Satellite

Credit Policy Helps Drive Satellite Gains

11/10/2006 7:00 PM Eastern

More-stringent credit policies at the top two satellite-TV providers apparently paid off in the third quarter, with EchoStar Communications and DirecTV Group reporting stronger-than-expected net new subscriber additions.

Both EchoStar’s Dish Network and DirecTV reported better sequential third-quarter net subscriber gains — 295,000 and 165,000, respectively — besting the 225,000 and 125,000 net new adds in the previous period. While third-quarter growth is still a far cry from the heyday of a few years ago, when both companies routinely added 400,000 to 500,000 new additions each quarter, it could be a sign that fears that new customer growth would come to a standstill were unfounded.

At EchoStar, the 295,000 net additions were its strongest so far this year. The Englewood, Colo.-based direct-broadcast satellite company also reported 958,000 gross subscriber additions, its strongest showing since the fourth quarter of 2004.

That helped drive EchoStar stock to a new 52-week high on Nov.7 — $37.28 each, up $1.97 per share — before closing that day at $35.98 each, up 67 cents. The stock rose another 70 cents on Nov. 8, closing at $36.68 per share.

DirecTV and EchoStar implemented more stringent credit policies last year, mainly to weed out non-paying customers.

In a research note, Banc of America Securities analyst Doug Shapiro wrote that the EchoStar subscriber growth “partially refutes the concern that the cable-DBS dynamic has markedly changed.”

The move toward higher-quality customers — or those who can actually pay their bills — translated into strong financial performance for both companies. EchoStar reported revenue and cash flow growth of 16% and 13% in the third quarter. At DirecTV, revenue rose 12.3% and cash flow increased about 48%, excluding special items.

The more robust subscriber growth may have taken the pressure off the DBS giants to come up with a broadband strategy to rival cable’s high-speed Internet service. During last week’s conference calls, executives at both EchoStar and DirecTV downplayed the need for a high-speed service.

EchoStar chairman and CEO Charlie Ergen said on the Nov. 7 call that a bigger priority is preserving and expanding the video customer base. “We don’t want to defocus on our core business. Certainly our priority has to be to our core video business, which is fairly robust,” Ergen said.

DirecTV CEO Chase Carey offered similar sentiments. DirecTV has talked about a wireless broadband service for more than a year and has yet to introduce a product. On the Nov. 8 conference call, Carey said delays in deploying the technology have more to do with the slow development of wireless products than foot-dragging by the satellite giant.

“Ultimately not having a deal is not changing the pace of what’s going on and the timetable of what’s going on in the Wi-Max world,” Carey said. “On the one hand there is no hold up and on the other hand there is no real imminent pressure.”

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