EchoStar Reports Quarterly Gain of 72,000 Subscribers, Teases about TerreStar-2

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PARIS — Satellite broadband provider EchoStar said its HughesNet consumer broadband service added 72,000 net subscribers in the three months ending Sept. 30, bringing the total to 807,000 subscribers in a performance that far outpaced rival ViaSat Inc.’s Exede similar service.

In a conference call and filing with the U.S. Securities and Exchange Commission (SEC), EchoStar teased investors by saying it had begun paying its sister company, satellite television provider Dish Network, to continue construction of the TerreStar-2 S-band mobile broadband satellite without disclosing its plans for the satellite.

EchoStar also cautioned investors to be patient as the company designs a satellite television service in Brazil using an orbital slot EchoStar won at auction. Despite an agreement with Vivendi S.A.’s GVT subsidiary to form a joint venture in Brazil, “many trees must be killed” to provide the necessary paperwork to Brazilian authorities, the company said.

EchoStar said that while the end of the year is usually not a good time for consumer satellite broadband customer contracts, its new relationship with satellite television provider DirecTV as a HughesNet sales agent and the continued popularity of the HughesNet offer show no sign of slowing down.

Of the 807,000 subscribers to the HughesNet service, 441,000 have been loaded onto the EchoStar 17 satellite, once called Jupiter 1, which entered operations in early October 2012. In the 12 months since EchoStar 17 was made available commercially, HughesNet has added 212,000 new subscribers.

EchoStar/Hughes’ performance contrasts with that of Carlsbad, Calif.-based ViaSat, which like EchoStar has a new satellite with record-setting throughput, ViaSat-1.

But ViaSat’s third-quarter consumer broadband performance was compromised by a large number of customers leaving the service for higher-speed terrestrial cable or fiber alternatives. The company reported 51,000 defections in the three-month period, resulting in a net gain of 41,000 subscribers and a total of 591,000.

ViaSat has said it is testing the limits of ViaSat-1’s appeal by hunting for customers even in neighborhoods with existing broadband services. That strategy, which has borne fruit among lower-end DSL subscribers, may have reached its limit when ViaSat’s Exede was sold to households with cable or fiber access. These customers left the service when they bumped up against the usual volume limits typical of satellite broadband.

In a Nov. 12 conference call with investors, Hughes Chief Executive Pradman P. Kaul said HughesNet is steering clear of regions with existing broadband to focus on those without any alternatives, or with inferior terrestrial service.

“Very few [of our customers] have a choice of DSL,” Kaul said. “We still focus on the unserved and underserved markets.”

No quarterly earnings report from a company controlled by satellite television pioneer Charlie Ergen, who owns both Dish and EchoStar, would be complete without the peekaboo disclosure of an investment that investors cannot fathom, and the company will not explain.

In this case, EchoStar said in its SEC filing that it is paying Dish, which owns the partially complete TerreStar-2 S-band mobile broadband satellite, to continue construction of the spacecraft under an Authorization to Proceed contract with Space Systems/Loral (SSL) of Palo Alto, Calif.

EchoStar paid $10.3 million for TerreStar-2-related work in the three months ending Sept. 30. EchoStar said it entered into an agreement with Dish in August to reimburse Dish for its payments to SSL in return for right of first refusal to purchase TerreStar-2, and a possible share of the proceeds should the satellite be sold elsewhere.

EchoStar Chief Executive Michael T. Dugan said during the conference call that Dish, which purchased TerreStar Networks as part of a multibillion-dollar series of acquisitions of wireless-broadband spectrum and related assets, has access to ground assets that may profit from TerreStar-2.

“If you let it sit in a warehouse, it depreciates and eventually becomes obsolete,” Dugan said. “We’ve been working with Dish to maximize the opportunity of those ground assets.” He declined to elaborate.

EchoStar in May contracted with launch commercial launch provider International Launch Services for the launch of an unnamed 6,900-kilogram satellite in late 2015 or early 2016. That is an unusually heavy satellite, and it happens to be the launch mass of the TerreStar-1 satellite launched in 2009.

EchoStar purchased rights to television broadcast frequencies at 45 degrees west from the Brazilian government at auction in September 2011 for about $80 million. It took two years for EchoStar to find a suitable partner and in October it struck a deal with GVT to form a joint venture.

Dugan said he could not predict when the paperwork needed to close the deal with GVT and meet Brazilian regulatory approvals would be completed. Ultimately, he said, the slot is likely to be filled with a dedicated satellite instead of the placeholder spacecraft now there, called EchoStar 15.

 

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