— EchoStar Chief Executive Charlie Ergen gave investors a sobering assessment of near-term prospects for leasing the company’s excess North American satellite capacity to compete with established fleet operators , and Telesat and said its venture in satellite-delivered mobile television in shows no sign of restarting.
In a March 2 conference call – roughly a year after the Englewood, Colo.-based company was split off from satellite television broadcaster Dish Network – Ergen said he was “very disappointed that we haven’t been very successful” in carving out a piece of the North American fixed satellite services business for EchoStar.
The downturn in the economy has not helped matters, he said. Selling satellite capacity has become “a very soft market in the today. I would say it’s extremely soft.”
EchoStar owns six in-orbit satellites and leases the full capacity aboard two others over . Two other satellites on which it has leased the full capacity are under construction, as is one EchoStar-owned satellite.
Most of EchoStar’s business is selling satellite capacity and digital television set- top boxes to Dish Network. EchoStar’s stated mission is to develop the set-top box business globally, and to make a business leasing satellite capacity in
The company’s unused capacity has remained vacant, forcing a write-down of the value of the investment. In a March 2 filing with the U.S. Securities and Exchange Commission (SEC), the company said it wrote down by about $138 million the value of its 10-year lease of the full capacity of the AMC-15 satellite, owned by the Americom division of SES of Luxembourg. EchoStar recorded an $80 million impairment charge on the AMC-16 satellite, which is under a similar 10-year lease arrangement with SES.
EchoStar had stopped construction in mid-2008 of the CMBStar satellite, whose construction by of , had been nearly completed. At the time, Ergen said Loral had failed to meet unspecified “satellite performance criteria.”
But in the March 2 conference call, Ergen said the project was stopped in its tracks because EchoStar’s partner, the State Administration of Radio, Film and Television of China, had decided to no longer honor the contract. EchoStar had said it would seek alternative uses for the satellite, and continue to work with the Chinese customer to restart the project.
Neither has been possible in recent months, and EchoStar in late 2008 took an impairment charge of $85 million on CMBStar.
“The satellite was developed for , and they so far have not honored their contract,” Ergen said in explaining the write- down. “We still have the contract. They haven’t met their payment obligations. It is a custom satellite and a custom orbital slot and it would not make sense” to proceed with the satellite’s planned 2009 launch without a contract with the Chinese. He said it would cost EchoStar up to $85 million to redeploy the satellite to another purpose with another customer.
EchoStar remains hopeful that a Chinese customer eventually will be found. Ergen said EchoStar retains the rights to the geostationary orbital slot over that was intended for the S-band CMBStar venture. “Experience with is that they have honored everything they say they are going to do,” Ergen said. “Patience is necessary.”
In its SEC filing, EchoStar said it is evaluating whether modifying the satellite to serve an entirely different purpose, at a different orbital slot, would be less expensive than building a new satellite from scratch.
EchoStar has agreed to lease for 15 years most of the capacity on Telesat’sNimiq 5 satellite, to be launched late this year, for resale to Dish Network and to ‘s Bell TV satellite-television provider. EchoStar also has leased for 10 years the capacity on SES’s QuetzSat-1 satellite, to be launched in 2011 into a Mexican orbital slot. Dish Network is also the major customer for QuetzSat-1, and EchoStar’s Dish joint venture with Mexican partners also is taking part of the capacity.
EchoStar reported that it had $829 million in cash and marketable securities as of Dec. 31. It reported satellite service revenues of $412.3 million in 2008, with all but $44.4 million of that accounted for by the sale of satellite capacity to Dish Network.
Ergen said the current state of the debt market makes it unlikely that EchoStar will proceed with a debt offering anytime soon, and that while the company’s business is capital intensive, EchoStar has “adequate cash” for now. “We hope to grow the business into positive cash flow.”