Ergen Not Hopeful on DirecTV Broadband JV

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EchoStar Communications Corp. chairman and CEO Charlie Ergen told analysts Wednesday that he might be open to a joint broadband venture with rival DirecTV Group Inc., but he didn’t appear to hold out much hope for a deal anytime soon.

During EchoStar’s conference call to discuss fourth-quarter financial results, Ergen said it would make sense for the satellite industry as a whole to investigate advances in terrestrial wireless in a standardized way, adding that because of the cost of building out the network, it would make more sense for a 30 million-subscriber company to offer a terrestrial wireless-broadband solution than a 12 million- to 13 million-subscriber company. EchoStar has about 12 million subscribers, while DirecTV has about 15 million.

But just as that statement may have held out hope that a partnership could be in the works, Ergen put on the brakes.

“We don’t have a time frame for that,” he said. “And we don’t necessarily see a compelling system within terrestrial broadband today that makes sense for us. If something develops and we could do something with DirecTV, we certainly are keen on that idea if it makes sense. On the other hand, we’re not going to try to draw to an inside straight.”

Ergen, a former professional poker player before launching EchoStar in 1995, earlier used another poker reference when asked about EchoStar’s ability to satisfy pent-up demand with new technologies.

“A lot depends on how some of the more exotic technologies take off or don’t take off,” he said. “We’re prepared for either scenario. We also have to be disciplined in the sense that we don’t go for the flavor of the month and make sure we understand what’s going on out there with our customers and what the opportunities are and make sure that we strategically focus on where we think the greatest risk return is.”

He continued, “One of the things I learned playing poker -- I might start playing poker at 8 o’clock at night and I might fold every hand. I might fold the first 200 hands until 5 o’clock in the morning, [but when] I get a good hand, I’ll bet the pot. That is a discipline that most people don’t have when they play poker -- most people want to play every hand. I like to bet a few hands and bet them big.”

One area where EchoStar appears to be betting big is in additional satellites for HDTV service. The company plans to spend about $1.6 billion on satellite construction and launches for the rest of the decade, mainly to provide capacity for HDTV services and to provide backup for existing satellites. Ergen said EchoStar currently makes about 23 national HDTV channels available to customers, with plans to expand that to 30 in 2006.

Ergen added that EchoStar also plans to expand its local HDTV services in 2006.

“Before this year, [local HDTV] was an advantage that cable had, which is now going away,” he said.

Ergen also expressed some hope that Time Warner Inc.’s and Comcast Corp.’s joint acquisition of Adelphia Communications Corp. wouldn’t pass muster with federal regulators. But in the event that it does, he said, integration issues may force those operators to take their eye off the ball, which could bode well for satellite-service providers.

“There are opportunities for us to take advantage of the marketplace during uncertain times for those guys,” he added.

Ergen also offered some insight into the recent departure of president Mike Neuman, who announced in February that he would leave the company after just eight months on the job.

“That was a situation where it wasn’t the right fit for Mr. Neuman or for EchoStar,” Ergen said. “The great thing about management here at EchoStar is that we can make decisions pretty quickly, and I think Michael can make decisions pretty quickly. When things aren’t a good fit, then it is better to move on, and that’s exactly what he did.”

EchoStar reported solid results for the fourth quarter, adding 330,000 net new subscribers in the period, slightly above analysts’ estimates. Revenue for the period was up 13% to $2.2 billion and cash flow rose 38% to $476 million. Net income nearly doubled in the period to $133 million (30 cents per share) from $70 million (15 cents) in the same period in 2004.

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