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DirecTV Bullish on 2002

1/20/2002 7:00 PM Eastern

Coming off a stronger-than-projected fourth quarter of 2001, DirecTV Inc. last week predicted it would add 1 million net new subscribers in 2002.

The direct-broadcast satellite provider started the year with 10.7 million customers. "Nearly one in nine television households receives DirecTV programming," president Roxanne Austin said during an earnings call last Tuesday for the company's parent, Hughes Electronics Corp.

In its guidance to analysts, DirecTV said it plans to add 200,000 to 250,000 net new subscribers in the first quarter of this year.

DirecTV came under fire in mid-2001 for disappointing subscriber growth. Hughes responded by making several changes to its management team, including Austin's promotion to DirecTV president.

In the fourth quarter of 2001, DirecTV signed 910,000 gross new subscribers — or 405,000 net new customers after churn — beating many analysts' projections. By the end of the fourth quarter, the company's churn rate had dropped to 1.6 percent per month, after it improved service, solicited annual programming commitments from new customers and added local channels in 41 markets, Austin said.

Hughes posted a net loss of $132.6 million in the fourth quarter. Revenues for the quarter increased 10.8 percent to $2.28 billion. Annual revenues for Hughes increased 13.4 percent in 2001 versus 2002, to $8.26 billion.

DirecTV's fourth-quarter increased to $1.35 billion, a 12 percent gain over same-quarter figures in 2001, mostly due to the monthly subscription fees collected from the growing customer base.

Unlike DBS rival EchoStar Communications Corp., DirecTV has no immediate plans to raise consumer prices, Austin said. Holding the line on prices should also help reduce churn, she added.

Until the proposed merger between Hughes and EchoStar is approved, DirecTV must maintain a competitive posture in the marketplace, Austin and DirecTV CEO Eddy Hartenstein reiterated during the earnings call.

DirecTV also plans to continue to compete aggressively against cable. Austin admitted that digital cable has stolen DBS customers in some markets where operators have initiated aggressive bounty programs.

In response, DirecTV recently set up a rapid-response marketing team that can go into individual cities on an as-needed basis with door hangers and other promotional messages to counter cable-rate hikes or ad campaigns, Austin said.

DirecTV executives stressed to analysts that the company was on track to remain viable whether or not the merger is approved. Hughes CEO Jack Shaw told analysts the company would do whatever is needed to incent its employees to stay with Hughes during the approval process and with the new company in the event of a merger.

Wall Street analysts believe Hughes shareholders would fare better if the merger were approved, than if the deal falls apart.

September