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EchoStar Rises, Unveils DVR Plans

8/17/2003 8:00 PM Eastern

Although new subscriber additions fell off somewhat, EchoStar Communications Corp. also saw income and revenue rocketing upward for the second quarter.

And during a conference call to discuss the results, CEO Charlie Ergen laid out more information on the satellite provider's plans for digital-video recorder products and bundled service offerings with telco partners — all efforts to up the ante in the market poker game with cable rivals.

EchoStar posted net income totaling $129 million for the quarter, up sharply compared to the $37 million it collected in the same quarter 2002. Earnings per share came in at 27 cents, far more than analysts' predictions of 19 cents.

Revenue totaled $1.41 billion, a 21% jump compared to the $1.17 billion EchoStar collected in the same quarter 2002.

Slow sub adds

But the tradition of slower subscriber growth in the second quarter proved true. EchoStar lured 270,000 new subscribers in the second quarter, down from the 350,000 new additions it netted in the first quarter. The Dish Network now claims 8.8 million customers.

In a conference call to discuss the earnings, Ergen noted a dark spot for the quarter was an increase in churn, which rose to 1.67%, up from last year's 1.6% rate.

"That's certainly something we can probably could do a better job on," Ergen said. "We were pleased to see that DirecTV's churn was I think only about 1.5% for the quarter, so it gives our management team something to work on that says that it is possible to get churn down."

Churn was a major driver behind EchoStar's recent pact with SBC Communications, which will bundle Dish Network video service along with its digital subscriber line and voice offerings. Ergen said EchoStar is hoping to attract subscribers it otherwise would not have gathered with the addition of a broadband data offering — and it is hoping those customers will stay with EchoStar service longer.

While he noted SBC will have some marketing flexibility, Ergen said the telco will not have similar leeway when it came to price. EchoStar also will continue to hawk its own service in the SBC markets.

"It is a different strategy. There are some risks involved with it," he said. "They don't have any control over the retail price of our product. It is what we set."

Dish adds capacity

Meanwhile, EchoStar is also expanding its video capacity with the recent launch of EchoStar 9, the DBS provider's first satellite with dual Ka/Ku band transponders. Adding Ka-band spot beam transponders for the first time offers broadband two-way transmission capabilities, "so we get a chance to really go out and do a live test of broadband and really play around with that, so we can make sure the economics of that will work for that before we make major investment there," Ergen said.

But while the new bird does allow increased Ku-band capacity for expanded HD and local channels, that might not necessarily lead to local channels in HD.

Digital video recorder products also will become a focus, with a marketing push planned for the next two quarters. EchoStar plans to unveil the 5100 DVR box with a hard drive able to store more than 100 hours of video and an HD box able to record in high-definition format as well. A third DVR box is also in the works, but EchoStar is not releasing any information about its specific features or functions.

New DVR fees

During the second quarter EchoStar also decided to start charging a monthly fee for DVR boxes on a sliding scale. Excluding existing DVR customers, new basic subscribers wanting a DVR box will pay $9.99 monthly; Top 100 and Top 150 customers will pay $4.98 monthly; and top-end America's Everything Pak subscribers will get the boxes free.

"That's done for two reasons — one is the marketplace is quite a bit higher than that in terms of DVR prices, so obviously we are leaving money on the table," Ergen said. "Second, it allows us to actively promote our DVR product, essentially lowering some of the up-front cost to consumers, realizing that we will get some of that money back in the monthly charge."

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