EchoStar Considers Joint Project with DirecTV, Entering FSS Market

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  Space News Business

EchoStar Considers Joint Project with DirecTV, Entering FSS Market

By PETER B. de SELDING
Space News Staff Writer
posted: 24 April 2006
01:57 pm ET


EchoStar Communications Corp. Chairman Charlie Ergen said he is open to a joint venture with competitor DirecTV Group to share the costs of installing a network of ground antennas in the United States to debut a terrestrial wireless broadband service.

But Ergen also suggested that he had not yet seen any technologies that would justify the investment and would not make such a decision “just to satisfy somebody on Wall Street.” In a March 15 conference call with investors on the Littleton, Colo., company’s financial results and the company’s annual report to the U.S. Securities and Exchange Commission (SEC), EchoStar raised questions about how many satellites the company plans to buy.

Company officials also raised the possibility that EchoStar would enter the fixed-satellite services (FSS) business in competition with companies like PanAmSat and EchoStar’s occasional partner, SES Americom.

In its SEC filing, also dated March 15, EchoStar said it had six satellites on order and planned to spend some $1.5 billion building and launching them between now and 2009.

Only one of these satellites, the EchoStar 11, which is under construction at Space Systems/Loral, had been previously disclosed. The five new spacecraft, according to EchoStar, also are under construction at Loral and will carry a mix of Ka- and Ku-band. Among the possible future uses of these satellites is a two-way broadband data service.

Loral officials have never spoken publicly about these spacecraft and never included them in the company’s backlog. Loral spokesman John McCarthy said Loral would have no comment on the EchoStar statements.

The SEC filing also makes no mention of two all-Ka-band satellites that the company previously had said were under construction by Lockheed Martin Commercial Space Systems. In its annual report to the SEC in March 2005, EchoStar had said two A2100-class spot beam Ka-band satellites would be completed by Lockheed Martin in 2008.

EchoStar spokeswoman Kathie Gonzales did not respond to requests for clarification.

An EchoStar-DirecTV agreement to share the costs of building and deploying a network of ground antennas for wireless broadband could affect the number of spacecraft the two companies will launch.

Ergen, who is an acknowledged master of leaving investors guessing about his intentions, said the idea of a shared investment with his rival has appeal.

“You could make a compelling case that the satellite industry is probably better served to look at advances in terrestrial wireless as an industry, in a standardized way,” Ergen said. “The build-out costs would be excessive and it would make more sense to do that for 30 million subscribers [the combined EchoStar-DirecTV customer base] than for 12 million or 15 million subscribers.” But Ergen added that EchoStar sees no urgency in the matter, and that “we don’t necessarily see a compelling system within terrestrial broadband today that makes sense for us. If something developed where we could do something with DirecTV we certainly are keen on that idea, if it makes sense.”

In the meantime, Ergen said, EchoStar is ready to order more satellites than it currently knows what to do with.

In addition to ordering its own satellites, EchoStar has agreed to lease all the capacity on several spacecraft owned by satellite-fleet operator SES Americom of Princeton, N.J., and another large spacecraft being built by Canadian operator Ciel Satellite Communications. In total, the company has on order 8 to 9 satellites.

David Moscowitz, EchoStar’s general counsel, said “We have some outs on some of those at certain points in time,” meaning EchoStar can choose to pay several million dollars in initial payments to manufacturers and then cancel the contract.

EchoStar has a history of not insuring its satellites, but of protecting its orbital investment with backup capacity. Ergen said that partly explains the new orders. In addition, he said, EchoStar wants to order spacecraft to ensure it is capable of taking advantage of new opportunities including broadband and television over the Internet.

But EchoStar also is thinking about entering the market now occupied by PanAmSat, SES Americom, Telesat and others by leasing satellite capacity to broadcasters, transponder by transponder.

Ergen said some satellite-fleet operators have been valued more highly by Wall Street than has EchoStar, whose stock has not moved in more than four years, despite these companies’ modest growth prospects and high debt.

EchoStar Vice Chairman Carl Vogel explained how EchoStar sees its options: “We have 14 satellites in the air over the United States. That’s a pretty significant footprint. We own that infrastructure plus the consumer [satellite-television] business and yet our multiple is considerably less [than fixed satellite service operators]. So I think we’ve got some interesting options there. We think we have opportunities to gain incremental revenues off some of those satellites that we haven’t quite shown a return on to date. There are some good opportunities there going forward.”

Comments: pdeselding@compuserve.com