EchoStar Quietly Positioning Itself to Enter Mobile Satellite Services

The Dish provider bought a $40 million stake in mobile satellite service provider TU Media last month (CED Feb 23 p6) and disclosed in its 10-K filing that a similar operation is being considered for China. EchoStar-owned S-Band satellite CMBStar is scheduled to be completed in Q2 2008 and will lease transponder space to “an affiliate of a Chinese regulatory entity to support” a mobile satellite service in China, the 10-K said.

Speculation on EchoStar’s plans for China has swirled since last April when the company disclosed in an SEC filing that it made a $34 million down payment on a “non-U.S. satellite services project.” Up to $115 million more will be made available depending on achievement of project milestones, EchoStar said. Space System/Loral (SSL) disclosed in June that it booked a new telecom satellite order from EchoStar -- presumably CMBStar. The satellite would be used to deliver mobile video services to handheld devices in China in time for the 2008 Summer Olympics, said industry executives we polled.

Owning and running a satellite serving China, EchoStar wouldn’t need a technology export license under the U.S. International Traffic in Arms Regulations, which governs satellite-related exports. The regulations typically limit a China operator’s access to technical details of a U.S. satellite and bar it from being placed in orbit on a China Long March rocket. If EchoStar owned and ran the service, most of those issues would be moot, said officials we polled.

With China’s installed base of 400 million cellphones and population of 1.2 billion, “perhaps there is an opportunity” there, EchoStar CEO Charles Ergen told analysts in a Q4 earnings call Thurs. “Internationally, you typically as an American company cannot really control the operation and it is less attractive to us not to be involved in the actual operation of what is going on,” Ergen said. “We think we have a lot of value-add to give there. The spectrum and so forth typically goes to companies inside the countries.” EchoStar also has the right to use 32 frequencies at a 77 degrees orbital slot to deliver services for Mexico, the company said.

EchoStar executives have declined to comment on international plans. But in becoming TU Media’s 2nd largest shareholder behind SK Telecom, EchoStar said it was setting the stage for “accelerated adoption” of mobile satellite service technology. Since launching in May 2005, TU Media has lured a million subscribers to a service that offers 15 video and 19 audio channels. EchoStar is “evaluating various opportunities to make profitable use” of additional transponder capacity, including making it available for “new international venture,” the 10-K said.

In the U.S., SSL is expected to complete construction of the EchoStar-11 satellite this year. The satellite is expected to launch to 110 degrees from a Boeing Sea Launch vehicle in 2nd half 2008, the company said. Four additional SSL Ka- or Ku-band satellites are scheduled to be completed 2008-2009, EchoStar said. Among these is the SSL-built EchoStar-14, which is expected to be completed in 2009. It can be used at “multiple” orbit locations and will provide Conus and spot beam capacity, the 10-K said. EchoStar currently has a fleet of 14 satellites, 11 company-owned.

EchoStar’s plans for 1.4 GHz band aren’t known. EchoStar entered the auction for 1.4 GHz in Feb. and has entered $52 million in bids, the 10-K said. The spectrum auction started Feb. 7. EchoStar formed Wireless DBS with DirecTV last year to enter the advanced wireless services auction but later withdrew as the bidding escalated.

Meanwhile, though EchoStar has no plans to slow its push to add HD, the technology has “yet to make hugely material impacts to anybody in the industry,” Ergen said. “But there will be a day when everybody buys an HDTV set. That may be 10 years from now, but I think it’s positive for the satellite industry.” EchoStar offers 25 HD channels in a $20 monthly package. It’s also using HD to expand its MPEG-4 deployments. All of EchoStar’s new HD subscribers are using MPEG-4 set-tops, company executives said. To further expand HD, EchoStar has an agreement to lease 16 transponders on the Ciel-2 Canadian satellite scheduled to launch to 129 degrees in 2009, the company said.

EchoStar also has sought to recover from the loss of 850,000 subscribers who received distant network signals from the service. A federal judge, ruling last fall in an 8-year legal battle pitting broadcasters against EchoStar, issued an injunction barring EchoStar from continuing to provide the service. EchoStar since has “upgraded a lot of customers, rolled a lot of trucks, done a lot of retention marketing and put out a lot of incentives to save a lot of customers,” Ergen said. EchoStar also struck an agreement with National Programming Services to provide distant network signals.

Despite AT&T’s recent acquisition of BellSouth, EchoStar doesn’t expect its resell agreement with the telco to change, Ergen said. BellSouth resells DirecTV, which has said it will seek to secure business with AT&T. Despite AT&T’s new U-verse video service, EchoStar’s service hasn’t suffered, he said. Many potential subscribers may want satellite for video programming and DSL for high-speed broadband, Ergen said. EchoStar’s service also is available through AT&T’s Home Zone program. Overall, EchoStar’s resale agreements with AT&T, CenturyTel and other telcos accounted for less than 25% of its gross subscriber additions in 2006, the 10-K said. “I think our relationship with AT&T is as good as it’s ever been,” Ergen said. “We have a contract with AT&T and we know what those rights are.”