Wednesday January 27, 6:02 pm Eastern Time
Echostar says needs strong growth before profits
WASHINGTON, Jan 27 (Reuters) - Satellite television provider EchoStar Communications Corp. (Nasdaq:DISH - news) said it had nearly doubled its customer base over the past year to two million subscribers, but must add another million to have positive cash flow and two million to reach profitability.
Chief Executive Officer Charles Ergen, testifying on Wednesday at a Senate hearing on his company's recent acquisition of satellite assets from MCI WorldCom Inc. (Nasdaq:WCOM - news) and News Corp. , said in the first three quarters of last year, Echostar lost about $174 million, or $3.86 per share, on revenues of $700 million.
To sign up the two million current subscribers and continue growing, Ergen explained, EchoStar must provide satellite dishes and other equipment at a loss of about $300 per customer.
''We subsidize each of our systems,'' Ergen said. ''It takes about two years to break even.''
Customers who sign up for a $48 per month service package receive the equipment free, while customers subscribing to $20 a month deals pay $149 for equipment, Ergen said.
The company spent $16 million more than it took in from basic operations in the first three quarters of 1998, an improvement from the first three quarters of 1997 when net cash flow was a loss of $40 million.
Cash flow from investments, such as the sale of securities, covered the loss in the first three quarters of 1998, however, providing $89 million of positive cash flow.
The company's earnings before interest, taxes, depreciation and amortization -- a key figure for bond investors -- totaled $25 million in the first three quarters of 1998, up from a loss of $42 million in the same period a year earlier.
Direct broadcast satellite services like Echostar provide virtually the only competition to land-based cable monopolies in most parts of the United States.
At Wednesday's hearing, lawmakers expressed support for EchoStar's plan to buy a satellite slot from MCI WorldCom and News Corp.
''This proposed purchase will enhance EchoStar's ability to compete with cable in markets all over the country,'' Sen. Mike DeWine said. The Ohio Republican heads the Senate Judiciary Committee's antitrust subcommittee that oversees merger activity.
EchoStar will put a new satellite in the slot, greatly expanding its channel capacity, Ergen said.
The Justice Department approved the $1.6 billion stock-swap deal in December, but the Federal Communications Commission has not rendered its verdict yet.
During the hearing, Ergen said EchoStar had no plans to strike an exclusive sports programming deal with News Corp.'s Fox network. He criticized cable operators for exploiting a loophole in program sharing rules and called on Congress to tighten the law.
Ergen also called on lawmakers to relax limits on satellite television services use of local television stations. Under current law, satellite services are greatly restricted and under a federal court ruling last year, millions of satellite customers face a looming cut-off of local programming.
DeWine said Congress was likely to pass legislation relaxing the limits and allowing the satellite services to carry local stations virtually across the country. The proposal would require the services to carry every local station in a market, as cable services are required, within three years.
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