control.

Both companies issued new subscriber guidance for the year.

DirecTV projects it will add 1.1 subscribers for 2001, down from the 1.3 million estimated just last month, which itself was an adjusted estimate from earlier in the year.

EchoStar chairman Ergen told analysts the company might add only 1.75 million subscribers, rather than 2 million net new customers for the year.

In a conference call last Monday, DirecTV president Roxanne Austin promised to attack the company's challenges head-on.

"My primary objective is to create a culture with a tremendous sense of urgency," Austin said.

She added that DirecTV would undergo management changes under her watch.

Austin plans to lower subscriber-acquisition costs by going after signal piracy. DirecTV pays some of its consumer-electronics retailers a commission on the sale of the hardware, whether or not a subscription is activated. The company hopes to change that model.

Ergen predicted that it would be difficult for DirecTV to get retailers to give up the business model they already have in place, especially if they're under contract.

But Ergen also noted that DirecTV's signal piracy problems have a significant, if lesser, impact on EchoStar and cable operators, because consumers who can get a video signal for free are no longer likely targets for a pay service.

Ergen estimated that up to 10 percent of consumers who buy new DirecTV hardware could be viewing the signal illegally.

Both DBS companies are turning more to lease models and direct sales to help cut down on subscriber-acquisition costs, keep better control of the customer and hardware and reduce the incidence of piracy.

DirecTV would need to invest more heavily in its customer-service and installation networks in order to support the lease model and reduce overall customer churn, Austin noted.

Lehman Brothers analyst Bob Berzins and some others on Wall Street haven't ruled out an attempt by Ergen to make a formal bid for DirecTV, either before or after a News-Hughes deal is announced.

Berzins acknowledged that a bid would come at some cost to EchoStar. All levels of the company's employee base could be distracted by such a bid, he said, and putting together the financing for a bid would require a commitment of money, whether or not a deal ultimately went through.

News Corp. spokesman Andrew Butcher last Thursday said the merger talks with Hughes were moving along with no major snags, but he could offer no timeframe for a possible announcement.

Hughes CEO Jack Shaw said last week that the company must continue to run a strong business whether or not a transaction with News Corp. takes place.

DirecTV chairman Eddy Hartenstein agreed.

"Any transaction would take the better part of a year to get regulatory approval in any case," he added.