EchoStar Communications Corp. reported its highest monthly rate of customer defections ever — 1.88% — in the third quarter, but chairman and CEO Charlie Ergen saw mostly seasonal factors, plus hurricane damage in the South.
“It was a solid quarter overall,” Ergen said on a conference call with analysts Nov. 8. “Some things are a little bit misleading.”
Ergen said that as a result of the hurricanes in the Gulf Coast, EchoStar attempted to contact subscribers to its Dish Network direct-broadcast satellite service in Alabama and Louisiana. Those who did not respond were disconnected. But they could come back on as new additions once their living situations become more stable.
“Absent the hurricanes, our churn would be slightly below last year,” Ergen said. “We are a little bit more conservative as a company. If a customer’s house is blown away and is not there anymore, and it’s going to take them a year to rebuild it, we might not want to pay for that customer for the next year. We might want to just write them off now.”
For the quarter, EchoStar added about 255,000 net new subscribers. Revenue rose 14.2% to $2.13 billion and cash flow was up 55% to $508 million.
Subscriber acquisition costs rose 14% in the period to $670 per gross addition. Ergen said such costs are expected to rise another 15% early next year as EchoStar upgrades to MPEG-4 (Moving Picture Experts Group) compression technology from MPEG-2, mainly to pay for swapping out existing HDTV set-tops for ones with the newer technology.
MPEG-4 is a key to providing a wider array of high-definition television channels and Ergen said EchoStar expects a corresponding increase in monthly average revenue per subscriber — from additional customers buying HDTV services — to justify the higher cost.
EchoStar’s plans to beef up advanced services don’t appear to include high-speed Internet advances any time soon. EchoStar has partnered with telephone companies to provide digital subscriber line service to customers in a bundled package, but hasn’t yet found a satellite high-speed service.
“We don’t have a fully developed broadband strategy,” Ergen said. “It ranges from it doesn’t make sense to play in the broadband market and we think it’s going to become a commodity, so we’ll build technologies and features around it on the one hand to the other hand, is there a way for us to be more involved in broadband to consumers? That could be anything from reseller agreements to owning spectrum. You look at everything in between.”