SBC to Scale Back Dish Sales

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EchoStar Communications Corp. reported strong first quarter net additions, but it said its telco partner, SBC Communications Inc., is de-emphasizing satellite as it moves to build out its own fiber-optic voice, video and data network.

EchoStar added 325,000 net new subscribers during the quarter, pushing its total to 11.23 million. While chairman and CEO Charlie Ergen would not say how many of those additions were from SBC, the regional Bell operating company said on its own first-quarter conference call that it signed on about 71,000 video customers from EchoStar in the period, down from 97,000 during the fourth quarter.

When EchoStar announced its joint venture with SBC in 2003, some believed it would deal a major blow to cable operators. But so far, that has been far from the case. Ergen said on a conference call with analysts that about 400,000 of EchoStar’s customer base came from SBC.

He added that he expected SBC to eventually pull back, calling telco agreements with direct-broadcast satellite a “temporary strategy” while the telcos build out their own networks.

“As we have said all along, that's not a surprise that that might be de-emphasized,” Ergen said, adding that the relationship has been beneficial to EchoStar.

Revenue in the period increased 28% to $2.02 billion. EchoStar also reported net income of $318 million (70 cents per share) in the quarter, reversing a net loss of $43 million (9 cents) in the same period last year. However, that net income included a one-time gain from a $124 million insurance settlement involving one of EchoStar’s satellites.

On the conference call, Ergen said EchoStar is investigating several different options to provide advanced services, such as broadband data.

While DBS providers have failed in their attempts to provide broadband via satellite in the past, Ergen unveiled several products at a dealer meeting last week that could solve that problem. However, none is ready for launch, and Ergen said there are still several technical issues to be resolved.

“We have a few more hurdles to overcome before I would give the go-ahead to do that,” Ergen said. “I'm cautiously optimistic that we would overcome those hurdles, but it's not clear that we will.”

Ergen seemed rather downbeat on the conference call -- Prudential Equity Group LLC cable and satellite analyst Kathy Styponias called management’s tone on the call “downright depressing” in a research note -- citing increasing competition from DirecTV Inc., cable and telcos.

While Ergen was optimistic about the prospect of launching local HDTV services in the future, he expressed some concern about the economics working out in markets outside of the top 20 in the country.

But while Ergen said EchoStar faces challenges, they are nothing like the difficulties it faced in the early 1990s, when it had no money, no satellites and no subscribers.

“I think the problems for us are manageable and the opportunities are there,” he added. “I think it's really up to us to decide where we place our bets. We're a company that will tread water until we're ready to place a bet, and we'll place a bet in a big way.”

EchoStar shares were down 95 cents each to $28.91 per share in late-afternoon trading Thursday.

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