Dish Network loses customers

25,000 decline believed its first ever

By Jeff Smith, Rocky Mountain News (Contact)

Published August 4, 2008 at 9:05 p.m.

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Photo by David Scull © Bloomberg News

Charles Ergen, chairman, CEO and co-founder of EchoStar Communications Corp. talks after a speech in Washington, D.C., in 2004.

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Douglas County-based Dish Network Corp. lost subscribers in the second quarter, believed to be the first time in its 28-year history.

CEO Charlie Ergen on Monday blamed the net subscriber loss - albeit small at 25,000 - on a weak economy and housing downturn, signal piracy and fraud, operational inefficiencies and TV competition from telcos and DirecTV.

Obviously, the housing market and economy "has some effect on you when customers can't pay their bill," Ergen said in a conference call with analysts. He also said the company hasn't been as competitive on the high-definition front as it would like.

The Wall Street Journal said this is the first time a major U.S. satellite TV company has reported a subscriber loss, and that Ergen again is contemplating a merger with DirecTV.

John Malone's Liberty Media now owns a controlling stake in DirecTV. Malone said in a recent interview with the Rocky Mountain News that "we've had a number of meetings with Charlie" to discuss joint programming initiatives and other areas of cooperation.

"If it was feasible from an antitrust point of view to put DirecTV and EchoStar together, it would make for one terrific company and enormous savings," Malone said, "(but it's ) probably not practical today, given the antitrust environment and the nature of competition, unless one would come up with some solution for the rural marketplace."

Ergen had planned to be on vacation with his family when the second-quarter results were announced. But he told analysts the company completed its quarterly report a week earlier than expected, and he thought he should be around to answer questions.

"I didn't have to change anything (with the vacation), but I did feel like a loss of subscribers is worthy of me being here," Ergen said.

Dish officials didn't immediately return phone calls to confirm this is the first time in the company's history as a private and public company that it has experienced a subscriber loss.

Ergen pointed out that the company's financial results were solid, with second-quarter revenue up 5.6 percent to $2.91 billion compared with the same period in 2007. Earnings totaled $336 million for the quarter ending June 30, up 50 percent from the same period a year ago.

The better financial performance from a year ago can be attributed in part to an increase in monthly revenue per subscriber from $66.06 last year to $69.38.

Company shares fell 7 percent in early trading, but recovered some to close down 3.7 percent to $27.91.

Dish has been hurt more than rival DirecTV by the economy, partly because it has lower-income subscribers who are especially susceptible to the housing downturn and foreclosures. Dish wound up the quarter with 13.79 million subscribers.

Ergen called the piracy and fraud problem "unique" to Dish, and one that the company should be able to get a handle on as it puts a new security and set-top box "smart card" system in place.

He said the company is making progress on its customer service issues, but also compared the video business to the airline business, "where nobody is really that operationally efficient today with the possible exception of Southwest Airlines."

A satellite failure earlier this year forced Dish to rejigger its programming to stay on track with high-def offerings. With a successful launch recently of another satellite, the company now can get more aggressive, Ergen said.

Dish took a step last week, launching a marketing program touting new all high-def programming packages called TurboHD.

Kit Spring, an analyst with Stifel Nicolaus in Denver, said last week that DirecTV still "temporarily has an advantage" in high def, though he expects that gap to close fast as Dish's new satellite comes online this quarter.

smithje@RockyMountainNews.com, or 303-954-5155

CEO Ergen looks at his business

Dish Network's problems in CEO Charlie Ergen's own words (excerpts from a conference call with analysts Monday):

On the economic challenges

* You know, obviously, housing and the total economy has some effect on you when customers can't pay their bill, either downgrade or down off completely and watch free TV - particularly your low-end type customers.

* Second issue would be (signal) piracy and fraud. As you know, our system has been compromised.

* Third thing is competitive offerings in the marketplace. The biggest phone companies (Verizon and AT&T) - they have a lot of introductory offers. Obviously, in the high-definition front we have not been as competitive as we would like in the second quarter, particularly vs. DirecTV.

* And finally, operational inefficiencies. One is our total overall customer service. We certainly have room for improvement.

What progress is being made

* We don't focus a lot of time on things we don't control (the economy). We have to have the courage to stay the course.

* The other three things we can do a lot about. Operational inefficiencies: Again I think we made progress answering our phones on time. We are delivering better customer experience than we were last quarter.

* For marketing, we launched, successfully, our second satellite this year - after we had a failure earlier in the year. That satellite will be online by the end of this month. So that's going to help us in terms of giving us more coverage, better service to our customers, better signal quality to our customers, and frees up more channels for high-definition television.

* In terms of piracy and the fraud initiatives, we started last month sending out a new generation of smart cards that will help eliminate the piracy problem. We are committed to going after anybody who is stealing our signal and making sure anybody who goes out and buys anything (that can pirate the signal) is going to lose money on it because it is not going to work.

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