• by Paul Gough , May 8, 2003

A major player in DBS announced good news in Q1 with higher revenues and subscriber growth. A newly expanded player in the cable industry reported a loss Thursday yet some success in turning the tide on subscriber loss.

EchoStar Communications Corp., parent company of the Dish Network, had revenues of $1.36 billion in Q1, up 23% over the same period last year. Dish Network added 350,000 subscribers during the quarter - 15,000 more than last year at the same time - and got more revenue per subscriber in Q1 than the same period a year ago. Dish Network now has 8.53 million subscribers.

CFO Michael McDonnell credited aggressive marketing, the increasing number of areas nationwide that can get local channels via satellite and a reduction in churn as factors. He said that churn - a loss of subscribers, the bane of satellite and cable providers - as 1.36%, lower than a year ago. Dish Network is also getting an average of $51.48 a month per subscriber, up $1.18 from Q4 2002 and more than $3 a month more than a year ago. McDonnell said the increases resulted from a price increase and the availability of local channels.

Dish Network offers local channels in 64 markets throughout the country, with projections of 106 markets by the end of the year. That number - as well as increased capacity to offer more high-definition television channels (which take up bandwidth), more interactive capability and the possibility of re-entering the broadband Internet market in the future - depends on the ability of EchoStar to increase capacity. A deal with SES Americom will give it more capacity in the future, something that the failed deal to merge with competitor Direct TV also would have accomplished.

"The bigger picture is that the merger was important for us with Hughes because we need capacity and we were never able to come to an agreement between the companies to share capacity," said Dish Network Chairman/CEO Charles W. Ergen.

Ergen said that the increase in capacity could help EchoStar to return to the broadband market but only if it's economically justifiable. He said that the target market for EchoStar's service wouldn't be the same as the heavily competitive market for broadband that is taking place between cable, phone and Internet companies. He said EchoStar's target market for broadband wouldn't be the same as for cable and DSL but would rather be areas that are "outside of the reach of those technologies for the foreseeable future," meaning rural areas.

Ergen said that Dish Network could provide services at a lower internal cost and that was a competitive edge in today's market. He pointed out TiVo's disclosure that it gets $3 a month per subscriber for Direct TV's TiVo-enabled PVR, and said that EchoStar doesn't have to do that with its PVR service. "Rather, we invented that ourselves. That's three dollars a month that we saved our customers going forward," he said.

He said that Dish Network would continue to try to take share away from cable "We attack where there's a soft underbelly, and that varies. I think that's market by market. I'd hate to make a general statement. There are some really great cable companies that have soft underbellies in some markets" and by the same token, other cable companies that are financially weak yet have strong markets, Ergen said. He said that there might be opportunities within some of the markets of Comcast, which recently expanded with its acquisition of AT&T Broadband.

But on Thursday, Comcast Corp. posted a bigger loss of $297 million in Q1 even though it had higher revenues after acquiring AT&T's cable assets late last year. Revenues were up $5.5 billion in Q1 compared to $2.6 billion in Q1 2002. Comcast officials said they were solidly focused on the expanded cable operations and added 56,900 subscribers in the quarter, 14,300 from the Comcast side and 42,600 from AT&T. About 168,500 digital cable subscribers were added to Comcast's rolls to swell the company's digital cable base to 6.8 million. It expects to add nearly 1 million digital cable subscribers by the end of the year, although the company said that changes to pricing and packaging would slow its pace.

Ergen, Dish Network's chief, acknowledged that the so-called dish buyback programs run by some cable operators as a way to fight DBS has worked, at least temporarily. But he said the lowest-cost provider can fight back. "If anyone wants to play that game, there's nobody better to play than us ... I can buy back cable boxes cheaper than they could buy back dishes ... I can do PVRs better than they could do video on demand," Ergen said. He said that satellite providers had the edge with PVR technology and all-digital networks.