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EchoStar Q1 Revenue Up 13%

5/12/2006 09:18:00 AM Eastern

Englewood, Colo. — EchoStar’s first-quarter financial report offered a mixed bag, showing a 13 percent increase in gross revenue, to $2.2 billion, and the addition of 225,000 net new subscribers, but churn increased to 1.57 percent, from 1.44 percent a year earlier.

Meanwhile, the company’s DISH Network reported 794,000 gross subscriber additions in the quarter, but the 225,000 net new subs was down, from 325,000 the company added a year ago.

EchoStar said with the additions the company’s total subscribers now stand at 12.265 million.

EchoStar attributed the drop off in new subscriber additions, in part, to AT&T testing its own TV service with plans for rollout in limited markets later in the year, and a de-emphasis by the telephone company on the recruitment of subscribers to EchoStar’s service in bundled programs.

In a call to analysts, company chairman Charlie Ergen blamed the worsening churn rate and slowing net subscriber additions on stiffened competition from cable TV providers, an increase in subscription rates in the period, ongoing piracy and the temporary elimination of the Lifetime network during a recent rate dispute.

Ergen said the cable TV industry reported one of its best quarters in recent years during the period, an achievement he attributed to cable operators and telecommunications carriers pushing triple-play (voice, broadband and video) service bundles.

Ergen said DISH Network plans to combat the issue to a degree with the release later this year of a set-top box with a broadband connection, allowing users to view video content delivered by satellite and the Internet.

EchoStar said average revenue per unit (ARPU) in the quarter was $59.93, an improvement over $57 reported in first quarter 2005. Subscriber acquisition costs (SAC) were $665 for the first quarter, up from $623 reported during the year-ago period.

The company said the increased SAC resulted from higher costs for new MPEG- decoder boxes.

Net income fell to $147 million during the quarter, compared to $317 million recorded for the same quarter in 2005.

EchoStar attributed the revenue drop, in part, to a $74 million settlement with TiVo, after a jury found the company guilty of willfully infringing some of TiVo’s DVR patents.

Ergen denied the outcome, saying that testimony from outside counsel supporting EchoStar’s technology claims was improperly barred from the proceedings.

“We believe we ultimately will prevail and do not violate their intellectual property,” Ergen told analysts. “In this case, we think [the jury] got it wrong.”

Net income was also affected by accounting changes arising from a new set-top lease program. Also, last year’s income results were boosted by a large payment in the settlement of an insurance claim over a malfunctioning satellite.

Ergen reported that EchoStar successfully launched its Echo 10 satellite, which has enabled the service to comply with legislation barring the use of two or more dishes to receive local TV service in a market. He said DISH network previously had required dual dishes for local service in 38 markets.

Today, he said, DISH network provides analog local-to-local TV service to 90 percent of the country, and digital local-to-local service in 40 percent of the country.

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