Dish Network in the News

EchoStar Makes a Profit

NEW YORK, July 19 (Reuters) - Satellite television provider EchoStar Communications Corporation reported its first quarterly profit since going public in 1995, but disappointed investors with increased customer turnover and a slimmer estimate for annual subscriber growth.

The company, which operates the Dish Network, the No. 2 U.S. satellite television service, also confirmed that it could not convince its larger rival DirecTV -- owned by General Motors Corp. unit Hughes Electronics Corp. -- to merge.

EchoStar had competed with Rupert Murdoch's News Corp., which seeks to merge DirecTV with its Sky Global network of satellite services.

EchoStar shares closed at $28.98, down 3.3 percent, or 99 cents, in Nasdaq trading. The stock fell as much as 9 percent earlier in the session.

EchoStar reported a second-quarter net profit of $2.1 million, or nil per share, compared with a loss of $133.1 million, or 28 cents a share, in the year-earlier period. Its subscriber base jumped by 350,000, or 6 percent, during the quarter to 6.07 million, largely in line with analysts' estimates.

Revenues increased nearly 50 percent to $966.3 million from $646.1 million in the year-earlier period.

But the company narrowed the range of its 2001 net subscriber additions to 1.5 million to 1.7 million from the previous range of 1.5 million to 2 million, citing the slower U.S. economy and "piracy of competitive products."

Earlier this week, Hughes executives noted that piracy was one reason for the increase in its subscriber acquisition costs.

HIGHER CUSTOMER TURNOVER

EchoStar also said in a filing with the U.S. Securities and Exchange Commission (news - web sites) that its churn, or customer turnover, rose from a year ago, due to price increases for some programming packages, the general economy and piracy.

Chief Executive Charlie Ergen told analysts in a conference call that competitors in the cable industry have gotten more aggressive, offering rebates to customers who switch to digital cable -- a growing service that offers expanded channels and services -- from satellite.

Ergen asserted that many of these incentives were not economical and would not last.

Analysts were divided about the company's earnings. "They were disappointing results," said CIBC World Markets analyst Jeff Wlodarczak. "They cut their subscriber guidance, and their churn increase was disappointing. The environment has gotten a lot more competitive. And you can feel a malaise over the entire sector."

This week, Hughes cut its 2001 cash flow projections to a range of $450 million to $500 million from a previous $575 million to $650 million, citing the slower economy. Its DirecTV unit also cut its estimate for full-year net subscription additions for the second time in two months.

But Thomas Weisel Partners analyst Ray Schleinkofer said the negatives were being exaggerated. "I think most people already expected the (EchoStar) subscriber addition numbers to be in the lower part of that 1.5 million to 2.0 million range, so the fact that they lowered the top end isn't all that surprising," he said.

He said Echostar would address the churn issue by offering a new range of packages called the Digital Home Plan.

REBUFFED BY HUGHES

EchoStar's Ergen told analysts that despite what he called "tremendous synergies between the two companies," the company was unable to convince Hughes that a merger was in the best interests of shareholders.

"For whatever reason, they did not share our enthusiasm," he said.

Hughes and its parent GM are in talks with News Corp., which has long sought a U.S. component to its satellite television network, which stretches from Europe to Latin America to Asia.

"We are open to any serious alternative proposal," said GM spokeswoman Toni Simonetti. "But our time and attention is on negotiations with News Corp., and we are making good progress. We are trying to define a complicated transaction, and we are working our way through the issues."

News Corp. executives declined to comment.

"Just because they're not negotiating doesn't mean EchoStar won't come back with a bid after News Corp. and Hughes announce a deal," said CIBC's Wlodarczak. "But it would be a long shot because of the regulatory hurdles."

Analysts questioned whether a combination of the No. 1 and No. 2 satellite TV services would hinder competition, particularly in rural areas that don't have access to cable.