DISH Network Corp (DISH) 2004 Q4 法說會逐字稿

Good afternoon. My name is Crystal, and I'll be your conference facilitator. And at this time, I would like to welcome everyone to the EchoStar 4th quarter 2004 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone key pad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Mr. Jason Kiser, Treasurer of EchoStar. Sir, you may begin.

Thank you, operator. Well, thanks for joining us, everyone. My name is Jason Kiser, and I'm the Treasurer here at EchoStar. I'm joined today by Charlie Ergen, our Chairman and CEO, David Moskowitz, our Executive Vice President and General Counsel; and, joining us for the first time, Dave Rayer, our new CFO. I'll give you the quick recap of the financial performance of the quarter and full year, and then I'll turn it over to Charlie for his comments before we open it up for some Q&A at the end. Before we get started, we do need to do our Safe Harbor disclosure, so for that, I'll turn it over to David.

Thanks, Jason. Good morning, and my thanks as well to all of you for joining us. As you know, we do invite the media to participate in listen-only mode on the call, so we would ask that the media not identify participants and their forums your reports. We don't allow audiotaping of the call and we ask that you respect that. As you know, all statements we make during the call that are not statements of historical fact constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward looking statements involve known and unknown risks, uncertainties and other matters that could cause our actual results to be materially different from historical results, or from any future results expressed or implied by the forward looking statements.

Now, I'm not going to go through a list of all the factors that could cause our actual results to differ from our historicals, or forward looking statements. But I'd ask you to take a look at the front of the 10-K and the other reports we file with the SEC from time to time. All cautionary statements that we make during the call should be understood as being applicable to any forward looking statements that we make, wherever they appear. You should carefully consider the risks described in our reports and should not place any undo reliance on forward looking statements that we make. We assume no responsibility for updating any forward looking statements we make. Please also note that during the call, we will refer to the non-GAAP liquidity measure of free cash flow.

You should refer to our 10-K, which is available on the Investor Relations page of our website, at EchoStar.com for a reconciliation of free cash flow to net cash flow from operating activities. I'd also note for those of you who may be interested in EBITDA, that our 10-K contains a reconciliation of EBITDA to net income. We've also posted reconciliations of fourth quarter free cash flow EBITDA to GAAP on our website. With that all out of the way, I'll turn it back over to Jason.

Thanks, David. Well, let's take a look at both quarter and the full year, and we'll start with the total company. Total revenue for the quarter was $1.93 billion, an increase of 4 percent over last quarter and 28 percent higher than the same period a year ago. For the year, revenue totalled 7.15 billion, an increase of 25 percent year over year. Continued strong subscriber growth and higher average revenue per subscriber were the primary drivers of the increase.

From an EBITDA perspective, we generated $346 million during the quarter, an increase of 6 percent over last quarter and 32 percent higher than the same percent a year ago. EBITDA for the year was 1.2 billion, an increase of 6 percent over last year. Net income for the quarter came in at 70 million and at a decrease of $32 million over quarter, but $67 million higher than the same period a year ago. Net income for the year was 215 million compared with 225 million in 2003. Basic earnings per share for the quarter was $0.15 compared to $0.22 last quarter, and a penny for the same period last year. Basic EPS for the year was $0.46, which was the same as last year.

During the quarter, free cash flow was negative $95 million. This represents a $61 million decline from last quarter, but a $62 million improvement from the same period a year ago. For the year, free cash flow was 21 million, which was $233 million less than 2003. The decreases from the prior quarter and year resulted from the cost of subscriber growth, a decline in operating margins, increases in satellite payments, and refinancing costs. Let's look at the DISH Network specifically. Despite what -- what continues to be an increasingly competitive environment ,we added 430,000 net new customers during the 4th quarter, and 1,480,000 new subs for the year. This represents just over 49 percent of the incremental growth in the DBS industry for the quarter and just over 46 percent for the year.

We ended the year with 10,905,000 subscribers; and in January of this year, announced that we had passed the 11 million subscriber milestone. We continue to believe that our "lowest all digital price in America" marketing message has highlighted our position as the low cost provider in a rising rate environment, and we continue to see growth in the areas where we offer local content, which is now up to 155 markets. Churn for the quarter was 1.51 percent compared to 1.77 in Q3 and 1.53 for the same period a year ago. Churn for the year was 1.62 percent compared to 1.57 last year. Our consumer strategy continues to revolve around taking advantage of our low cost infrastructure by combining low prices with best-in-class service and product offerings. We continue to refine our customer segmentation to focus on finding the right balance between churn reduction and responsible and economic spending on retention.

During the quarter, our average revenue per subscriber was $55.79, a decrease of $0.32 per sub over the third quarter and an increase of $5.14 for the same period a year ago. ARPU for the year was 54.87 compared to 51.21 last year. The year over year increases in ARPU were driven by a couple of items. First, we had price increases of up to $2 back in February of 2004. Second, equipment sales, installations and other services related to our relationship with SBC have contributed to the overall increase. Third, there was less discounted programming in 2004 versus 2003. And lastly, increases in advanced set-top box households show up as increased ARPU from the additional fees we received.

[INAUDIBLE] related margins decreased by 38 basis points from Q3 and over 300 basis points year over year. We continue to focus heavily on gaining efficiencies in our call centers, installation network and cost-effectively managing our retention spending, all of which contributed to the controllable portion of the margin erosion we have seen on a year over year basis. The less controllable portion of the margin decline is related to the accounting treatment for SBC subs, where we recognize the installation, a deferred portion of the equipment and a lower recurring margin. As we have mentioned, for comparative purposes, these transactions will continue to cause margins to be below levels that existed prior to the partnership. During the fourth quarter, subscriber acquisition costs plus the capitalized portion in amounts recovered under the lease program increased 3 percent or $17 per add from Q3. For the quarter, we averaged approximately $605 per gross addition. All in SAC for the year was $593 compared to $480 last year.

The year over year increase in SAC was primarily the result of several factors. First, the continued shift in mix toward leases, which adds to SAC, since lease customers tend to have a higher number of boxes and or tuners per household, which increases the metric. We've also offered more free equipment, either through more set-top boxes or higher cost boxes for advanced services. And it's important to reiterate that while that has a negative affect of increasing SAC, there is ultimately a corresponding benefit in ARPU from less discounted programming and additional fees from multi-box households and advanced services. Additionally, the portion of SAC related to installation increased on a per ad basis as a result of more time-consuming and technically complex installs resulting from multiple box households and the Super DISH product.

Finally, let's take a quick look here at the balance sheet. As we mentioned on our last call, during the fourth quarter, we issued $1 billion of new 10-year money at 6 and 5/8, and used the proceeds to take out the most expensive paper in our capital structure at 10 3/8 on the first day it was callable. $52 million of call premium had a negative impact on both net income and free cash flow for the quarter and the year. We have, however, reduced our annual interest cost by $37.5 million on a going forward basis, and lowered our weighted average cost of debt to 6 percent. At year-end, we had approximately $5.8 billion of debt. We also ended the year with cash and marketable securities of 1.16 billion, which excludes $58 million of restricted cash.

The majority of the $2.8 billion decline in cash from the prior year is directly attributable to capital expenditures of 981 million, repurchases of our Class A common stock, totaling 810 million, and the dividend we pay, totaling 456 million. On a total debt per subscriber basis, we ended the quarter at $532 a subscriber. On a net debt basis, that drops to $426 per sub. Capital expenditures in the quarter were $342 million, with about 242 million of that amount going for capitalized lease equipment, and a remaining hundred million for satellites and general corporate Cap Ex. Capital expenditures for the full year were 981 million, with about 655 million going for capitalized lease equipment, and the remaining 326 million for satellite and general corporate Cap Ex.

That's everything we've got prepared on the numbers. So with that, I'll turn it over to Charlie for some of his comments.

Okay, thank you, Jason. I first wanted to address matters that have been in the press the last few days and try to put that in context for everybody. I think it hopefully says a lot about the way we do things here at EchoStar and how seriously we take our financial reporting. We did have an employee submitted us a letter of resignation through our Human Resource department. And it made some allegations. And I'm proud that our Human Resource department forwarded that to our General Council, who conducted a review of those allegations and submitted his results of the review to our outside auditors and to our audit committee.

They determined that a further review was warranted and they conducted an additional review of this and other matters and provided those findings to management recently. As a result of that review, our CFO organization analyzed the review, and in one instance -- they found one instance that contributed in part to a significant deficiency per Sarbanes-Oxley. And everybody knows how that Sarbanes Oxely is a bit of a complicated thing and it's probably hard for the general press to understand what the difference is between a significant deficiency and a material weakness and a deficiency and so forth. But that's something that hopefully they can -- become educated on. The significant deficiency with which we disclosed, of course, in our 10-K. But there was no need for any kind of restatement of our -- of our financials and we, of course, have made no restatements. Our outside auditors agreed. And, you know, while you'd like from a [INAUDIBLE] -- and like to be perfect as a company, and I'm disappointed that a review was necessary for our company, I am pleased, and very pleased, that at least at EchoStar and businesses, that the system worked.

We received good recommendations from our audit committee. It does include one that we -- where we take remedial action against an executive. But it has a lot of other good recommendations that we are embracing as a company and we are implementing. This will obviously -- will make us a much stronger company. You always can get -- you always can learn from things, and you can always make sure that you can do things better than the past and that you don't repeat any mistakes that you have. We realize we work as a team here at EchoStar, and it's important that we focus our team and everybody else on making sure that we are growing our shareholder value and growing our business in a very competitive nature. In that spirit, you know, we're going to focus on our businesses, and I don't intend to take questions on the matters further on in the call, but rather, on our normal conversations on how we do.

I wanted to make a few general comments about 2004. It was a -- it was a good year in some respects and not so good in other respects. The great thing about the year was that the satellite industry gained a lot of momentum. We gained almost 20 percent in gross additions and in a market place where many people thought it might be maturing. The industry with DirecTV did even better than that, and so there's a great momentum -- there was a great momentum out there for -- continued for satellite television. The big picture on that, I think we need -- certainly still need improvement on -- was our margins deteriorated. We became -- really, the first time as a company we became -- we kind of hit the wall in terms of growth and became a bit more inefficient than I would like and certainly more inefficient than we are capable of being -- or should be.

We, as I've said in past calls, we didn't make improvements really over the year. Maybe the hint of some improvements in the fourth quarter, but we ran about 2 percent margin points inefficient. A lot of reasons for that -- certainly rapid growth. Some are a bit out of our control, where we used two dishes for local channels and a larger DISH in some cases, which is fairly inefficient, which -- which only is corrected, you know, as we launch new satellites. Some of it is management focus and making sure that we are focused on every aspect of inefficiencies. And as we go into 2005, you know, we really have two focuses. One is to improve those inefficiencies, because that does -- when you're inefficient, you lose that money forever. And obviously, you know, we've always felt like we're more efficient than anybody else in the [INAUDIBLE] television business and we want to make sure that we continue to do that.

And of course, the other thing is marketing. Competition is going to be more -- it's going to be more robust, a lot of people fighting for the same subscribers. We have a new entrance into the market place for video. And you know, we're going to have to be on our toes to continue to compete in the kind of environment that we like. As a company, it's the kind of environment I think that we historically have done well in. You know, we don't mind competing against very, very large companies. We think we understand this business as well as anybody, and we think our product has got some superior characteristics for some customers, and that it's going to be an interesting year and we're excited about making sure that we continue to compete.

So with that, I'll take questions on anything that you want financially. Oh, did we introduce Dave? We did, but Dave Rayner, CFO. And, you know, unfortunately. he had some background in cable at Telecom. But in spite of that, Dave has come on and done a good job for us, and hopefully some of you guys will get -- we might actually send him out without adult supervision. And you can say hello.

Thank you, Charlie. Glad to be here, and I look forward to building a relationship with everybody on the phone.

Okay.

At this time, I would like to remind everyone in order to ask a question, simply press star then the number 1 on your telephone key pad. If you would like to withdraw your question, press star then the number 2 on your telephone key pad. I would now like to pause for a moment to compile the Q&A roster. Your first question comes from Tuna Amobi with Standard & Poor's Equity Group.

Thank you, and good afternoon. I wanted to understand better the SBC partnership. It seems like in one part of the 10-K, you said that the overall economic returns for co-branded and traditional subscribers will be comparable. And yet in another part of the 10-K, which I've also heard on this call, you said that the margins on the co-branded subscribers are less than the traditional and you expect that to continue into the foreseeable future. Can you please reconcile that? And secondly, the -- you had 3.3 billion of NOL at the end of the year, which will start to expire in 2011. I would just like to make sure that you see yourself exhausting the NOL well before the expiration kicks in. Thank you very much.

Okay. I'll take the first part there. It's a good question. You're correct in what you read. And the reason is that the margins left in SBC customers and the economic return is about the same. And the reason is that we don not incur SAC subscriber acquisition costs for the SBC subscribers. So we don't have to get a return on that SAC. And so that's really the reconciliation there. And in terms of NOL, actually we have a -- there's probably a place somewhere in the 10-K that would talk about -- do you want to answer that one, Dave?

There is a section in the tax footnote where we reference the NOL, but you are correct. If we -- they start expiring 2011; and obviously, what has to happen between now and 2011 to start utilizing that is generating net income. We are not going to make any predictions on the level of net income going forward. But certainly you should -- I would reference you to the attached footnote in the financial statement included in the 10-K.

Okay. Thank you. And a quick follow-up, Charlie, can you -- when can we expect to see a break out of the SBC subscribers now that they are becoming more and more significant?

You know, I think that if we felt they were significant enough that we might do that. And we just haven't gotten to that point yet. You know, I guess from talk to SBC, I think the other thing I would point out to you is that while EchoStar, our DISH Network subscriber account, momentum continued in the 4th quarter, the SBC numbers went down a little bit and that's -- you know, so that -- the momentum is not uniform across our distribution network.

Thanks very much.

Your next question comes from Robert Peck with Bear Sterns.

Hey, Charlie. Just a couple quick questions. First of all, could you touch a little bit on ARPU? It seemed to come in a little bit lighter than what we were estimating. Can you tell us what was driving that? And we were impressed with how low your churn was, but it also seemed like retention didn't sky rocket. Could you tell us how that relationship is working right now and how you're able to keep the churn so low with the the limited retention dollars? And the last question on your obligations and future Cap Ex. In that table, are you accounting for the rollout of local HD and the potential box swapping and DISH repointing and truck rolls, et cetera?

Okay, the answer to the last part is yes. We have, obviously, an obligation over the next 16 months or 15 months, you know, to go to one DISH. We have -- we have -- I think the big driver, of course, is our lease continues to gain momentum in the marketplace with this Cap Ex. And we have satellites under construction. So it's a combination of a lot of things that can drive Cap Ex. As far as ARPU, there's -- you know, there's just a lot of factors. You could have a big wrestling match that can affect, you know, for one month. It can affect it. There's probably one trend in there that you should be aware of, and the way we account is disclose how we account for SBC.

But as SBC's business grows and gains momentum, it has a positive affect on ARPU. If their momentum slows down, it has a negative affect on the ARPU. And that is fairly slight. But, you know, that does affect it. We continue to feel -- you know, we're still below ARPU for major competitors in this business. We feel like we certainly have room. We obviously instituted price increase in February that will have a positive impact. But we still -- you know, we still have room to grow there, and it's not huge issue for us because ARPU customers within our activity or HDTV, once you buy a customer you have a chance to get additional income from it. If you don't ever have the customer you don't really get that chance to do it. So, I would say I'm not disappointed on where we are there. And was there another Cap Ex, ARPU?

It was on churn versus retention.

Oh, that's something that, you know, we do a sensitivity analysis of that every month in terms of how you would do that. But there is a balance between what you spend on retention and what you can afford in churn. We did -- you're right -- we did make improvements in churn, and the improvements are actually more than you would think, because realize we had people in one year -- one and two-year contracts, and we made a move last year to a non-commitment lease, which meant that we had people that were still on one-year contracts while we had people rolling off month to month. It started with people rolling off month to month. So we actually, probably from a relative point of view, were pretty stable in churn for the whole year, and made some improvements in the fourth quarter.

The retention marketing, you -- again, an economic analysis. You may want to -- I think what you want to do is spend retention market on your best customers, and some customers you don't want to spend money on. So you know, if you did an analysis of our customers, you might find 5 or 10 percent of our customers we don't actually make money on. They may have a lot of service problems they may call all the time, they may not pay their bill or they've always always been late. And we ought to be sure we're not spending retention margin on those customers. On the other hand, we have some -- you know, 10 percent of our customers are extremely valuable to us, and they're the ones that our competitors are going to want and we got to make sure that we're doing the right thing for them. So again, that's a little bit of a -- you know, we're not as sophisticated as we'd like to be on that particular segmentation, but that's the kind of thing when you get into efficiencies and the kind of thing to really make sure you're -- you know, the bottom line, the best you can be, you know, you've got to start becoming more scientific about that, and those are the kind of things that we're trying to do.

I just want to add one other comment in there. In terms of the commitment table that is in the 10-K, that is obviously not a predictor of total Cap Ex for the future. It is only those contractual commitments that we currently have in place. While some of those satellites may certainly be used for the services that you referenced, you should not assume that that is necessarily the total cost of rollout of any service or any future Cap Ex.

Thanks, guys.

Okay.

Your next question comes from Lee Cooperman with Omega Advisors.

Thank you very much. If you permit me --

I know you are going to ask how many stock shares we bought, and I want you to know -- I want you to -- before you even ask your question, this is a perfect example. When you asked about that last year, you know, and I got -- and I didn't tell you -- I kind of gave you an off the cup remark, and then we had a conversation, you were right. And we're disclosing it now.

You're very gracious. And you should feel sorry for me because I'm 62 years of age and at 12:30 at night I'm reading 10-Ks. So I read that you bought 290,000 shares at an average twice of $28.96, so I did read it already. But that's not my question.

In our 10-K, I said -- I actually put, "Lee Cooperman, we bought" and they took out your name. [LAUGHTER]

Actually, that's not my question. I have a more sophisticated question than that one, actually. But I have five questions for you which I think it will be of interest to everybody. And since we don't have this active dialogue except once a quarter, I figured I'd get them out on the table.

We really have a policy of only taking one, but for you I'm going to take five.

Well, you can answer them in your own sequence and in your own timeframe. The first one then is a one-off repurchase. And I appreciate, Charlie, your gracious comments of acknowledging the correctness of my question a year ago or whenever it was. The original buy back was announced November of 2003, and if I recall correctly, the stock was 33 1/2. And since that time, we've probably have added well over a million of net subscribers that we pay a dollar dividend. Our stock is now about $3 under what it was back then, yet we have a bigger, more profitable business. When we announced the buy back, we bought back a billion dollars worth of stock in four months, and you reauthorized a second billion. And then we've been kind of sluggish, although you can [INAUDIBLE] pay the $455 million cash dividend. But I was just curious, question one, what is the philosophy surrounding the buy back in in terms of how you expect to execute this remaining billion? If you want to make any comment about it at all. I can understand you may not want to reveal your hand. And I can understand you may not want to reveal your hand.

Second, how can DISH's Video-Only solution remain competitive in a world that is increasingly offering bundles? That's the second question. Third is, have the expected economics on recent subscriber additions changed in the last 12 months in your view? Fourth, are the telcos friend or foe, as you see it? And finally, what technologies have you looked at recently for delivery of broadband that you may roll out that would be -- increase our competitive business? And I thank you again for again -- for your gracious comment before, and anything you can do to help me understand the company better than I do.

Okay. Good questions. I'll take them one at a time. Philosophy on buy back is, we look at all those uses of our capital and we, again, make judgments as to whether the use of that capital is best done with subscriber acquisitions, subscriber retention, debt buy back, equity buy back, dividends and so forth. And you know, obviously, for equity, what price. And we reevaluate that, you know, just about every day informally, but certainly on a more formal basis every month. And you know, it just so turns out we've done a little of everything. We've bought back some debt, we've bought back some stock, we've paid a dividend. And it's just -- it's just a function of where the market is. Obviously, I mean, we -- you know, just logically, we'd be more inclined to buy our stock back at $20 a share than $30 a share, you know. You know, logically, so --

Hope you don't get that chance.

Yes. So it just depends on where the marketplace is. I do think that, you know, with -- your second question about DISH Video and how you compete in a bundled environment, I think that we probably haven't totally properly addressed all that. That's one reason you probably haven't seen the stock move. But I think there are a couple answers. One is that that there's clearly going to be customers who will want the best video available, and we think we have an opportunity to be that company. And even if the bundles are available to them, for one reason or another, they won't buy a bundle. So we think that in many parts of the country we can be very effective competition and grow our business in a video-only mode.

Having said that, you know, it's clear that there are going to be a number of bundles out there, and how those go together and how those make some sense; but certainly Broadband or cellular and video go together. We've -- you know, we're in five partnerships now with telco's, SBC being the largest, but we're also with SBC, Citizen, CenturyTel, AllTel, Sprint. And so, you know, they have the ability to offer a bundle and offer DISH Network as our branded DISH Network. So that's one way. And your other kind of question related to that is, you know, how do you -- how do you -- how would you get a broadband solution?

And again, there is three ways for us as an industry to do that. One is via satellite. And we've, you know, lost some capital in the past with our investments in Star Band and Wild Blue, but we learned a lot about it. We expect that we will reenter that market sometime this year, later this year. But not -- not -- you know, but in a small way where we think there's a niche out there for that side of the business. We think we have several main customers who may be interested in that niche. We are looking at that. We are -- we think that there are certainly partnerships you can do with people who have infrastructure in the ground. And then there's also new technologies, WIMAX [PHONETIC] and wireless technologies that could be interesting.

It's interesting to see, you know, phone companies and cable companies try to get legislation passed against what they're trying to do in Philadelphia, or what they're actually trying to do here in Aurora, Colorado, and they're trying to stop a lot of the wireless [INAUDIBLE] stuff. And again, we're a wireless company, so you know, we think there is opportunity in competing with the wired guys. The -- are RBOX [PHONETIC] friends or foes? They're probably both. You know, I think that it's safe to assume that listening with SBC talking about project Life Speed, where they talk about it billions of dollars in investment, to put fiber to their customers, that they at least at this point believe that there's an opportunity for them to not need a satellite provider for those customers. That may be proven to be right or wrong, or maybe some customers need still an overlay of satellite.

It will be real interesting to see our DISH Network SBC customers when they get an opportunity to get a -- to get a little Project Light Speed to their house, whether they would disconnect their DISH or not. You know, we have our own opinions on what might happen there. I think SBC is taking a "wait and see" attitude. But they're going to be -- in SBC case, for example, half of their customer base is probably not going to be able to get Project Light Speed in the next 10 years; and for them, satellite with DISH Network is a great solution. So we continue to work with SBC where we can and where it makes sense for our companies to go in the same direction. And we understand and they understand that in some cases we may be competitors, and of course, and we're working with their other phone company partners. And projected economics, have they changed in our customers? No they haven't.

The -- even with the increase in SAC, you know, we're getting a little better quality customer. As you saw the churn this quarter, we are getting a little higher ARPU. We believe we have more advanced boxes that have additional revenue opportunities in the future. And the thing -- the -- where the economics will change -- could change -- is -- in a material way -- would be, you know, churn up or down. And that's what we -- you know, we have to focus on that. You know, we're comfortable where churn is versus retention marketing. But if that were to change drastically, obviously, it could throw your economics that you've spent in the -- for past customers into a either positive or negative, depending on which way churn goes. So we have to -- you know, we obviously focus on that every day. Did I get all of them?

You did, thank you very much. And I really do sincerely appreciate your efforts on behalf of the company.

I got to tell you, I'm only 52, right? So that means that there are a lot of people out there smarter than me, and I never had a problem when my basketball coach yelled at me because it made me a better player. I don't have -- I'm always open to constructive criticism. I do appreciate you spend the time with me.

Thank you very much.

Your next question comes from Katherine Styponias with Prudential.

Hi. Thanks. Charlie, I'm wondering if you can comment at all regarding the pending transaction with Cablevision to buy the VOOM assets. Is there any break up fee that you could -- that you might receive should the transaction not go through? And is there any reason to believe that you won't end up with those assets? And second, with respect to your HD strategy, as you are probably aware, DirecTV is starting to advertise pretty aggressively about some of their roll out of local HD later on this year. Just wondering what your thoughts are where the company stands with respect to rolling out more HD, and in particular, local HD? Thanks.

Good questions. On the VOOM -- on the Rainbow Satellite -- the only thing that would prevent us from acquiring the satellite would if we don't get FCC approval. Other than tha,t we intend to move toward with the transaction. We believe based on past FCC rulings and so forth that we will get approval of that. We think that will take 3-6 months, but then we intend to utilize the satellite spectrum. It is important for us to comply with recent legislation. It's important for us to compete in the market place, particularly in HD. Our HD rollouts, we haven't announced a lot of plans, you know. We'd like to, you know, put our cards down when the money is on the table as opposed to putting our cards down before the money is on the table.

And the big factor for us in HDTV is a transition to MPEG-4 technology. And that's a technology that we'd all hope to kind of have by now. The chip sets have been delayed by the vendors, and so a lot of our HD plans, you know, are -- we're treading water until we can go to MPEG 4, because -- and those plans could include some cities for local-local. There's -- you have to balance of your back out cost, you know, versus how many customers you actually would get today. And you don't want to put an M --- if you put an MPEG-2 box out there that you've got to transition to an MPEG-4 box later, when you're in those economics, it just isn't -- there's just no place with economics today, in my opinion, to roll it out until you get the MPEG 4 box.

We have -- you know, we technically have a good track record of bringing out sophisticated technology as soon as anybody, if not sooner. And, you know, I think we view HDTV as a strategic advantage for DBS companies. And, you know, I think it is safe to assume that DirecTV may be more aggressive there. And we're going to approach it from a -- we're going to approach it from a financial point of view. And, you know, spend money on HDTV where we think long-term we can make money.

Thank you.

Your next question comes from Chris Gilbert with Deutsche Bank.

Yes, hi. I just have two quick questions. The first is on SAC. I was wondering if you could give us some indication of when you expect to see some benefit to SAC recouped boxes, and whether or not you expect any difficulty in actually recouping those boxes? And then the second, if you could give any indication of when you think you might return to margin expansion? Thanks.

Return to what?

Margin expansion.

Margin expansion, okay. In terms of SAC, obviously, we are somewhat a function of the marketplace, and I think you are seeing cable and our competitors in DBS continue to be aggressive, so you know, we have to respond to that, and we certainly will. But we do have an advantage that we do have, because we lease and get our equipment back. We do have the ability to lower that SAC lower than it otherwise would be in a way that we don't think is available, at least to some of our competitors. So you will see more of that in 2005. It's one of the efficiency things that I'm talking about. If we have -- if we have lease boxes in the warehouse, if we don't use them, then, you know, we don't get the benefit of that. So we have efficiencies. Dave Rayner, our new CFO, just talked to me -- just about every week about that, don't you, David?

Probably more than once a week on that topic.

And the -- I'll just talk about your second question, which is when you get to see margin improvement and again, that's Dave Rayner's job to do -- and I wasn't a very good CFO last year. And Dave does not have big shoes to fill. So you know, I think that we're going to let Dave participate more in the next -- in the next conference call, and I hope you ask that question again to him.

But to follow-up on Charlie's comments, I mean, it is a big focus. It's something that we're trying to focus the entire company on in regards to driving those efficiencies, not only in SAC, but as well as on the margin. As Charlie has indicated, we think there are some opportunities there, and you know, I think we're going to focus on that and I'm certainly not going to make any predictions, though, in terms of what improvements may be in the future.

See, Dave fits right in at EchoStar. He makes no predictions.

Great, thanks.

Your next question comes from Ray Schleinkofer with Sturdivant & Company.

Yes, I was wondering if maybe you could give us a little more detail on DVRs, sort of how many DVR subs you have there and any promotions you might be planning for '05 to sort of push that product, because it seems like we're hitting sort of a critical mass out in the marketplace and some of the other MSOs and DirecTV are starting to push a little harder.

Okay. I don't think we have hit critical mass on DVRs as a paid television business. I think we're just beginning. I think it's such a revolutionary product and changes the way you watch TV that it's got a long -- I mean, this is as revolutionary as the remote control. I remember when Zenith came up with the first little space command remote control. You know, channel up and down and mute and [INAUDIBLE, AUDIO BREAKING UP] took it 10 years before TVs all had remote controls, but everybody has one now. And you know, we're going to see a similar thing there. We think we are well strategically positioned in DVRs. We have the intellectual property we need, despite what you read in the press.

We believe that we have -- that we control our operating system, we write our own software, we're not paying a license fee to anybody. We have some cost advantages and we believe that we have a unique product and that our product can do -- you know, you can watch and record in one room or you can record in two different rooms with the same box. We have new high definition television, DVR coming out. We have the ability to -- we have some new generations that will be out later this year that will talk -- will allow our video to be downloaded to portable video players through our DVR with the proper copyright protection for our programming partners. So we think we are well positioned there.

We drive that business -- we could probably drive a little bit harder, but there is a -- it's a more complicated product. It has more service calls. It has -- because the hard drive is going to break from time to time. And so it's not a product for everybody. So you know, particularly, non-sophisticated users have a hard time with all the extra buttons. And so, you know, we monitor that and I think DVR is just going to be -- it's going to be a commodity like the remote control system and, you know, there may be some differences in software. We have improved ours and have made the popular features now like the Season Ticket, and it is marketing, but in general, we don't want to be paying a lot of license fees for something that we have developed internally.

Thanks, Charlie.

Your next question comes from Tom Egan with Oppenheimer & Company.

Thanks. The question is essentially about free cash flow. The free cash flow for the fourth quarter was below what we were expecting. So I was wondering, just firstly if you could philosophically give us a sense of how you approach, you know, free cash flow. And then for '05, what you may expect directionally regarding Cap Ex for the satellites and for capitalized SAC. And as part of that, what makes up the 1.2 billion of the purchase obligations for 2005? Thanks.

Okay. I'll take the free cash flow question. I may give Dave the purchase obligations. On free cash flow, it is -- if we only had to pick one measurement, it's the one we focus on the most internally. It takes into consideration Cap Ex in what your spending [INAUDIBLE]. Because it's easy to get EBITDA by spending Cap Ex. It's hard to get free cash flow up by spending Cap Ex. In fact, you can only do it if you get returns. And so it is something -- it is -- it is -- you're not as high in the fourth quarter as you might have expected, but realize that we -- our gross subs were over 900,000. And so every extra sub you get, which is a good thing, you know, takes away from that free cash flow measurement.

Obviously, if we were to stop growing and just, you know, milk the business, you could look at something like free market cash flow numbers so you know how much cash we're [INAUDIBLE]. So you know, we think it's the right thing to do based on our -- where the market is if it continues to grow at this point time. We -- in terms -- we don't make, you know, predictions on free cash flow for 2005, other than we do focus on that as a metric and we believe we can do better. And we've certainly left -- the biggest thing we left on the table last year in free cash flow was the lack of efficiencies. And so that all -- if you're 2 percent off on your margins and you know, and you -- you know, you're $7.5 billion or whatever it is, you can figure, you know, you left $150 million of free cash flow in the toilet somewhere, because we didn't -- we weren't efficient managers. But you know, we can and we will do better, or at least we will put forth the effort to do better. Did you want to take up the purchase obligation?

Yes, the purchase obligations are really finding purchase orders for receiver systems and related equipment, products -- related products associated with the operation of the DISH Network. And we've also got in there guaranteed fixed contractual commitments for certain programming content.

Right. Ad so in terms of Cap Ex, you -- in terms of the direction, you would expect the Cap Ex in '05 to be above what it was in '04?

That is the story that we put in the K, yes.

Okay, thanks.

Your next question comes from Steve Mather from Sanders, Morris and Harris.

Thank you. Just two questions. One regarding satellites. Your 10-K documents quote a lot of new orders, and more in the way with extended KU [PHONETIC]. And I'm just wondering, Charlie, are you prepared to label those in terms of HD -- local HD, back up and standard, et cetera? That's my first one. The second one, your first job is to get subs. You obviously have done that in the past, and I would assert you are very likely to continue. The second job becomes how to kind of mine the gold from each one of those subs. And it seems that your marketing, also, are you going to add, you know, personal video players and this 320 gig DVR, and this massive partitioned amount, you've got radio and all these other marketing tools. How do you kind of -- what perspective do you have on how to drive the, you know, free cash flow from those tools rather than just spend on retention using those tools?

I'll take the second question first. I mean, it's a great question and I don't think that I have an answer other than, you know, we've got a pretty active management team that's involved in the business and we're looking at, you know, does the addition of SIRIUS radio and our top line [INAUDIBLE] drive business for us, versus the costs? Do we -- do we get more return or better return on a DVR customer? Do we -- do we get a better return on a customer in Little Rock, Arkansas than Philadelphia, Pennsylvania? And again, a lot of that is how do you actually focus your efforts down, you know, to where you get the best return? And it's like anything else in life. It's kind of the 80-20 rule. You -- 20 percent of what you do you make a lot of money on, and 80 percent you've to figure out, you know, where your cutoff is.

It's again, something that I think -- I think we've done an adequate job in that in the past, but I think we have to get more sophisticated to do that. And what happens is -- what I don't want to do is play the SAC game, and just to get subs on our balance sheet, you know, go spend money for a customer who's not going to -- probably not going to get a return on. If we don't -- you know, if we don't get a customer for at least 24 months -- and in some cases more and in some cases a little less -- you know, we don't get a return on it. We can get our sub count tomorrow by lessening our credit scores, or -- or -- you know, adding SAC or spending a lot of money on a marketing campaign that's not so good. Or you know, there's a lot of things we can do. But you have to have that discipline to look at it every day. And I think we've shown ourself to be a company that focuses on the long-term, and we don't always make the right judgment calls, but we -- you know, we bat -- batting average is pretty good.

On satellites, we're not ready to label, you know what we're doing with them other than what we've disclosed. Again, part of that is we don't exactly know exactly, because for example, the VOOM satellite puts a whole new dance into play. Without a VOOM satellite, it's a different dance. And so I think we have -- you know, we have -- we've got two things up on our board here. One is the NCAA picks, you know, for who's going to win the national champ title. And then -- which Kiser thinks he's going to win. And then -- and then -- and Rayner's saying, no, he's got -- he's the guy. And then of course Moskowitz --.

Show me where to get him the check, because Moskowitz -- pretty much Moskowitz just writes his check and gives it to us and goes home. And the other thing is our satellites and how those are going -- and how we bracket those guys as the final four. We're unclear on either one at this point.

[INAUDIBLE] are unclear. We have strategies and the strategies come into play depending on which satellites come into play. It's certainly possible that -- we certainly have been aggressive in our satellite procurement.

Well, sounds like two juggling acts with the satellites and then of course with the subs, and you have the tools available to you to optimize the cash flow from the subs. So thanks for your comments.

You just try to be prudent and put yourself in a position to win with as many options as you can -- as many options as you can while keeping a good look at the bottom line, and that's the position we think we are in right now.

Okay. Thanks.

Your next question comes from Chris Hussey from Goldman Sachs.

Good afternoon, guys. A couple quick questions. One, the DirecTV got into the real territories a little bit more aggressively. It looked like -- it didn't seem like a churn up or anything in your sub growth in the fourth quarter. What are you guys seeing from DirecTV and those former NIPC territories? And secondly, maybe you could just comment a little bit. You said you did 11 million through January. We are seeing the cable guys getting more aggressive with the video on demand product and sort of aggressively trying to improve the quality of their video product. Have you guys seen yet over these first couple months and a half of the first quarter, any impact on your subscriber growth from what the cable guys have been doing?

That's a tricky way to ask a question. We don't actually give data on the first quarter yet, but good try. No question that the rural areas will be more competitive. DirecTV, you know, was handcuffed, you know, to some extent last year, and they are not today with their acquisition of those territories -- reacquisition of the territories. So that certainly will be a more competitive market and I think -- you know, I think the problem cable has is, yes, I think you're right. I think they're spending more -- they're spending a lot of money to make their product better. The problem they have is -- is whether the economics work. And I think that -- I think that there may be a lot of focus on -- they don't want to come out and say they lost sub, so they have a strategy of -- one of their strategies has to be to retain subs. And that costs them a lot of money.

And the question, just like it is for us, does spending money to retain that subscriber, by putting a video on demand, new box, this or that at the customer's house, upgrade your fiber, upgrade your amplifiers, so forth and so on, do you really get a return on that? And I'm not sophisticated enough to know, you know, their models. But look at their free cash flow. The only way I can do it is look at the free cash flows. And you look at a history for thirty years, and never really -- tue free cash flow. I'm not talking about EBITDA and trying to call EBITDA cash flow -- I'm not talking about that meaning. I'm talking about at the start of the year, how much money do you have? Right?

Don't take your borrowings and add that to it and how much money you've got at the end of the year, and they've got a history of never delivering the bottom line. And I don't that know with phone companies coming into the business and the satellite guys with a fair amount of momentum last year that that's going to change. It could. And it could be they have the best mousetrap. But we like where -- we like where we are strategically.

Given that you could see a couple of these competitors do things that you might describe as irrationally, you know, without good returns, At what point would you guys walk away and say, we'll just harvest our current subscriber base and not fight for these subscribers anymore?

Well, I think you'd balance a strategic versus the financial. And you -- you know, we would have -- is there a -- is there a customer we would walk away from? Yes, there is. Is there a customer we'd spend an extra hundred bucks to keep? Yes, there is. And it's our job to figure out -- the key is to figure out the difference between them. And if you do that, you know, you're going to do a pretty good job, bottom line; and you don't, and you just say, look, I've got to keep everybody, you know, then you're going to get some good and some bad and it's going to average out to be pretty mediocre. And you know, the company that really figures that out first is probably -- probably going to be in pretty good shape.

Thanks.

Our next question comes from Dan Lindberg [PHONETIC] with Morgan Stanley.

Hey, good afternoon, guys. Charlie, a question on the 322-522 boxes, which I think are a big part or are maybe all of the lease program initiatives. It's an extremely powerful tool to bring SAC down so you can fix with one box out of your customer acquisition costs. Have those started to show up in the fourth quarter numbers? Or is there a more complicated installation or in home wiring work that has to be done that's sort of offsetting some of that benefit so far?

It's interesting. 322 and 522 do cost us a little bit more money to wire, so the installation is a little higher. It is a little cheaper than two individual boxes, so that's a positive and that does eventually show up as you reuse those boxes. But because they are new boxes, we haven't reused them as much as we would like to so far. But the other affect of the 322-522 is they actually -- they actually lower ARPU because the -- as long as you plug the phone -- initially -- as long as you plug the phone line in in your additional outlet, there's no -- there is no outlet fee.

And, you know, as opposed to cable, our competitors, you know, they always have an outlet. Well, we don't. So we have a competitive edge there. We haven't done as good a job marketing that, but we don't have an outlet fee when plug your phone line in. But if you do plug your phone line in, we have the ability to -- certainly from a piracy point of view it's a positive, and certainly from an interactive additional revenue point of view, it also has some positives. So -- but certainly today, the 322-522 actually has some negative impact on ARPU, because we don't get the outlet fee. But of course, if we don't have an outlet fee, we're more competitive for that customer. So you know, you have a customer who's got four boxes in his house and he's paying 15 or 20 dollars of outlet fees and he can switch to DISH Network and get a 322 and a 522, he's only got one -- he's only got a $5 additional outlet fee, and he saves 10-$15 a month. And that -- you know, that's something that we have an advantage on that we haven't taken full advantage of. [INAUDIBLE], but it -- you know, that's -- it is something that's contributing to set through ARPU, maybe not going up as high as you might think.

If I can go back to the question, I think Lee asked it, on the broadband side -- wireless broadband, WYMAX. Are you looking at this as sort of a defensive move that you think your customers need a bundle from you, video and data and maybe some other add-ons as well, or is it really just looking at the technology and saying, this is going to cost me "x" dollars and I like the return.

Well, again, I like the offense better than the defense in general. You know, I don't know any defensive players getting their name in the paper. But having said that, I mean, I think you -- you know, you have to be prudent -- and these are technologies that have a lot of hype. And -- but there's not a lot of return at this point. So you know, we're cautious. So we know that -- there's not any question -- there's not any question that there's going to be technologies that compete with wire line.

And wire line has a disadvantage that it is not mobile and transportable. And -- I can tell you, I don't have it figured out. We don't have it figured out. I mean, it would scare me to death to be putting billions of dollars into cable to the fiber, to the curb, and not knowing, is telephone going to be free with Voice over IP? Is -- how much am I going to be able to get for video in a competitive world? You know, is broadband going to be a commodity because I can pick up a wireless antenna and get it that way, because I live in Philadelphia? You know, there's going to be a lot of road kill in the telecommunications business and, you know, our job is to make sure it's the other guy and not us.

And my last --

But we don't -- I can tell you, I've sat in a lot of meetings with a lot of telcom executives, and I don't think anybody can honestly tell you they've got it figured out. But if -- when and if we figure it out, when we do figure things out, we'd like to go on offense. And you know, obviously, we've play some defense but we haven't quite gotten it figured out.

And promise, the last question, for Dave on the working capital, I think you guys generated about 250 million of working capital cash in '04. Some deferred revenue from SBC and then some programming payments that you got up front. Should we assume that those then work themselves off in '05 and '06, and sort of a negative number those two years back towards a net zero for those two? Or do you continue to generate a positive working capital over the next few years?

I think you are correct in what you said about 2004, and you know, I would also give you a nice try for trying to get us to say what's going to happen in 2005, 2006 and beyond.

But in general, we don't -- we believe to the extent that working -- that marketplace allows you to generate working capital for a wider region, we should take advantage of that. I think historically, we have been -- working capital has been -- not normally as high as it was last year, but it normally has been positive. I'm looking at Paul over here [INAUDIBLE].

As long as you're growing.

As long as you're growing, yes. As long as you're growing.

Right. And for what it's worth, I think zig-zag is going to surprise some people. Thanks.

What's that?

I think zig-zag is going to surprise some people this year.

I got the gang going pretty far, but I think it will -- [INAUDIBLE].

Dickenson, baby. We'll take anybody's money.

Thanks.

Your next question comes from Louis Salmay [PHONETIC] with [INAUDIBLE].

I just had a quick question on the network you added that is an interactive channel for horse racing. Is this something that is material? And secondly, how do you get paid from doing it?

Okay. Louis, you can ask 5 questions. You can ask 6 questions.

Well, actually, Charlie, another question I was going to ask --

I didn't think you would take me up on it.

As a student of the pay-TV industry, what do you think one of the pioneers of cable selling his -- essentially his stock to invest in a fledgling satellite service?

Well, on that question, I've always respected Chuck Dolan as being a true visionary. And it's obviously -- it says something when -- when you would take something you built your whole life and say, I'd like to get into another, you know, side of the business and, you know, I haven't known -- I haven't known Chuck long, but I know that he very much has visions that make sense. And I think it's positive for -- it says a lot about the satellite business. But on TV games -- TV games, per se, is probably not a material kind of part of our business. I think we've got -- I may say this wrong -- 13 states that we can --

That's about right.

13 states that's legal for interactive horse race wagering. We get a small percentage of the wager. We get perhaps some customers who -- you know, our business in Kentucky is probably a little bit stronger than it was before we had it. But I think what it does is it opens up interactivity -- it was -- you have to get critical mass of interactivity. Customers -- once they get past knowing how to use it, they start using it, and it becomes revenue opportunities for you. And DVG is one of those things that's one more, you know, kind of piling on the pile to get yore critical mass, and we're a ways away. But we had an interactive conference here not too long ago, and we had, you know, well over a hundred people, programmers, interactive people, that attended, and I know it was -- last year that was probably 30.

You know, so -- and we're well positioned in interactivity, because we started putting -- we started putting interactivity in our boxes three or four years ago. I think about 90% percent of our base is interactive compatible, as long as they plug the phone line in, so you know, we've an opportunity there. You know, I don't think it's going to, you know -- there was a lot of hype about it two or three years. As you know, though, we've been conservative and patient on it. But I think you will see -- I think you will see it has a slight positive impact on ARPU this year, and it will increase every year going forward; and then, of course, to the extent that you start getting into ways where you don't have to plug your phone line in and have interactivity, you -- then you -- now you're talking about something, you know, that's material.

Thank you.

Our next question comes from Michael Harkins with Levy Harkins.

Hi, Charlie. A couple years ago when satellite broadband applications looked like they were going to come relatively quickly, you had very defined parameters. You thought the service was going to have to cost less than $30 a month. You thought the equipment charges were going to have to be very low. Now there's been an awful lot of DSL hookups and cable modem hookups, can you tell us again what you think the economic parameters of satellite broadband are?

Yes. Actually, I think that -- I think the monthly service had to be less than $50.

Okay.

And I would say that you're probably still in that -- I think the satellite broadband has a much narrower niche than I would have thought three years ago. I think both the cable and phone product are a pretty good product, and it's better than satellite broadband, you know, generation. We are about on the third -- you know, we are starting about the third generation of satellite broadband now. And you know, in general, it is not as good as cable or phone. On the other hand, if you live in one of those, you know, probably 15 or 20 million homes today that can't get cable broadband or DSL, then satellite is a good option for you, if you get the economics down low enough. And so -- and then, of course, that 15 or 20 million homes is going to continue to get smaller and smaller and smaller as, you know, phone companies and cable companies continue to invest. But you're still going to have -- let's say you have 10 million homes out there that just aren't ever going to have cable broadband or satellite broadband in my lifetime. You know, it's a niche and it's certainly worth continuing to pursue.

You know, we'd like to see an industry -- I mean, because it's a niche, we'd like to see an industry standard, a world standard, so that you -- that you can bring down your competitiveness to a level that you can actually -- I don't think you could have two or three companies competing in the satellite broadband business with infrastructure and technology. I think that almost -- that's kind of what happened with Star Band, Wild Blue, H&S -- I think there was three companies doing it. I don't think that -- I don't think that model makes it. But if you get to a standard and get everybody going in the same direction, even though you have competition between that standard, I think you get into a model that on a niche basis will make some sense.

Excellent.

Our next question comes from Adam Fillman with PPM America.

Thanks. I was wondering if I could just get your thoughts. I mean, as you look at the cable industry, clearly there's some operators that have a lot better assets and do a lot better job, particularly, you know, we've seen one in the northeast start to show some pretty impressive numbers in terms of bundling. Obviously, that's not a representative market. But do you look at the industry as if some of these guys are getting their act together? And then you -- you know, finally, with Comcast talking about rolling out a low end digital box, obviously, you know, you have a nice product advantage in getting digital against a large analogue base. Do you look any of these things and think, these guys are, you know, getting better and becoming tougher competitors?

I think everybody's getting better. And certainly Comcast is a fine company and, you know,, does a lot of things well. You know, economically, people are going to get better in everything. You know, or they're going to get, you know -- they just can't -- so our key is to make sure we're spending our money where it makes sense for us. And you know, we think we can be competitive in virtually every place in the United States. But we think there are certain pockets where -- I don't think we're super super competitive with Comcast in Philadelphia, as an example. You know, they had the sports teams exclusively. They grew up there. Their brand name is on every billboard and stadium. And, you know, they have good service there. And that's probably not the strongest place for us to go. But, you know, we do -- what is that town you were in in Illinois?

In [INAUDIBLE]?

[INAUDIBLE]? Population 1100. We are big in [INAUDIBLE] Illinois. So we're kicking Comcast's butt there. [INAUDIBLE] cable operator, so -- this isn't about -- all I can tell is you we're not about ego here. We're about, where do we get a customer and where do we get a return? And we like -- we like where we are.

And then just a quick follow-up. I mean, you dabbled in terms of using SCS for capacity where you don't actually own the satellites. Is that a model that you or the industry could go to? Or do you think ultimately there is just too much strategic value that you have to own a majority of your satellites?

Well, you know, I guess it is a combination of things. We look at it -- where we have the orbital position and where we have the expertise to build a satellite and where we have the capital, that's what -- that would be number one. Number two, where we don't have the expertise or don't have the orbital slot, you've got to do something different and we found SCS to be a great partner. And, you know, I think that's one of our great strategic relationships that we have, and they have skills that we do not have.

And they are creative and they bring us good ideas and it's just a great strategic partnership. And so you know, a simple example is, you know, at the 105 degree slot we didn't have a -- they had the slot and we didn't. And you know, it cost us more money because they had to make their return, but when you add in the value of the slot and you value their expertise and you value the fact that you don't have to focus on it as a management team, I think -- I think that you can work business deals and get fair returns and make some sense. You know, time will tell. But I think we will -- I think we would like to continue to do both.

Are you at all concerned? You look at, there's been some satellite anomalies in the industry basically that forced to really cut back on the orbit insurance. Does that concern you at all?

No. Insurance doesn't concern me, because nobody can insure you against your business risk. I mean, satellites themselves concern me. You know, if you look in our 10-K we've had a series of anomalies over the years in our satellites. It's why we continue to build additional satellites to make sure we have back up. And insurance is a funny thing. It -- you would think that insurance rates are relative to the risk that you assume. It's been my experience that insurance rates are almost as much a function of the liquidity in the market place. I mean, they certainly are also relative to risk and experience. But they also can be very liquid. There is time when launch insurance was 10 percent. And there's times when launch insurance has been 30 percent. But we're typically a buyer at 10 percent. We're not a buyer at 30 percent.

So you know, a lot of people buy insurance no matter what the rate is, because they have a bond indenture or the corporate management doesn't want to take a loss in a particular quarter. We look at it like lest to right, economic business risk, return ratio. And our bond indentures at this point do not require us to do it. We have critical mass. We were pleased to be proven correct in our insurance claim. So we had about 6 or 7 years ago that was a long involved struggle with a group of insurers. They offered us $80 million and we chose to say no, and believed we were right and received 200 -- well, at this point, 240 million settlement. So -- you know --

As Charlie said, you can -- you can ensure the value of the satellite, but never the revenues that come from it. The way to insure the revenue that come from it is to make sure that you have enough back up in space that even if the satellite fails, you're not going to get yourself in any trouble, and that's where we've positioned ourselves at. So it's a little bit -- as Charlie says, satellite insurance can be a good buy depending on the markets or not really a logical buy.

Yeah, a lot of -- I'm going to take one more question, but just in general, a lot of questions today have been really great questions because they go to the heart of how we have to figure out how to run our business. Because you're asking -- but you're asking -- interestingly, this has changed since last year, but you're asking a lot about returns. Almost every question is about how do you get a return? You know, how do you -- what's your thought process in lease versus buy or, you know, or reusing equipment or rural versus, you know, -- all those are great questions because that's what we wrestle with every day is where do we deploy our capital, where we think we're going to get the best return.

Today -- today, that is in going out and getting subscribers in the DBS business in different parts of the United States. You know, I hope if our company survives another 25 years that we're making those decisions in other things. But we do focus on it. It is not -- sub count is not driving this bills. And I'll take one more question.

Your next question comes from [INAUDIBLE], UBS.

Hello. Can you hear me?

Yes.

Okay, sorry about that. I was wondering, you mentioned obviously the percentage of the subscribers added in the quarter really were much more on your own distribution platform versus SBC. And you mentioned the momentum really wasn't there in the quarter. Can you talk about why that was? I mean, was SBC marketing the DISH product aggressively, and are they getting the boxes they need to offer it, or are you just seeing much more growth in your own distribution rentals?

Well, that's probably really a question for SBC. I would say that -- I don't believe their slow down in momentum had anything to do with lack of product. So it's either -- it could be a lot of different reasons, but that's really a question for them. We don't -- obviously are not privy to their strategy and what they would do. But I think that the fourth quarter was an area where we gained some momentum and SBC lost some momentum. And that's why the percentages, you know, changed and, you know, we'll wait and see how that continues in SBC. I'm sure we'll -- their financial calls will address what their strategies are.

And just following up on that -- or another question, when you look at the cable industry consolidating perhaps, obviously with Adelphia and obviously via from the privatizations going on, do you -- does it concern you at all if cable becomes more concentrated in terms of the ability to compete? And maybe if you could relate back to what the experiences you saw from the AT&T Broadband properties kind of before and after the Comcast transaction [INAUDIBLE].

You know, it is hard to know. I mean, I think -- I think that there's certainly a level of concentration where we would be concerned more about the programming side of the business and our ability to get -- to get fair deals there. But big companies are -- big companies are not as -- or my experience has been -- my preference to compete against. For the industry to consolidate, somebody has to pay some money for those subscribers and it would be unclear to me whether subscribers, cable subscribers, are worth 3 or 4000 dollars. And if they're not giving cash, they're giving their equity, which is going to dilute it, so it's going to -- going to put some pressure there. So if they make a mistake in terms of their evaluations, they could have some risk there.. So in general -- in general, we're -- we like where we are strategically. We realize it's a competitive market. You know, we realize we have to get better, particularly on the efficiency side; and, you know, I -- you know, I like where we are. So with that, we'll be back in May? May, I guess.

Yeah, that's correct.

We'll be back in May to do it all over again. Thanks for joining us today.

This concludes today's EchoStar fourth quarter 2004 earnings call. You may now disconnect.