EchoStar Progress Slowed by ‘Soft’ Market for Satellite Transponders

While EchoStar developed a Sling tru2way combo set-top box and is “engaged with cable opportunities” in the U.S. and Europe, it hasn’t landed an agreement, EchoStar President Mark Jackson said. The T2200 Set-top, which is DOCSIS 3.0 compliant and features SlingGuide for Web-based control of TV viewing, was expected to begin testing with cable operator labs late this year and ship in late 2010 (CED Oct 19 p1). The Set-top can also handle program authentication for cable operators so that content via Sling technology can be transmitted to cellphones and PCs.

Dish and BellExpressVu were among the satellite service operators expected to sell satellite receivers featuring Sling technology, Ergen said. But the platform isn’t “stable enough yet” to be released in products, he said. While some Sling products, including the Sling Solo and SlingCatcher, continue to be sold at retail, EchoStar believes the technology is a “better feature than a standalone product,” Ergen said. The SlingCatcher has been promoted at Best Buy at $199, down from the $299 it originally retailed for. EchoStar officials have been non-committal in the past about the future of Sling standalone products, which Dish purchased in 2007. EchoStar inherited the Sling standalone business in being spun off from Dish. In addition to set-tops, EchoStar also developed Sling for integration into TVs and Blu-ray players, Jackson said. “It’s a product where we have to do a better job marketing,” Ergen said.

In addition to delays in introducing Sling-based products, EchoStar also has been hampered by a sluggish market for transponder leases, company officials said. Dish Network uses transponders on EchoStar owned and leased satellites for its direct-to-home service. But business-to- business operations, which includes backhaul for programming, has been “slow going,” Ergen said. “We don’t have the scale yet to do what we need to do in that business,” he said.

EchoStar’s agreement with MDS Communications to deliver satellite service in Mexico using EchoStar 8 at 77 degrees west isn’t expected to start generating significant revenue until 2010, Ergen said. The service so far has gained 600,000 subscribers from the 20 towns in Mexico where it’s available, company officials have said. Set-top orders from the Mexico venture have surpassed initial commitments and the business has done “quite well” so far, Ergen said. “We're looking at it in the five- to 10-year time frame,” he said.

The company also will benefit from ViaSat’s proposed purchase of satellite-based Internet service provider WildBlue, which leases transponders from EchoStar on SES’ AMC-15 satellite at 105 degrees west. EchoStar made a $50 million loan to WildBlue in 2008. “This solidifies satellite broadband capacity and they will continue to pull down capacity in the future,” said Dean Olmstead, president of EchoStar Satellite Services.

EchoStar also has made progress in converting SES Americom IP Prime customers to its VIP TV service, which provides more than 300 channels. SES pulled the plug on IP Prime earlier this year. EchoStar recently signed pacts with CT Communications in Ohio to supply 46 HD channels, and with TCT West, whose service area includes northwestern Wyoming and southeastern Montana, to provide 42. A third agreement, with Northern Pennsylvania Telephone Co., Prattsburg, N.Y., calls for delivering 49 HD channels and 50 audio channels, EchoStar said. The programming is delivered from a satellite at 85 degrees west. Telesat Canada’s Nimiq-5 satellite at 72.7 degrees west, on which EchoStar is leasing 32 Ku-band transponders to Dish, went into service in October.

EchoStar’s Q3 net income swung to a $294.6 million profit from a $307.9 million loss a year earlier on $349 million in unrealized one-time gains on investments, the company said. Among these was a $100 million gain on EchoStar’s investment in XM Sirius Satellite Radio, analysts said. EchoStar bought about $175 million in XM Sirius debt earlier this year. EchoStar also posted a $52.6 million net loss on its investment in TerreStar, against a $66.1 million loss a year ago.

Revenue fell to $482.9 million from $616.1 million as hardware sales to Dish dropped to $314.3 million from $461.6 million. Hardware sales to other customers fell to $68.6 million from $85.1 million. Dish-related service revenue slipped to $89.9 million from $91.3 million, while that from other customers rose to $10 million from $8 million, EchoStar said. EchoStar’s earnings benefitted from a decline in total costs and expenses to $486.7 million from $657.2 million, while inventory declined to $33.5 million from $46.4 million. Equipment costs fell to $327.5 million from $446.9 million. - - Mark Seavy