Echostar Plans To Sell Wholesale Satellite Capacity in U.S.

PARIS — EchoStar Communications Corp., which operates 11 of its own satellites and leases the entire capacity of three others, insists it has 10 more spacecraft on order despite having little idea of what to do with the capacity.

In a conference call with investors and in a report filed with the U.S. Securities and Exchange Commission (SEC), the Littleton, Colo.-based satellite-television provider said one way to off-load excess capacity is to wholesale it for conventional telecommunications uses in the United States.

Company officials also gave their first public explanation for their investment in Chinese and South Korean S-band satellite projects to provide video services to consumer hand-held devices.

EchoStar’s fixed satellite services strategy in the United States, which other satellite operators including Intelsat of Washington have critiqued as dumping, was recently highlighted by EchoStar’s contract with Artel Inc. of Reston, Va., which sells commercial satellite capacity to the U.S. Defense Department.

The contract calls for EchoStar to provide “multiple satellite transponders within its fleet” to Artel for the Pentagon’s Joint Network Node mobile communications system that provides voice and data communications that connect with military communications networks.

EchoStar has created a separate group inside its organization to sell Ku- and Ka-band capacity wholesale to companies that, in turn, will provide services to consumers.

“We think that given what is going on in the … satellite market that our inventory is valuable,” EchoStar Vice Chairman Carl E. Vogel said during the March 1 conference call with investors. “[W]e see opportunities in numerous verticals … We are pretty open to making capacity available to anybody who wants it — attractive orbital slots at very attractive prices. We have a full-time team that is responsible for marketing this excess capacity.”

EchoStar Chairman Charlie Ergen has said in the past that the company is stocking up on satellite capacity in advance of a specific business plan for what to do with it. In its SEC filing, EchoStar said it had satellite-related financial obligations totaling $2.76 billion as of Dec. 31, including $658 million in satellite payments due in 2007.

Of the 10 satellites the company says it has under construction, four are Ka-band spacecraft that manufacturer Space Systems/Loral has not yet added to its order book despite the fact that EchoStar says they will all be completed in 2008-2009.

Also coming are the AMC-14 and Ciel-2 satellites, being built by Lockheed Martin and Alcatel Ale nia Space, respectively, which EchoStar is leasing from satellite-fleet operator SES Global of Luxembourg. EchoStar will be leasing at least half of the large Ciel-2 satellite and maybe more depending on the level of demand from Canadian users, who have right of first refusal to the capacity. The satellite’s owner, Ciel Satellite Group, is located in Canada and using a Canadian orbital slot.

SES Global and EchoStar are considering a similar business model using a Mexican orbital position but have yet to order a satellite for the Mexican slot. An aging and capacity-constrained EchoStar satellite in the meantime occupies the slot as a place-holder.

SES Global officials continue to refer to EchoStar — their biggest single customer — as a partner rather than a competitor despite EchoStar’s recent incursions into SES Global’s core business.

EchoStar recently won approval from the Chinese government to launch an S-band satellite by June 2008 into a Chinese orbital slot to provide mobile video in time for the Beijing Olympics that summer.

The satellite, CMBSat, is under construction at Space Systems/Loral.

EchoStar also agreed to invest $40 million into TU Media of South Korea, which has a successful satellite video business for users of mobile devices like cell phones.

“Obviously, for a project in China, we do not know what the returns might be but we know that for mobile video, they have 400 million cell phones today, which is probably close to three to one over the United States,” Ergen said in the conference call to explain the CMBSat investment. “We know they have a population of 1.2 billion people. We know they are going to make pretty cheap handsets, and we think perhaps there is an opportunity there. The returns could be zero, or negative, or they could be the kinds of returns — or better — that we see in the United States. … Hopefully we are a small part of a very, very big market for mobile television.”