ECHOSTAR WINS STAY IN DISTANT NETWORK CASE

In a conference call with analysts on the company’s 2nd quarter, Chmn. Charles Ergen announced the stay and said the company was fighting for something he felt passionately about: “The gist of that is that we will not have to terminate subscribers who we think are very legal subscribers. We have a chance to increase the rights of consumers… [and] the rights of people who are eligible for distant signals.”

The court also ordered an expedited briefing schedule that gives EchoStar until Sept. 5 to submit opening briefs, responses by local broadcasters Oct. 3, reply by EchoStar Oct. 17, with oral argument to be scheduled soon after. At stake in the appeal are the rights to determine eligibility using multiple databases, DMAs, interference and lists of grandfathered customers, Ergen said. Losing the use of those methods could increase EchoStar’s churn, or subscriber turnover, rate, he said. Its churn in the 2nd quarter was 1.67%, which is “not really a negative… Certainly churn is something we could do a better job on,” he said.

The company added 272,000 net subscribers in the quarter, bringing the June 30 total to 8.8 million, CFO Michael McDonnell said, with revenue of $1.4 billion, up from $1.2 billion a year ago. Net income increased to $128.8 million from $37 million and free cash flow to $276 million from $122.2 million.

The company’s 10-Q filing at the SEC revealed several recent satellite anomalies and an unresolved insurance claim. EchoStar 3, at 61.5 degrees W, experienced a transponder anomaly in June, the company said, resulting in maximum operation of 30 transponders at a time. Both EchoStar 5 and 8 have experienced solar array problems this year, and the anomalies are under investigation, the company said. Although commercial operation of the satellites wasn’t affected by the problems, “there can be no assurance future anomalies will not cause further losses which could impact commercial operation of the satellite,” it said. EchoStar 5 also experienced an anomaly in an electronic component, it said, but it had no effect on commercial operations. A thruster problem on EchoStar 8 in March followed previous problems with 2 thrusters in 2002, the company said, resulting in the operation of only 9 of 12 thrusters on the satellite. The diminished thruster capacity isn’t as efficient and uses more fuel but isn’t expected to reduce the life of the satellite to less than 12 years, EchoStar said, but an investigation is continuing.

The insurance claim was filed in Sept. 1998 for $219.3 million for the total loss of EchoStar 4 during launch. The company said the carriers offered 40% of the policy amount -- $88 million -- saying EchoStar 4 wasn’t a total loss as defined in the policy. “We strongly disagree and filed arbitration claims against the insurers for breach of contract, failure to pay a valid insurance claim and bad- faith denial of a valid claim, among other things,” the company said. The suit for all carriers except one will resume Sept. 16 in N.Y., it said. EchoStar said launch and/or in-orbit insurance policies for satellites 1-8 had expired and currently were self-insured. As of June 30, the company said, it held $135.2 million in reserve for insurance.

Ergen said he didn’t know how the proposed settlement between DirecTV and the National Rural Telecom Co-op (NRTC) would affect EchoStar, but “we'll stay focused on our business and get our fair share of customers. Ultimately, all that litigation will be resolved and we have to compete against the toughest cable and satellite guys out there.” Responding to questions about Cablevision’s plans for its recently launched Rainbow-1 satellite, he said he had no independent knowledge of the business plan, but was aware that the company was lobbying at the FCC for Special Temporary Authority to use the unassigned channels at 61.5 degrees W. “We do believe [new companies] can enter this market, increase competition… [but] it’s hard to know what they have up their sleeve.”

Ergen said the Ku-band payload on the recently launched EchoStar 9 would help increase HDTV local channels and the availability of international channels. He said the number of HDTV local channels the company would make available was “one if the biggest unknowns. I don’t know that there’s an economic model to do HD local.” He said the broadcast of a national HD signal would be ideal but that there was more work to do there: “There may be some hard-fought contests with Congress and the FCC.”