EchoStar Communications Corp. reported strong first-quarter
results last Monday, followed by long-awaited midweek news that could pave the way for an
even more promising future.
The Federal Communications Commission gave EchoStar the
go-ahead last Wednesday to acquire and take control of 28 high-power direct-broadcast
satellite transponders from MCI WorldCom.
MCI and one-time DBS partner News Corp. will get nonvoting
stock in EchoStar in the deal.
Because EchoStar's stock price has risen significantly
since the proposed asset sale was announced, though, EchoStar's stock dilution would
be somewhat reduced. At midday last Thursday, its price was $118 per share.
EchoStar gains access to the last piece of valuable
full-CONUS (continental United States) orbital real estate, centrally located at 110
degrees west longitude.
EchoStar said it would launch two new satellites to 110 --
one this summer and one in December -- beefing up its video and data offerings to more
than 500 channels.
Sending local broadcast channels to the same 18-inch dish
and receiver as its core Dish Network video service is a big part of the company's
strategy.
Last month, EchoStar added a net 110,000 Dish subscribers
-- a 108 percent increase over its April 1998 additions, and the seventh straight month
during which the company netted more than 100,000 customers.
First-quarter subscriber acquisitions rose 101 percent, to
325,000 from 162,000 a year ago.
With 142,000 net additions, DirecTV Inc. beat Dish's
April subscriber growth. But EchoStar chairman Charles Ergen said Dish did well for the
month, especially given DirecTV's heavy marketing efforts.
Investors seemed pleased with the results. EchoStar's
stock rebounded last week after a short dip the previous Friday.
"The freight train keeps rolling along," Goldman,
Sachs & Co. analyst Lou Kerner said of EchoStar's recent performance, adding that
Dish's latest average revenue per subscriber exceeded expectations.
EchoStar's first-quarter revenue rose more than 44
percent over 1998, to $309 million. Premarketing cash flow increased 80 percent to $109
million for the quarter.
But operating and net losses also increased. The company
reported a $56 million quarterly operating loss, mainly due to increased marketing
expenses. Its net loss was $103 million, more than double the year-earlier loss.
Marketing expenses rose to $139 million -- significantly
higher than the $52 million the company spent during the first quarter of 1998. EchoStar
has been running aggressive subscriber-acquisition campaigns that subsidize the cost of
hardware and installation.
EchoStar is also trying to take as many PrimeStar Inc.
subscribers away from DirecTV as possible before they convert to DirecTV's high-power
DBS service.
Ergen said he would use the proceeds from tendering
EchoStar-owned PrimeStar bonds to help pay dealers bounties for bringing PrimeStar
customers into the Dish fold.
"We have a lot of things to look forward to," he
added.
Kerner said Wall Street is looking to EchoStar's new
"DISHPlayer" to bring additional growth to the company. The DISHPlayer provides
WebTV Networks interactive television and Internet access, as well as the ability to store
programming on a hard disk and to pause and replay live programming.
EchoStar distributed the first DISHPlayer equipment late
last week at its annual dealer conference in Denver. Additional product is expected to
ship this week.
Last Monday, the FCC also granted EchoStar access to six
additional half-CONUS transponders at 61.5 degrees west longitude, which will allow the
company to send local channels from smaller markets.
The company already has a satellite in orbit at 61.5, which
provides programming to consumers with second satellite dishes.
DirecTV has also been gathering DBS spectrum recently,
gaining transponders at 110 and 119, in additional to its core service at 101 degrees
west.
But unlike EchoStar, DirecTV subscribers need new receivers
to view programming from multiple DBS satellites.
Ergen said the necessary transition in technology would
make it an opportune time to discuss DBS spectrum sharing between DirecTV and EchoStar,
but he didn't hold out much hope that such discussions could be resolved in the short
term.
"It is technically feasible to build a receiver that
looks at 119 and 110," Ergen said, adding that doing so would allow both DirecTV and
EchoStar to offer local-to-local signal delivery in more cities.
Today's highly competitive DBS environment
doesn't lend itself to such negotiations, because sharing spectrum and technology
makes it easier for one DBS company to poach another's customers, Ergen said.
But in the long term, spectrum sharing would allow both
companies to focus on their main competition: cable television.
"There certainly would be efficiencies, but there
would be practical and technical hurdles to overcome," DirecTV spokesman Bob Marsocci
said of the spectrum-sharing proposal, adding, "We would explore all options for the
most efficient means of delivering local-to-local service."
Even given the intraindustry competition, Ergen said
he's pleased that DirecTV has put its support behind local channel delivery.
"They do a great job of marketing," he added.
"Their ability to get the word out will help us to overcome the perceived negative
that you can't get local over satellite. And it will help us in Washington."
Without supportive legislation, Ergen said, EchoStar may
ultimately have to scrap its plans for local-to-local.
The company currently sends signals to 13 markets on a
limited basis, and it plans to add 10 more as soon as favorable legislation is passed,
plus another 20 to 30 cities later.
