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Moffett Sees 87,000 Sub Gain in Dish’s 3Q

11/07/2008 4:30 AM Eastern

Sanford Bernstein analyst Craig Moffett Friday projected that Dish Network will gain 87,000 subscribers in the third quarter, a 21.2% drop compared with the year-ago increase.

Moffett issued his report in anticipation of Dish Network’s third-quarter earnings report on Monday, with a conference call set for noon.

“Operationally, Dish has badly lagged the rest of the industry, posting rising churn, weak subscriber results, and only middling financial performance,” Moffett wrote. “Subscriber growth in Q2 had dropped below 2%, its lowest level ever. We project 87,000 subscriber additions in Q3, yielding 1.3% annual subscriber growth.”

In August, Dish Network reported that it had lost 25,000 subscribers in the second quarter, the satellite provider’s first customer loss ever.

And Dish Network rival DirecTV said Thursday that it had gained 156,000 subscribers in the third quarter, a 35% decrease in customer growth versus the year-ago period.

In his report, Moffett said there were also some reasons for optimism about Dish Network’s third-quarter results. For example, he said that Dish Network has been aggressively marketing; that its HD product is much stronger; that it’s gained customers through its reselling deal with AT&T, which comes to an end Jan. 31; and because it’s tightened its credit policies.

“Unfortunately, there are negatives to consider, as well,” Moffett wrote. “Hurricanes likely cost them subscribers in the Gulf states. A string of retransmission consent disputes in smaller rural markets left them without certain broadcast channels. And the weakness in telco DSL poses an ongoing threat to growth.”

Finally, Moffett said it would be a “real catalyst” if Dish Network CEO Charlie Ergen resumed a stock repurchase program that was suspended a few years ago.

“With a small public (non-Ergen) float, a buyback program would potentially signal Ergen's intention to take the company private,” Moffett wrote. “As we have seen with the other Pay TV operators, however, the silver lining of slower growth is lower capital spending, and higher free cash flow. With a clean balance sheet, that could leave plenty of cash to repurchase shares.”

September