ECHOSTAR QUARTERLY LOSS NARROWS, REVENUE INCREASES

Loss was attributed in part to $58 million charge related to value rights granted Vivendi Universal, which agreed in Jan. to invest $1.5 billion in EchoStar. It also included $36 million charge that EchoStar took to write off rest of investment in Starband, which has been selling satellite-based Internet access service. Starband no longer is selling service through EchoStar, but has signed agreements to supply it directly to 1,200 dealers, Starband has said. Net loss from EchoStar’s Digital Sky Highway (DISH) network narrowed to $42.5 million from $166 million as revenue increased to $1 billion from $817.9 million. Meanwhile, EchoStar’s OEM arm, EchoStar Technologies, which supplies product to Bell ExpressVu in Canada and Via Digital in Spain, said it had reduced net loss to $3.2 million from $7.7 million loss year ago as sales increased to $33.7 million from $18.7 million. Revenue per subscriber declined in quarter to $48.36 from $49.32 in 4th quarter, but up from $48.23 year earlier. Downturn was tied to EchoStar’s I Like 9 promotion that was begun last Aug. and offered those buying receiver for $199 or more free installation and choice of 2 programming packages for $9 per month. Promotion expired Jan. 31. Revenue per subscriber was about $20 for I Like 9, Ergen said. Per-subscriber acquisition cost, including capital expenses, was $533 in quarter, up from mid-$400 range year ago.

In earnings conference call with analysts, EchoStar CEO Charles Ergen continued to push proposed $26 billion acquisition of Hughes Electronics and its DirecTV subsidiary and repeated that FCC and Justice Dept. weren’t likely to deliver final decision until Sept. In SEC filing, EchoStar said value rights agreement with Vivendi, whose investment was key component of funding needed to complete acquisition of Hughes, required that it receive minimum of $225 million if merger were approved and EchoStar’s class A common stock was below $26.04 for 20-day trading period preceding 3-year settlement date. Vivendi gets $525 million if deal collapses and stock is below same price.

Meanwhile, EchoStar also said in SEC filing that it had reached settlement with ABC-TV in suit networks had filed against company in Dec. 1998 in U.S. Dist. Court, Miami, seeking to block its transmission of distant network signals. Networks had alleged that transmissions violated Satellite Home Viewers Act (SHVA) and infringed on programming copyrights. Terms of agreement weren’t disclosed and case involving CBS-TV, NBC-TV and Fox remains pending. Federal court had granted preliminary injunction in Sept. 2000, decision that was overturned by 11th U.S. Appeals Court, Atlanta, year later. At same time, appeals court rejected EchoStar’s challenge to SHVA based on First Amendment, and company has petitioned U.S. Supreme Court. Trial involving remaining networks is scheduled for Jan. 13, 2003, EchoStar said. Elsewhere on legal front, Ergen said he remained confident EchoStar would prevail in patent infringement case currently awaiting decision by ITC administrative law judge. Gemstar had filed complaint with ITC alleging that EchoStar’s satellite receivers contained electronic program guide that infringed on its patents. Judge conducted 15-day hearing in Dec. and is expected to rule by June 21. “The litigation process is going to continue because whomever loses is going to file an appeal and, regardless of the outcome, I think it’s going to go to trial,” Ergen said. “This is really only the first step in the litigation.”

EchoStar also said that transponder pair on EchoStar-3 satellite failed in Jan., causing temporary interruption of service. Five other transponder pairs on satellite have previously failed, leaving bird with maximum of 32 transponders that can be operated at one time, EchoStar said. EchoStar-4 also has experienced failure of 30 of its 44 transponders and company is planning to offset equipment with launch of new satellites. EchoStar-7, which launched in Feb., became operational in April and will carry some pay-per-view channels that were dropped when EchoStar added more local channels in Jan., Ergen said. EchoStar-8 is scheduled for flight in June and could go online by late summer, Ergen said. EchoStar has reserved $176 million for self-insuring its satellites.