Dish dines on cable's subs

EchoStar nabs Charter customers, ups profit

By MICHAEL LEARMONTH

Ergan

NEW YORK -- The satellite pay television business continues to eat cable TV's lunch -- and is eyeing its dinner as well.

EchoStar Communications reported Monday that its Dish Network added 340,000 subscribers in the second quarter, which analysts said came largely at the expense of cable operators, especially Charter Communications.

Report follows last week's news that the No. 1 satellite service, DirecTV, added 455,000 new subs in the quarter.

In comparison, the cable industry as a whole lost 867,000 homes during the first seven months of the year, according to the Television Bureau of Advertising.

Unlike DirecTV, which slipped into the red on higher costs to acquire and retain customers during the quarter, EchoStar managed to hold on to a profit, albeit a smaller one than last year's.

Profits slipped 33% to $85.2 million, down from $128.7 million a year ago. Revenue rose 25.7% to $1.78 billion, up from $1.41 billion.

EchoStar's boffo sub count expansion together with DirecTV's stellar numbers signal that satellite is winning a price war for low-end consumers. Dish also has added local channels in 136 media markets in all 50 states, giving it a competitive offering to cable at a lower price.

One particular victim of EchoStar's success appears to be Charter, which posted huge subscriber losses for the second quarter. "EchoStar beat our estimates, but it's not surprising given the loss of basic subscribers at Charter," said Thomas Eagan, an analyst at Oppenheimer & Co.

In addition, EchoStar reaped benefits from a partnership with SBC Communications to sell Dish service bundled with telephone service. Company did not disclose in a Securities and Exchange Commission filing how many new subscribers were added through the partnership, and execs were not immediately available for comment.

But along with higher subscription adds came higher costs. Expenses increased 37.6% to $901 million from a year ago as the company expanded call centers and spent more for home installations and increased programming fees.

Monthly average revenue per subscriber increased to $55.59 in the quarter from $51.69 last year due to a price increase of $2 and the reduction in the number of subscribers receiving discounted service through promotions.

Bigger than TW Cable

Dish surpassed 10 million subscribers in the quarter, putting it close behind Time Warner Cable, the third-largest provider of pay TV in the U.S.

But Dish will come under increasing pressure from DirecTV in rural areas now that the News Corp.-owned satcaster has gained control of rural subscribers formerly managed by Pegasus Communications.

Eagan estimated that Dish has been gaining 80% of the 40,000 customers Pegasus has been losing each quarter.