ECHOSTAR POSTS 3RD-QUARTER LOSS, PURSUES DIRECTV
EchoStar swung to $168 million 3rd-quarter loss from $3 million profit year earlier as result of cost of rights granted to Vivendi Universal, which bought 10% stake in satellite service provider earlier this year. EchoStar posted 19.6% gain in revenue to $1.22 billion, helped by addition of 320,000 net new subscribers, to bring total at quarter’s end to 7.78 million. It gained 360,000 net new subscribers year ago.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
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 acquisition last month and Justice 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,” said Senior Vp-Gen. Counsel David Moskowitz. While DirecTV Chmn. Eddy Hartenstein has indicated that Hughes will likely abandon deal if agreement isn’t reached by Jan. 21, Ergen said EchoStar is “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 wide-ranging discussion, Ergen said, absent of deal for Hughes, satellite industry will likely “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,” Ergen said. 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 about 650,000 C-band subscribers left in U.S.
Under terms of Vivendi agreement, EchoStar’s maximum exposure could be $525 million. It took $134 million charge during quarter related to agreement. Pact required that if EchoStar’s share price over 20-day period fell below $26.04 per share paid by Vivendi, EchoStar must fund difference. While Vivendi isn’t actually 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 on Thurs. afternoon.
Meanwhile, Pegasus, despite what it said were “deceptive sales practices” by EchoStar during 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 during 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 counteract EchoStar’s promotions, which have included free programming, hardware and installation, he said 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 officials said that $165.4 million in cash and bank credit available is “enough to fund the business.”