EchoStar Struggling in Fixed Satellite Services Business

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PARIS — EchoStar Corp. Chairman Charlie Ergen said his satellite services company, spun off from Ergen’s Dish Network two years ago to compete with Intelsat, SES Americom and Telesat in leasing transponder capacity, may not be up to the task.

In a Nov. 9 conference call with financial analysts, Ergen gave no sign of wanting to reintegrate EchoStar into satellite-television provider Dish. But he admitted that EchoStar “may not have the scale that’s necessary” to compete in the fixed satellite services business.

Englewood, Colo.-based EchoStar owns six satellites and leases three others. It has substantial capacity beyond what Dish needs and has sought to lease it to broadcasters, corporate networks and other users.

This has been an uphill task, in part because of the economic downturn that has affected the satellite services market in the United States, and also because the market dominance of the established operators is difficult to disrupt given the cost of repointing their customers’ satellite dishes to new providers.

Bermuda- and Washington-based Intelsat came to the same conclusion earlier this decade after having failed to break the near-duopoly of SES Americom and PanAmSat in U.S. satellite broadcasting through the purchase of the North American fleet owned by Loral of New York. Intelsat subsequently solved the problem by purchasing PanAmSat.

EchoStar’s main business is selling digital set-top boxes to Dish Network and to Bell TV of Canada, and leasing satellite capacity to these two companies for television distribution.

Outside of these two customers, EchoStar has made little headway. For the first nine months of 2009, EchoStar’s non-Dish-related services business reported $29.75 million in revenue, down 17 percent from the same period a year earlier.

“We have a lot of room for improvement” in selling unused satellite capacity, Ergen said. He said the idea of cutting prices to differentiate EchoStar from Intelsat and SES and gain a foothold in the U.S. market is something the company has considered, but that this strategy would only reduce EchoStar’s losses.

“It has been a soft market and cutting prices in a soft market doesn’t help a lot,” Dean Olmstead, president of EchoStar Satellite Services, said during the call. “It’s really a question of whether there are new customers willing to commit risk capital. There haven’t been many of those lately.”

Ergen said he is willing to “take a real long-term approach” to the business and does not feel pressure to sell off the underperforming satellite assets.

EchoStar recently introduced a new product, called VIP-TV, to sell satellite-delivered programming to small cable television operators in the United States. The company announced agreements with cable companies in Ohio, Pennsylvania and Wyoming.

Neither Ergen nor EchoStar’s Nov. 9 filing with the U.S. Securities and Exchange Commission (SEC) shed light on EchoStar’s satellite broadband or mobile satellite services strategy. EchoStar is a major investor in two companies with large S-band mobile communications satellites in orbit but with no stable businesses despite years of effort.

Ergen invested in ICO North America of Reston, Va., following that company’s entry into Chapter 11 bankruptcy proceedings, in what industry officials said appeared to be a takeover bid. EchoStar is also a major investor in TerreStar Networks, also of Reston, which has launched one large S-band mobile services satellite and has another under construction.

EchoStar’s comments about TerreStar in its SEC filing were limited to saying EchoStar has two seats on the TerreStar board, and that TerreStar will need fresh cash to continue operations in 2010.

Olmstead said EchoStar is also interested in backing satellite consumer broadband projects outside the United States, but did not specify whether the company would invest in start-up BBSat of Japan.