ECHOSTAR POSTS 3RD-QUARTER LOSS, PURSUES DIRECTV

In conference call with analysts, EchoStar Chmn. Charles Ergen conceded company faced “uphill battle” in seeking to revive its proposed $19 billion acquisition of Hughes Electronics. FCC turned down proposed deal last month and Justice Dept. and 23 states filed suit to block transaction, which is scheduled to expire Jan. 21. EchoStar faces Nov. 27 deadline when FCC is expected to pass its decision to administrative law judge and company is “continuing to consider alternatives,” Senior Vp-Gen. Counsel David Moskowitz said. While DirecTV Chmn. Eddy Hartenstein has indicated that Hughes is likely to abandon deal if agreement isn’t reached by Jan. 21, Ergen said EchoStar was “looking at all the possible remedies” that might enable proposed acquisition to gain approval: “We haven’t given up on the merger and we continue to pursue remedies that we think make sense.”

In DBS service business, Ergen said average monthly churn of 1.7% was “a little higher than forecast” due to 1-2-3 Great TV promotion that offered qualified subscribers buying one or more receivers 3 months of free programming with one-year commitment to service. Ergen conceded that some subscribers turned off service after 3rd month. “We didn’t have much success with it and you're probably not likely to see it from us again in the future,” he said. EchoStar’s Digital Home program, which leases equipment to subscribers, also produced smaller percentage of new customers, Ergen said. In past quarters, Digital Home had accounted for 30-35% of net new subscribers, but Ergen declined to provide details for 3rd quarter. Total service revenue rose to $1.1 billion in quarter from $924.6 million year earlier and equipment sales increased to $76 million from $72.3 million. Average revenue per subscriber was $49.04, up 19? from 2nd quarter. Per-subscriber acquisition cost, including Digital Home program, was $545, up from $540 year earlier.

In wide-ranging discussion, Ergen also said that, absent deal for Hughes, satellite industry was likely to “move in lock- step” with MSOs in raising subscription rates. “We'll raise our prices because we have to make up for increases in programming costs,” he said. Also on programming front, he said EchoStar had had discussions with NFL, but said pro football was likely to remain with DirecTV because “we don’t have the [subscriber] base that would buy the way they do.” DirecTV has marketed NFL Sunday Ticket for 7 years. EchoStar’s marketing effort to get Superstar/Netlink C-band subscribers to switch to its DBS service also is winding down and it’s “not material to our business any more,” Ergen said. There are 650,000 C-band subscribers left in U.S. On hardware side, Via Digital’s recent proposed sale to Canal Plus is likely to spell end for EchoStar’s supply agreement, Ergen said. EchoStar hasn’t received new orders from Spain’s Via Digital this year, he said. It remains satellite receiver supplier for Bell ExpressVu in Canada.

Under terms of Vivendi agreement, EchoStar’s maximum exposure could be $525 million. It took $134 million charge in quarter related to agreement. Pact required that if EchoStar’s stock over 20-day period fell below $26.04 per share paid by Vivendi, EchoStar must fund difference. While Vivendi actually isn’t eligible to receive any payments until 2004 at earliest, EchoStar must record rights charges quarterly. EchoStar stock was trading down 7.4% at $18.60 Thurs. afternoon.

EchoStar also postponed planned Dec. launch of EchoStar-9 Ka-band satellite to 2003 pending further FCC review. Commission earlier had rejected application. EchoStar also said in SEC filing that 2 thrusters failed on EchoStar-8 satellite that was launched in Aug. to 110? W. Bird can continue to operate using combination of 10 other thrusters, company said.

Meanwhile, Pegasus, despite what it said were “deceptive sales practices” by EchoStar in quarter, said 3rd-quarter loss narrowed to $45.9 million from $95.8 million as revenue rose to $225.9 million from $214.9 million. Pegasus lost 31,000 subscribers to end quarter with 1.34 million, down from 1.49 million year earlier. While it added 55,000 subscribers, 86,000 dropped service, due in part to EchoStar reducing pricing and eliminating some “credit screening,” COO Ted Lodge said in conference call with analysts. Pegasus’s average revenue per subscriber rose to $53.18 from $46.76 year ago, while acquisition costs jumped to $499 from $408. While Lodge declined to detail how Pegasus planned to counter EchoStar’s promotions, which have included free programming, hardware and installation, he said his company would offer “competitive packages and value propositions” in coming weeks. In quarter, Pegasus sold assets of its DirecWay-based satellite Internet access service, including 5,100 subscribers, to Earthlink for $4 million. It also reached agreement with Emmis Communications on sale of Mobile, Ala., TV station for $11.5 million, deal that’s expected to close in first quarter, CEO Marshall Pagon said. While Pegasus ended quarter with $1.2 billion in total debt, company said $165.4 million in cash and bank credit available was “enough to fund the business.”