Dish’s Sub Growth Drops 63% In Q3

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EchoStar Communications blamed an increase in competition, the deteriorating housing market, jumps in mortgage defaults and weakness in the economy for its 63% decease in subscriber growth in the third quarter.

EchoStar’s satellite service Dish Network netted 110,000 new subscribers in the third quarter, down 63% from the 295,000 it gained during the same period last year, according to a 10Q filing with the Securities and Exchange Commission.

EchoStar’s monthly churn rate for the quarter was up 1.94%, compared with 1.76% for the same period in 2006.

In a report Monday, Sanford C. Bernstein analyst Craig Moffett described EchoStar’s third-quarter results as “a meltdown,” adding that they are so negative that they cast doubt about the prospect of AT&T trying to buy the satellite company.

Also on Monday, Citugroup downgraded EchoStar to a “hold” from a “buy,” but analyst Jason Bazinet still sees a 65% chance of an “M&A over the next 12 months,” namely, AT&T’s possibly purchasing EchoStar.   

 In his report, Moffett wrote: “EchoStar is a well-run company. It has a good product. It offers customers a compelling value proposition. But EchoStar operates at the low end of the market, and the low end, it would seem, is the wrong place at the wrong time.”

He noted that EchoStar's churn rate of 1.94%, fueled by non-pay disconnects, was the highest ever recorded by either Dish Network or DirecTV, and said that Dish Network’s third-quarter subscriber gain was its lowest total since 1997.

“The results must inevitably cast doubt on persistent media reports that EchoStar could be an imminent acquisition candidate for AT&T, in our view. [Neither company has commented on these reports],” Moffett wrote. “AT&T's evident enthusiasm for their own U-Verse video offering, EchoStar's problematic low-end positioning at a time when low end macroeconomic conditions are worsening, and the lack of underlying cost synergies, all make an acquisition less likely.”

In its filing, EchoStar cited a number of factors for the double-digit slowing in its subscriber growth and the jump in churn.

“We believe our subscriber churn rate has been and is likely to continue to be negatively impacted by a number of factors, including, but not limited to, increased competition, an increase in non-pay disconnects primarily resulting from the adverse economic conditions…. decreased customer satisfaction with our products and services resulting from operational inefficiencies, continuing effects of customer commitment expirations, and increases in the theft of our signal or our competitors’ signals,” EchoStar said in its filing last Friday.

 “Competitor bundling of video services with two-way high-speed Internet access and telephone services may also contribute more significantly to churn over time,” EchoStar also said in its filing. “Additionally, certain of our promotions allow consumers with relatively lower credit scores to become subscribers, and these subscribers typically churn at a higher rate. However, these subscribers are also acquired at a lower cost resulting in a smaller economic loss upon disconnect.”

EchoStar ended the third quarter with 13.7 million customers. The company reported total revenue of $2.79 billion for the quarter, a 12.9% increase compared with $2.48 billion for the corresponding period in 2006.  

 Net income totaled $200 million for the third quarter, compared with $140 million during the corresponding period in 2006.  Basic earnings per share were $0.45 for the quarter, compared with basic earnings per share of $0.31 during the corresponding period in 2006. 

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