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EchoStar Triples Its Quarterly Profit

Net income grows to $128.8 million. The firm is adding subscribers in areas where cable TV has not gone digital.

August 14, 2003|From Bloomberg News

EchoStar Communications Corp., the No. 2 U.S. satellite-television provider, said Wednesday that second-quarter profit more than tripled after the company signed up additional subscribers for its Dish Network service.

Net income climbed to $128.8 million, or 26 cents a share, from $37 million, or 7 cents, a year earlier, the company said in a regulatory filing. Revenue rose 21% to $1.41 billion from $1.17 billion.

EchoStar and DirecTV, owned by El Segundo-based Hughes Electronics Corp., are luring subscribers from cable TV by charging less and offering more channels in areas where the cable companies haven't upgraded to digital service.

The Littleton, Colo.-based company added more customers than DirecTV, the biggest satellite broadcaster.

"EchoStar does a brilliant job with how they attack the weaker cable companies and their marketing approach," said Matthew Harrigan, an analyst at Janco Partners, who rates the shares "accumulate" and doesn't own them. "They still accounted for the majority of subscriber growth in the second quarter."

The satellite-TV provider added 270,000 subscribers to end the quarter with 8.8 million, an increase of about 18% from a year earlier. DirecTV ended June with 11.6 million subscribers in the U.S., up 7.5% from a year earlier.

EchoStar's results in the latest quarter were helped by a one-time legal settlement related to equipment that reduced subscriber-acquisition costs by about $34 million.

Analysts had expected the company to report profit of 19 cents a share, according to a poll by Thomson Financial.

Shares of EchoStar fell $1.85 to $34.27 on Nasdaq on Wednesday. The stock had risen 62% this year.

The average percentage of Dish Network subscribers who canceled service each month rose to 1.67% in the quarter from 1.6% a year earlier, Chief Executive Charlie Ergen said during a conference call with analysts.

DirecTV's average customer churn last quarter was 1.5%.

"Our competition has done a better job there, so we have room for improvement," Ergen said.

EchoStar's gain in new subscribers topped the forecast of 250,000 from John Hill, an analyst at Soundview Technology Group.

In contrast, the eight largest U.S. cable-TV providers lost a combined 138,000 subscribers during the second quarter, Hill wrote in a note to clients. He rates the stock "neutral."

To help it compete with cable companies, EchoStar reached an agreement with SBC Communications Inc., the second-biggest U.S. local phone company, to offer TV service as part of a package of telecommunications services on a single bill. SBC also invested $500 million in EchoStar.

Comcast Corp. and other cable companies already offer packages of services, including television, high-speed Internet and phone. They say offering such packages at a discount makes customers less likely to cancel.

EchoStar is taking customers from DirecTV in rural areas where both companies face less competition from cable.

DirecTV lost about 45,000 subscribers last quarter in rural areas, where the National Rural Telecommunications Cooperative holds exclusive rights to market the DirecTV service. The cooperative and DirecTV announced a proposed legal settlement Monday that would let Hughes take over marketing of DirecTV throughout the U.S. in 2011.

"In the rural area where DirecTV lost subscribers, EchoStar is going to do very nicely," said William Jacobs, an analyst at Harris Associates. Harris Associates held 3.82 million EchoStar shares in March, according to public filings.

Ergen said a U.S. appeals court Wednesday postponed a lower court's order that would have required EchoStar by Sept. 22 to stop broadcasting local TV channels from big cities such as New York to some Dish Network customers who live hundreds of miles away.

Customer churn over the next 12 months could increase by as much as 1 percentage point and revenue per customer could decline by as much as 30 cents a month, unless the appeals court overturns the order or EchoStar settles the litigation, the company said in the filing.

Viacom Inc. and affiliates of broadcast networks including CBS, General Electric Co.'s NBC and Walt Disney Co.'s ABC had filed the suit in U.S. District Court in Miami.

Average monthly revenue per subscriber rose to $51.60 last quarter from $48.85 a year ago.

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