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EchoStar Sub Growth Falls Short

11/09/2004 9:31 AM Eastern

EchoStar Communications Corp. reported mixed results in the third quarter, with net new subscriber additions falling short of estimates but revenue and earnings growth ahead of most expectations.

EchoStar’s Dish Network added about 350,000 new subscribers in the period, below some analysts’ expectations of around 400,000. Revenue in the quarter was up 28% to $1.86 billion and net income tripled to $102 million, or 22 cents per share, from $35 million (7 cents) in the same period last year.

EchoStar also initiated a one-time-only cash dividend of $1 per share to shareholders, mainly as a result of favorable tax laws.

While the results appeared strong, on a conference call with analysts, chairman Charlie Ergen warned that increased pressure from telephone companies entering the video business could affect long-term growth.

Already, large telcos like Verizon Communications have announced plans to offer video services along with voice and data offerings. Although none has actually begun service yet, Ergen said they should be taken seriously.

He even hinted that SBC Communications Inc. -- which struck a deal to market Dish Network to its customers last year -- could become a competitor.

“The SBC relationship is one we value and one we continue to put a lot of effort in,” he added. “Obviously as technology changes, and their strategy may change along with that, there may be instances where we are on the same side, some instances where we compete, or there may be a situation where the relationship doesn’t work at some point in time.”

While Ergen said the SBC relationship is currently working -- in its 10-Q quarterly filing with the Securities and Exchange Commission, EchoStar said SBC accounted for a substantial number of its subscriber additions in the third quarter -- he added that there have been some obstacles to overcome.

Ergen said involuntary churn (customers removed from the rolls because they failed to pay their bills) is a little higher with SBC, mainly because they are new to the video business.

But he added that EchoStar is in a better position to compete with the telcos than cable MSOs are.

“We’ll get our fair share [of customers],” Ergen said. “I think its going to have a bigger impact on cable. Demand in DBS continues to be strong. Cable is giving it their best shot -- they’ve got VOD [video-on-demand], they’ve got DVRs [digital-video recorders], they’ve got HDTV, they’ve got voice over IP [Internet protocol], they’ve got broadband bundles and, as an industry, they continue to lose subscribers to satellite.”

September