DISH Network Corp (DISH) 2007 Q4 法說會逐字稿

Good afternoon. My name is Shane, and I will be your conference operator today. At this time I would like to welcome everyone to the DISH Network Corporation 2007 earnings conference call. (OPERATOR INSTRUCTIONS) Mr. Kiser, you my begin your conference.

Thanks for joining us, my name is Jason Kiser, I'm the treasurer here at DISH Network. I am joined by Charles Ergen, our Chairman and CEO, Carl Vogel, our Vide-chairman, Bernard Han, our CFO and Stanton Dodge, our General Counsel. Before we open up for Q&A, we do need to do our Safe Harbor disclosures. So, for that I will turn it over to Stan.

Thanks, Jason. Good morning, everyone. Thank you for joining us. As you know, we do invite media to participate in listen-only mode on the call, so we ask that media not identify participants and their firms in their reports. We also do not allow audio taping of the conference call and ask that you respect that. All statements we make that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements.

Now, I'm not going to go through a list of all the factors that could results to differ from our historical results or forward looking statements, but I would ask you instead to take a look at the front of our 10-K for the list of those factors. In addition, we may face other risks described from time to time in other reports we file with the SEC. All cautionary statements that we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place undue reliance on forward-looking statements that we make. We assume no responsibility for updating any forward-looking statements that we make. With that out of the way I will turn it back over to Jason.

I think we're going to go straight to Q&A, operator, so you can put through the first question.

(OPERATOR INSTRUCTIONS) Your first question is from the line of Jeff Wlodarczak with Wachovia.

Hey, guys, how much of your Q4 gross addition results was purposely driven by your decision to reduce retail commissions, increase customer contract lengths, tighter credit and your outlook for the economy, and do you think you're starting to turn the corner on some of the operational issues that partly drove the second half gross ad numbers? Thanks.

It is Charlie. I would probably answer questions pretty broadly. I think that from a sales perspective, I'd say that the quarter was disappointing in that 790,000 gross additions-- I would say the factor probably-- factor one is probably the economic conditions and fewer housing starts. The second factor would be competition. I think that we were not -- because of delays of satellite launches that were originally scheduled to be in 2007, would now be in 2008, we just didn't have as many local markets for high definition television to go out and advertise in in terms of the local channels which are obviously important, probably more important than national channels which we were in good shape on. Those two faction are the main things. We did tighten credit some, but I don't think that-- I don't think that had a material impact as much as the other two things.

Do you feel like you started to turn the corner on some of the operational issues you talked about in the third quarter?

Well, I wouldn't say that. I would say that -- I am a perfectionist, so we'll start with that, and we do something a little different than most people in the industry. We typically answer our own phones, and we typically service our own customers with our people, so when we don't execute it as a high level, that has just -- your inefficiencies are amplified.

On the other hand when you really operate efficiently, you get the benefit of that. I think there is a lot of room for improvement there. I think in terms of if you look at variable costs and stuff, that's where it normally -- it really shows up in two areas. It really shows up in variable costs, and every month we could be more efficient there, and it ultimately shows up in churn because when you're not doing your job right and customers call you, then the best you can do is save the customer, right, and you have a chance to lose. if they're on the phone too long, or you don't answer the question correctly or a person is rude to them or didn't install it right the first time or they don't understand how the equipment works or don't understand how you're billing them. I think that it takes a while for those inefficiencies to develop. It takes awhile to really, really resolve them.

Many of them are resolved like rebates and things like that where we give away free programming for ten months and sign up for a rebate, and people had to call and say where is my rebate. They thought they had a rebate but they hadn't filled the paperwork out and all of those kinds of things, drive tremendous inefficiencies throughout the business even though they're positive for the sales. And, those things we cleaned up. But in terms of answering our phone to the standards that we set, we're not doing that yet, to the effect of installing our systems correctly the first time at the level that we think we should be doing that, we're not doing that yet. We still got things to do there and we changed management around a little bit in the operational areas, and we have some work to do there.

Thank you.

Your next question comes from the line of [Gerard Halloran with JRPG].

Hello. My questions relate to some of the things that you're looking at doing down the future, and I was wondering if you could updated us on some of what's going on with Clear Wire and your efforts to bring additional services to customers and how the partnership with AT&T is going?

Obviously our main product is video, but there is increasing competition from customers who want not only your video but a broadband and perhaps a telephony product, right? And both cable and phone companies are better positioned to do that, so obviously one of the things we can do is partner with people who already have broadband connections as opposed to build that network ourselves, and at this point that's really the strategy we've chosen. So people like Wild Blue from a satellite delivery method or Clear Wire from a terrestrial method or AT&T as a partner for a DSL pat to our customers are all avenues that we are pursuing and continue to pursue. Obviously on the AT&T front they've announced that starting in April that they will no longer be selling Direct TV in the old BellSouth territories and be selling DISH Network, so obviously that's a positive to increase the presence in AT&T footprint, and also a positive in terms of add of additional people that we can partner with AT&T to deliver broadband and telephony products, but I think the big picture question is that this point is, we believe that from a broadband perspective it is going to be better to partner with people than trying to develop our own network.

For sure. Can you put quantificationals around what customers responses have been with Wild Blue and Clear Wire?

I don't think -- I would say it this way. Wild Blue is a product that if a customer has a choice of a cable product or a DSL product, typically Wild Blue is third choice in that equation. So it skews more rural, and it skews where people have less of an alternative. There is a large number of our customers who don't have an alternative, so in that sense it is a good product for us.

Clear Wire is a little different. It has shown at a price point that it can compete-- a certain price point it can compete with a phone or a cable alternative, but we really haven't -- they're not in enough places for us to really get a handle on how that product is going to be viewed, and clearly as a certain level of service, perhaps customers prefer phone or cable if they really, really want high speed. It is a different niche that Clear Wire goes after. Wild Blue, on the other hand, goes after a premium customer who just doesn't have access to anything-- anything else.

I was wondering, there is enough markets out there where Clear Wire is and you now have been at it for four or five months. You must have some customer response.

I don't think we've this rolled out a lot with Clear Wire yet. Primarily from an IT integration issue, not from anything else. And the product is not standardized across the thing. The real-- Clear Wire is probably the right guys to ask, but obviously the next generation Clear Wire product that's standardized has much more potential than perhaps the current offering.

Absolutely. Absolutely. Good luck, and I appreciate your efforts on a shareholders behalf.

Your next question comes from the line of [Igray Chung] with Goldman Sachs.

Good morning. Good afternoon, I guess. Thank you. My first question is since competition was named as a big factor, do you feel that the telcos cable or DTV were the biggest factor in terms of competition, and secondly, have you had to increase marketing dollars in those areas where U-verse is launched?

I guess I as you look at the general landscape, I just make a general comment, I think that in the video space I think it is clear that probably the two people that did really well in the fourth quarter were Direct TV who still had fairly good gross additions and very good net additions, and [Phios] who continues to have a fair number. So I think those two companies deserve a lot of credit. Obviously AT&T is starting to get some legs of (inaudible). But hasn't been (inaudible) the big impact that Phios has been in the marketplace. I think we did well with positive subscribers, vis-a-vis probably the cable industry that came in I think again for negative numbers, so it appears that we were more in the middle of the pack, and we certainly would like to be farther up the food chain there, but everything-- I think competition-- I like the competition, and I like the fact that there's things that are coming such as HD where I think we have some built-in advantages as we get our new satellites up and can do more local -- local markets, Direct TV shown satellite has a clear advantage there, so we just didn't do as well, as good a job maybe for marketing or execution point of view, and we also have some satellite issues until we get new ones up.

There is a marketplace out there. It is going to shift. Strategies will shift a little bit, where we get new customers will shift a little bit. We have a good solid base, particularly in rural America that's not going to go away, and as long as we go out and execute the way we know we can, I think that satellite is going to do just fine, and we're going to do just fine. We have a chance to grow, because we think that the advanced services are things the satellite has an advantage in.

Okay. Fair enough. And then on U-verse in terms of -- in markets really launched, have you had to increase your marketing dollars there?

We haven't specifically gone to increase marketing dollars where U-verse is. It is a little bit of a catch 22. Obviously AT&T is selling our product there, so we still do well in U-verse markets, and we'll just have to see how that -- how that all goes, right? And to the extent that U-verse were to take the vast majority of the customers in a particular marketplace, we might have to do something different, but today there is a pretty nice equilibrium there. And, I think with the BellSouth territories. that was an issue in the BellSouth territories because there was U-verse and AT&T wasn't selling our product, they were selling a competitors product, so that is a favorable shift starting in April.

Okay. Great. Thank you.

Your next question comes from the line of Vijay Jayant with Lehman Brothers.

Hello. It is James Radciffe for Vijay. Had a couple of questions. First of all, on churn trends, can you talk about how voluntary and involuntary churn have been evolving and have seen the churn as a whole trending upward and whether you're going to see a turn around of that? Secondly, as you the Direct TV BellSouth contract rolls off and you become the satellite provider for all of AT&T, what sort of integration are you going to have to do in the BellSouth territories, and two housekeeping questions. Where within the sat dish split did the frontier wireless entity end up, and what was total CPE CapEx for the quarter both retention and acquisition? Thanks.

I think that was three or four questions, I will try to see if I can remember -- First one was churn. I guess voluntary and involuntary, I would say there is a number of-- obviously we did a little better in churn, but there is a number of factors driving churn for us in the industry, and let's talk about us in particular.

First and foremost, probably first on the list is probably the economy. Obviously if people can't pay their housing mortgages or losing their houses and moving back into an apartment or something, there will be less -- there will be some churn driven by that beyond what we saw in 2006. Second part is operational inefficiencies when we drive customers to-- drive customers to calls when they don't need to, right, or we don't handle the customer properly when they do call us. We have a chance to lose more customers. If we're driving too many calls to our centers, for things we're not executing on, we can do a better job there, that is totally in our control. The first one is not really in our control or as much in our control.

Third thing is we haven't talked about a lot maybe, but still a factor, is that we still have some degree of piracy and fraud in our system, and we will be sending out-- starting a smart-- a new smart card swap out later this year, so that one is in our control. We can make an impact there. And the third thing, probably then, is we may loose some customers where perhaps they went local-- to local HD TV and we didn't have it in cable or satellite competitor or phone competitor that did have it, so we have to do a better job there, and that's in our control with launch of additional satellites, so we kind of focus on the bottom three there and say those are things we can all improve. They don't all happen over-- they all happen in different timeframes. Obviously efficiencies are something we can work on day in and day out. Satellites have set launches, and piracy takes awhile to send cards out. You send out cards on different-- on the more vulnerable channels, so we view that first, so all of those things should have a positive impact.

The final thing is we probably spend a little -- we continue to spend quite a bit less in retention marketing for an obvious reason that we don't want to upgrade customers until we have the right product form. We don't want to upgrade today and go back six months later and upgrade again. We're less aggressive in retention marketing than we otherwise might want to be in some market where is we know the local HD TV is coming later this year, and we'll be more aggressive in those markets to upgrade the customers. A variety of factors there. The only one we really don't control is the economy. Direct TV has shown-- I think the churn was pretty low even in a slow economy, so we should -- the potential is there to improve where we we are today. Let's put it that way.

Okay.

BellSouth integration, I think the integration is again-- they probably will be the one to say ask a question to, but from a DISH perspective that integration is on track for early April, cut over obviously at that point there is a cut over so there will be a little lag as people learn to sell something different than they were selling before and you start with zero customers in the Q, so there will be some lag in that, but for the most part my understanding is the integration is going pretty smoothly. Certainly from a DISH perspective it is and we-- we should be ready in all fronts in April. On Frontier wireless, that our footnote to DISH 10-Q talks about that being in DISH. But it ultimately remains there remains to be seen, but at the moment Frontier Wireless is an entity of DISH Network, and will participate, but that's about all we can say is what's in the footnote in the financials.

Okay. And on total CPE CapEx?

CPE CapEx number you're looking for was 221 million.

221. Thank you.

Your next question comes from the line of to Tuna Amobi with Standard & Poor's.

It is Tuna Amobi. My first question, Charlie, maybe-- perhaps you can provide some general comments on your outlook for this year, maybe directional commentary on gross adds as well as SAC. I know you spoke a little about retention marketing, but on a year to year business as you transition to MPEG 4, how you expect that item to end up this year compared to 2007?

Yes. I don't give those kind of specific outlooks. I can give you a general outlook. I think the 2008 is going to be an interesting year. It is one we're pretty excited about because you're going to have to be pretty good. I think it is interesting from an economic point of view because obviously growth is going to be slower, perhaps than it has in the past and many believe we're in a recession or going to be in a recession, so that will be interesting.

A lot of things you would do as a company in economic environments, and I think the faster you can move and the more collectible you are the better off you'll be, and I like that part of our company. It is an election year, an historic election, and that will be interesting from that perspective, and there is opportunities throughout that as well. I think it will be an interesting year, and I think you'll have to be -- I think companies that are well managed and have good foundations will do better than those companies that aren't, and our focus will be to make sure that we strengthen our foundation.

Let me see if I can rephrase the question. Based on all of these factors you just mentioned, do you expect growth adds to be flat, up or down this year?

My crystal ball is not that good.

Okay.

We expect our gross additions to be prudent and as best -- and economical for us. And we have a lot of control over that and the economy obviously will -- nobody knows what the economy is going to do, but it will have some impact on us, positive or negative depending on what it does.

I think as Charlie outlined, we see gross adds certainly important, but we see free cash flow as important or more important, and we're running our business in a way that we think is most prudent for us in the long run. You asked the question about MPEG four. We have begun a transition this year. We will accelerate that transition next year, but a lot of that is tied to the successful satellite launches in our -- in how we shake out competitively in those markets after those satellites are up and we've got product to sell. So I think we're trying to have an appropriate mix of gross and net adds coupled with disciplined financial structure that generates adequate free cash flow so we can continue to grow and invest in our business. That's how we're going about things day-to-day.

In that context do you have any visibility on SAC?

I think Charlie -- I have the same crystal ball that Charlie does. I don't think we're prepared to go into that in any detail, but certainly with MPEG 4 and HD you can figure out that math on your own.

Let me switch gears to HD. Any color on where you expect to end the year with-- on the HD programming in terms of national and local?

I think we expect to be competitive with the 100 channels that anybody else might have and the 100 local markets anybody else might have. We expect to be competitive. Of course it is conditioned on satellite launches, but we expect to be very, very competitive in the HD field with satellite, cable, and phone companies.

Can you update us where you ended last year on those channels now?

I think we're in the 70 range.

Right. We said at CES we were approximately 70 national channels, and I believe we said we were in somewhere around 35 --

34 markets.

34 local markets, and as Charlie indicated, we don't think we're going to be lacking at all in terms of content or markets subsequent to satellite launch.

That's helpful. Lastly on the -- I was wondering if there is any commentary that you can share on the 700 megahertz auction and seems like you're going alone this time? Just going to try to get a sense on any strategic plans that you have for any possible -- how this auction is shaking out and what you might do with -- do you have any specific business plan on the 700 megahertz auction that you might deploy should you be successful.

Pursuant to the rules that we're governed under by the FCC, we can't say anything more that it is already in our financial statements and footnote 14.

Thank you. Thank you very much.

Those are -- by the way, those are all good questions. We don't mean to dodge them, it is just that we don't give guidance, and the rules are the rules in the SEC.

The one thing we can say about SAC and it is talked about in our 10-K is given that we're going to be buying our customer equipment from a third party who is going to be marking it up with a margin, our SAC all else equal will go up somewhat in '08 versus '07 all else equal.

Thanks.

Next question comes from the line of Doug Mitchelson with Deutsche Bank Securities.

Thanks, guys. A couple questions. First on the offer you issued for PVRs, what engenders the confidence that this software isn't going to be proven to be in violation of any patents.

Good question. I guess maybe I don't know if legal counsel wants to jump in here, but in general the TiVo case at least the appeals court ruled for us in hardware and against us in software, but the net result of that was I think we -- that decision as it is today in which we appealed and have a (inaudible) hearing later, but I believe we're about 120 something million dollars with interest from the past award which we reserved for TiVo. That's the bad news. The good news is that we have designed around that patent.

We have filed for that patent although it is not been published yet, and we have outside legal opinions that that patent does not violate the TiVo patent nor a doctrine of equivalence for that patent, so we're in a situation as a company buying our -- and we've downloaded that software to our DVR, so as a company we are confident we're not in violation of the patent in question at trial, and I am not sure everybody can say that in the industry. So there is probably other ways for people to design around as well, but we came up with one way to do it, and others may do it other ways, or they may enter into agreements or may not feel they need to and may do things differently today. It is kind of good news, bad news. We believe we should have won on the software side, but the software is clearly explained to the court, and we now do it a different way.

That's helpful. I am just curious, you've been a leader in international language subscribers. How are the gross add and churn trends for that group? Is it similar to your overall trend or better or worse?

It varies between international language group. I think we've got about 35 different language groups, and some are materially better from a churn perspective, and some are not as good. To give you an example Hispanic churn probably skews higher than non-Hispanic churn as a general example, but there is other cases where it is very little churn in international programming, so all in all I would say international customers are core-- are our strategic core, are material in terms of what we do, and it is a strategist's work and hopefully we'll continue to.

The last question, Charlie, it is a bit hard to peek under the hood right now versus normal for you guys, the deterioration the last couple of quarters in subgrowth has been pretty severe, and one-way to take that would be to suggest that the value positioning you historically had in the market not as effective a marketing strategy today as it has been historically. But again, the answers you've been giving on this call say that you're still pretty confident in the business, and you think there is unusual trends that will reverse in the future. If that is accurate, and why not use your balance sheet to take advantage of evaluation, the streets currently discounting expectations that the softness continues?

I am not sure I understand the question.

Yes. I think the question, I think what you're really asking is why don't we do some share buyback?

Yes. The question is if your outlook for 2008 is that you're going to be pretty competitive, and you're pretty excited about some of the things that are coming, then why not be out there taking advantage of a period when the market is not valuing your shares?

Let me start with your first premise. The deterioration of our value message. I don't particularly think that that's happened. I still think we have the best overall value message. Certainly our competitors have continued to come at this with substantial discounts to attempt to minimize our value message. You've seen us react by focusing more on a DVR message as well, so I don't think we've lost our positioning in the market.

I think you'll see us expand that positioning not only to talk about value, but to talk about features in technology that we have that is superior to our competitors and we're beginning to get those kinds of messages through the market. I don't think it is as simple as it may have been two to three years ago on lowest price all the time just because other people have met that price point, but that being said I think we've got still strong messages in the market. We still remain the low cost provider with the greatest number of services, and we will continue to drive that message. In terms of what we do from a balance sheet standpoint, we'll look at all options to increase shareholder value, and we continue to look at those, but we're not prepared, I think on this call, to talk about any significant share buyback program other than to say that we recognize where our strengths and weaknesses are, we recognize that we have opportunities in our balance sheet to do some things, but we also recognize the markets are a bit skittish, certainly from a debt standpoint, and we're not going to get too far ahead of our skis in terms of what we do with our balance sheet, until we see some trends, get some satellite launches behind us and see how our '08 plan unfolds.

This is Charlie. From a general perspective last three or four years we saw a lot of opportunities in the marketplace but we got out bid on everything we bid for. Of course a lot of things would required a lot of leverage to do it, and we were very-- we were more conservative in the marketplace. We believe the risk wasn't priced exactly right. The reverse of that is really happening now in the sense that a lot of the people that just went and bought companies and leveraged things up, those marketplaces are somewhat closed, so somebody who's got cash on the balance sheet, somebody has the ability to generate cash is in a better position today in valuations have come back to-- back to earth so to speak, and so I think we have different set of opportunities than we may have had in the past, but again as Carl said, we kind of evaluate that every day and say what opportunities do we have and where do we think we'll enhance shareholder value. In the past sometimes that's been to buy back stock. Some cases it has been to go out and de-lever. Some cases it is to go out and make an acquisition, and we feel very comfortable we can make those kinds of decisions efficiently.

Great. Thank you.

Your next question comes from the line of Jonathan Chaplin with J.P. Morgan Securities.

Thanks. Sorry to drill down on the question that's been asked already to some extent, but looking out through 2008, it seems like the economy certainly isn't getting better, and competition is just going to escalate, and I understand that you guys are going to do things differently which will improve your competitive position, but it just seems like over the course you'll have more competition in more markets. Is there anything that I am not thinking about that would cause gross adds to improve in that environment or is this the new sort of gross add reality do you think for the company? I guess if you could just add a little bit of color in terms of what you're seeing in the early part of the first quarter on the gross add front, that would be helpful.

I think that's an interesting question. I think that in general what you've got-- is if a general statement you have another competitor in most markets which is the phone company who wasn't there two or three years ago, right? So the general thing is you have an extra competitor, right? That obviously makes things more difficult. On the positive side, you have a couple things. Those competitors, a) are not going out to certain market constituents. They don't bill that fiber to the home or fiber to the curb for middle class America. It is upper class America, right? So satellite continues to have -- they don't go to rural America by any means. Satellite doesn't face increased competition there perhaps.

The second thing is that consumers do -- are showing they want more advanced services and let's just call it DVRs and HDs. There is nobody who makes a better DVR than ourselves, a better DVR today than DISH Network. There is countless reviews of product, but the 722 is pretty universally considered the best total overall DVR in the business. Second, in the HD offerings, while we're behind a little bit in local markets today, that's something we're able to get back up as industry leader in 2008, so that is an opportunity, and I think you saw some of that from Direct TV where they did very well with that even with increased competition. So the third thing is there is probably-- there's more opportunity now, for example, in the MDU market than there was before. Congress passed a law-- or the SEC passed a law that outlaws cable exclusive, so many MDUs-- we were locked out because there was a cable exclusive for ten more years, and we didn't have a chance to go in and compete. That environment has changed somewhat.

The fourth thing I think that's happening out there that is an interesting paradigm shift is the digital conversion, so that means there is 13 to 15 million homes out there who don't pay for TV today whose signals are going to go black unless they put a digital converter in. Not all of them are able to actually install an outdoor antenna and put a digital converter in. We happen to have an installation network. Our sister-- our spawn company manufactures a product that can be used there, so we have an opportunity perhaps in the digital conversion to play a role that can enhance our relationship with consumers of DISH Network and perhaps increase our subscriber roles. So, an awful lot of things going on out there. So, yes, have you an overall economy, overall competition that's tough or not tougher than in 1986 when we were competing against AT&T and Comcast and TCI, and they scrambled all of the signals, and the sky went dark over night, and we were selling 10-foot dishes for $5,000. It is not that tough. I think we have a degree of confidence that we can execute in that kind of plan, and like I said, what I like about it is you've got to be good, and as we talk this time next year, we'll probably see how we stack up versus everybody else in the business. Unfortunately I don't think we stacked up as well as we liked to in the fourth quarter.

Thanks. Charlie.

Your next question comes from the line of Kit Spring with Stifel Nicolaus.

I don't know if this is in the K or not, but can you detail what your satellite launch plans are for this year, the number and costs and just clarify that those are funded by DISH, not Sats. And then secondly, can you give us any color as to where you are as far as your up take of DVR, HD, or are you kind of in line with the industry-- you're behind or above, and then third, any comments on your plans for video-on-demand? Do you think that's really a differentiator for cable, and what do you plan to do about it? Thanks.

Good questions.I think it is page seven.

Page seven of-- page seven of the K, and there is a commitment footnote in our financials.

We're not going to go through it in detail. The general premise is that the satellites that are in the kind of (inaudible) VSSR are inside Dish, and the satellites that are outside are resident in Sats, and we have subsatellites under construction as it says on page seven, EchoStar 11 as we retain, that will be one of our (inaudible) VSS slots, EchoStar 14, Light 2009 again to support our HD launches, and NCL 2 which is a 129 over the flat that we lease from somebody else, again to support our HD and increased local, and the local is shown there on page seven.

Our next launch is next month, in March.

Okay.

That's AMC 14. That is a Sat satellite and being leased by DISH, and targeted to go to the 61.5 degrees slot which is where we have a fair number of local to local HD and international channels. So, that's going in March, and then we have another one this summer. So mid-year at this year, Echo 11 as Carl said, and that one is a DISH satellite going into our main orbital arc and allows us to increase our capacity both in HD and local HD and then CL2 which is a DISH satellite goes up later this year which again allows us to increase local to local HD. Those are three that affect DISH this year, one we lease from Sat and two we own.

That's on page 7 of the 10-K and I believe back in the foot notes we talk about F-33 we talk about various commitments we made and satellite issues as well.

Okay. On the DVR and HD penetration and VOD

We don't give that out in terms of penetration and I think we're very competitive there. As I said, I believe it is fairly objectively that we consider to have the best HD DVRs out there, and again now we have our own intellectual property there. On pay-per-view, I think the satellite -- I think the satellite has an advantage in us. We put the biggest hard drive, our DVRs too have more storage capacity, so we have a lot of ability to do a lot of video-on-demand resident in the box where it is instant and you're not dependent on anybody else. But we're disadvantaged against cable who can put big servers in and put more in a central location.

Having said that, we're advantaged in the sense as you go to broadband, right, essentially video-on-demand is going to be a broadband product, and not necessarily a central server in the cable head end but central servers as amazon.com or apple.com or to the web or whatever or perhaps to fox.com or whatever, right? And all of our VIP product that it is we buy from sat are broadband compatible, so we're starting to get customers now who install DISH Network and then put up -- hook up a DSL connection and are able to go out and get video-on-demand on the net, and that is something that we'll continue to improve. The operating systems have tol get a little better so your remote control is a little easier to navigate, your menus have get a little bit better, your graphics have to get a little bit better, and those are all changes that our vendors are making for us to make that a better product.

I will follow up on that.

I think if you look at the landscape satellite will stack up pretty well on a video-on-demand basis.

Thank you.

I think if you look at video-on-demand, and you look at the gross and net adds for cable relative to the gross and net adds for satellite, certainly the HD and the DVR message is carrying the day from an acquisition standpoint, and I really believe that VOD is much more of a retention product for cable rather than a marketing message, and as Charlie pointed out, I think that with the connectivity that we're building into our next generation of boxes we'll have a sufficient VOD play as well.

We actually have unlimited VOD play. If cable is going to go to head in-strategy they'll never have unlimited VOD -- I shouldn't say never. It can be very expensive to compete with what the internet will be able to provide for you. Thank you.

Your next question comes from the line of Benjamin Swinburne with Morgan Stanley.

Thanks. Good afternoon, guys. A couple of questions. Maybe you can talk about, Charlie or Carl, the lack of HD locals in a lot of markets. How much of that do you think drove the gross adds decline if you may want to put a percentage around how much of the gross adds drop came from a lack of HD locals, and then just putting a little more meat on the satellite launches, you're at 34 markets today.

Does AMC 14 get you to 75, 80, or is it going to take all the way through CL2 next year before you're at the 100 market count, and any channel in particular in the fourth quarter that was weaker than 3Q, trying to get a sense if it was Telco or Independence or direct sales that might have been particularly weak on a sequential basis, and then lastly just an administrative question. You talked about IPR and D right off in the fourth quarter in the G&A line on which was in the consolidated DISH numbers related to sling media. If you could give us that, that would be helpful as well.

I'll let Bernie take that last part first.

The R&D write off was related to the sling acquisition which took place in the fourth quarter. I think that's talked about in our 10-K, something like $22 million of the acquisition was written off immediately because of R&D that was in progress, and that's the right accounting for such an acquisition. The other questions I will go back to you.

On the HD stuff, I'm gong to give you a general answer, but when the satellite launches in time you get it over into the proper place, AMC 14 will allow us to start adding about 10 local markets a month until the end of year, for the last half of the year, so that's how you get from 30 to 100, and so that's an obviously anything you can get up before September or before December, actually, is pretty good. HD was bigger in 2007 than it was in 2006. It will be bigger in 2008 than 2007, probably big inner 2009 than it will in 2008, and obviously almost everybody who wants HD wants the local channels in HD, so you're competitively challenged in markets where you don't have it.

And so, I think that both cable and satellite competitors and phone company competitors have some advantages there from that perspective. Secondly, I think Direct TV is to be commended. I think they had a brilliant marketing campaigns. I think they did a great job in execution, and I think they were able to go out at least in the public eye to be seen as the HD leader, and I think that speaks highly of their ability to execute, and it shows that you we have to do a better job and also shows you ( lost sound)

Ladies and gentlemen, this is the operator. I apologize but there will be a slight delay in today's conference. Please hold and the conference will resume momentarily. Thank you for your patience.

Sorry, everybody, we lost power on our end. We were right in the middle of the questions.

I don't know if anybody heard the answer.

Ben, if Ben is still on the line, tell us or anybody can tell us if we got the answers through.

The line is open.

I am still on the line. I think the only outstanding one was the channel question in the quarter, if anything was particularly weak, Telco, Direct or Independent or if you saw the weakness across the board?

I don't know if you heard the answer, but the -- most channels are about the same, And, Telco, we have never been strong in Telco. It is four big channels, Qwest, Verizon, and two AT&T, BellSouth and AT&T, so we've only been in the AT&T side, so Direct TV-- that's been a pretty good growth area for Direct TV obviously, and that's been a steady area for us, but hasn't been a huge part of our business. That will be a bigger part of the business going forward as we pick up the BellSouth territory. So everything has been about the same except from a channel perspective there is a few changes in and out of that, but-- but phone will probably logically be a bigger piece going forward this year.

Thanks, guys.

That had been our last question.

We'll take one more question.

Because of the power outage we'll get in a bonus?

Your next question is from the line of Jason Bazinet with Citi.

Thanks so much. I think you guys had alluded to the fact that churn stepped up most significantly in the third and the fourth quarter. I was just looking at the bad debt expense in 2005, 2006, and 2007 as disclosed in the 10-K, and I guess the sequential increase in bad debt is around $37 million. It seems if I just do a back of the envelope that virtually all of the step up in churn can be explained by just the bad debt expense. Would you agree with that in hypothesis.

I think it is a big factor, but I don't think it is all there. Obviously somebody decides-- what happens when somebody decides to churn, they may not pay their bill, and so they kind of -- they're correlated together, okay? But obviously the -- and I think-- look, the problem with churn is that whatever we do today isn't going to show up for churn until next year, right? So if some of our churn was self inflicted from perhaps-- for example, if do you a promotion where you give $10 off for ten months, I can guarantee your churn will go up at the 11th month when the $10 quits happening.

Your customer also will see two or three price increases during the year. That's going to drive calls, it's going to drive churn. I have said many times, I hate free programming. I hate the way we've done that. I think that it just ends up long-term not being the right thing for our business and so I think we improved, and I think now we have more discipline in what we're doing there. And I think that as we do things today, I think we're putting a better foundation in place for churn, but in a good times or bad times in economic perspective, so I think you have to -- and some of the stuff we did in 2006 probably showed up in churn in 2007. We were pretty excited about our subgrowth in 2006, and we probably didn't put on as good a customers as we should, and we had policies like free programming for a certain period of time that ended, and it just always comes back to bite you a little bit, and the good news is most people seem to be on the same page here now.

Okay. Understood. One last question on the buybacks. I know you haven't bought back shares for quite some time, but you did step up the share buyback authorization by another, I think it was another 300 and some odd million.

And because our crystal ball is is not that good in terms of what the stock market is going to do and how we'll be judged and what the other opportunities for us are in the marketplace. So we like-- for preparation is where you want to be, and we're prepared to do any number of things.

Okay. Thank you very much.

It is our last question, so we'll be back again. Thanks for joining us today. Sorry about the power outage, and we will be back. For those of you who want to listen to a sats call, it is coming up in five minutes, and we'll be back in May. All right. Okay. Thanks.

This concludes today's conference call. You may now disconnect.