ECHOSTAR TO CITE FOREIGN OWNERSHIP, CONTROL IN HUGHES DEAL
EchoStar Chmn. Charles Ergen said News Corp.’s proposed acquisition of Hughes Electronics and subsidiary DirecTV would represent a “mixed bag” for his company, but could be a problem for cable. In EchoStar’s earnings conference call, Ergen said: “We will respond to those things that we think are detrimental to the industry and the customers.” EchoStar swung to a $58 million first-quarter profit, from a $35 million loss a year ago, on strong subscriber growth that boosted revenue 23% to $1.36 billion.
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Among the issues likely to be raised during the FCC’s review of the deal will be News Corp.’s foreign ownership and its ability to control content through its Fox programming arm, Ergen said. He said he had had better relations with News Corp.’s Chmn. Rupert Murdoch than Hughes executives, and said there was a potential for the acquisition to make the satellite industry “stronger” by helping in fighting programming piracy. “News Corp.’s acquisition will clearly be negative for cable and it may or may not be for EchoStar,” Ergen said. EchoStar’s relations with News Corp. have been contentious and the failed merger in the late 1990s spawned a breach-of-contract suit that was later settled..
Separately, EchoStar and TV networks filed motions and briefs Mon., following trial last month in the 5-year-old suit in which the networks are seeking a court order to block transmission of distant network signals. The broadcast networks alleged the transmissions violated the Satellite Home Viewer Act and infringed on programming copyrights. EchoStar reached settlements with ABC-TV (April 2002) and NBC-TV (Nov. 2002), but 6 other plaintiffs remain, including CBS and Fox. Networks are seeking a so-called “death sentence” that would force EchoStar to halt transmission of distant network signals and local channels. If the judge finds in favor of the networks, 60% of EchoStar’s 8.5 million subscribers could be affected, Ergen said. The judge’s decision could be issued later this month, he said.
In other litigation, the results of an investigation by state attorneys general of 13 states into EchoStar’s business practices are expected to be released in several months, Ergen said. Two state attorneys general, who were joined later by 11 others, began the investigation in April 2002 into whether EchoStar had failed to comply with state consumer protection laws governing call response times and policies and advertising and customer agreement disclosures.
EchoStar added 350,000 net new subscribers, to end the quarter with 8.53 million, as revenue per subscriber rose to $51.48 from $48.36 a year-earlier. The improved earnings came despite EchoStar’s incurring $20 million in additional costs associated with debt redemption and a rise in per- subscriber acquisition cost to $448 from $430 a year ago.
In an effort to expand service, EchoStar paid SES Americom $50 million in March to partly fund construction of a new satellite that would be launched to the 105 degrees W orbital slot in 2004. EchoStar also agreed to lease all capacity on the existing bird at 105 degrees W starting in late summer to expand the number of markets in which it carried local programming to 106, from the current 64. The new, higher power satellite will enable EchoStar to reach 150 markets by fall, the company said. The agreement with SES will “open up capacity” for EchoStar to expand high- definition offerings and launch broadband business, Ergen said. The EchoStar-9 satellite is expected to provide 100 channels of foreign language programming and additional service for Alaska and Hawaii.
Meanwhile, EchoStar said it continued to experience “anomalies” in operation of its satellites. The EchoStar-5 bird, which has lost solar array strings in each of the last 3 years, lost another in Jan., giving it the minimum 92 needed to assure full power for the satellite’s expected 12- year life. The EchoStar-8 bird lost a 3rd thruster in March, but remains operational.
On the broadband front, EchoStar board member Nolan Daines resigned from the board to head the company’s effort to launch a satellite-based Internet access service. EchoStar has tested packaging video with a DSL offering from SBC Communications, but the results have been “mixed,” Ergen said.