DISH Network Corp (DISH) 2008 Q4 法說會逐字稿

Good morning, my name is Ken, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dish Network Q4 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions).

Now I would like to turn the call over to Mr. Jason Kiser. Sir, go ahead.

All right, thanks, Ken. Thanks for joining us. My name is Jason Kiser, I am the Treasurer here at Dish Network. I am joined today by Charlie Ergen, our Chairman and Chief Executive Officer, Bernie Han, our CFO, and Stanton Dodge, our General Counsel. Before we open it up for some Q&A, we do need to do our Safe Harbor disclosure, so for that I will turn it over to Stanton.

Thanks, Jason. Good morning everyone. Thanks for joining us.

We invite media to participate in listen-only mode on the call, and ask that you not identify participants or their firms in your reports. We also do not allow audio taping, and ask that you respect that.

All statements that we make during this call that are not statements of historical fact constitute forward-looking statements, which involve known and unknown risks and uncertainties, and other factors that could cause our actual results to materially differ from historical results, and from any future results expressed or implied by such forward-looking statements.

For a list of those factors, please refer to the front of our 10-K. All cautionary statements that we make during this call, should be understood as being applicable to any forward-looking statements we make, wherever they may appear. You should carefully consider the risks described in our reports, and should not place undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

With that out of the way I will turn it back over to Jason.

Thanks. Ken, I think we are going to open it up straight into Q&A.

Absolutely sir. Our first question comes from Spencer Wang from Credit Suisse.

Thanks and good morning. Just two quick questions. I was wondering if you guys could just update us on where you are with the Niagara Revision 3 swap-out, timing-wise and process-wise, and any update on the Tivo lawsuit, after the hearing in Texarkana in February? Thank you.

On our card swap-out, we are more than halfway through, and should be completed by about mid-year, and then we will start testing the turn-offs. We may do some of that for specific groups before that, to give us some indication.

The other thing that we are doing a little bit different this time is we also are in the process of not only doing this swap-out, but developing the next-generation card, so that we will follow at some point with another generation card behind this one, irregardless of how the pirates attack it, so we will continue to try to not get behind like we did last time.

Tivo lawsuit there was a hearing, gosh, about two weeks ago, I think, in front of the judge in Texas. That is now complete, and the judge will make his ruling. We anticipate that ruling won't be for several months. And he will make his ruling as to whether we are in contempt of court or not of his injunction.

Okay. Thank you.

Our next question comes from Tuna Amobi from Standard and Poor's.

Thank you very much. So I think this is for Charlie. There has been a lot written and reported about Sirius. I think this might be an opportune time for you to shed some light there, in terms of what the strategic or financial intention was, regarding your investment in Sirius through Echostar, and how that might also fit into your strategy for the 700-megahertz. Are we close to any resolution there, in terms of the potential deployment of those assets? Thank you.

A lot was written about it. Much of it was true. I would take this opportunity to say the one thing that clearly was not true was there wasn't, at least I can speak for my end, there is no animosity towards Mel Karmazin, or anything like that like was printed in the press. I think that was probably, I don't know where they got that, but certainly not from our side.

We saw in Sirius, really a financial opportunity first and foremost, to help a company that needed it, that had a good business we thought, but perhaps didn't have a very good balance sheet, so we wanted to help there, and saw that as a good financial opportunity for us. We also strategically saw it as a business that was very similar to what we do today, in that it deals with satellites, and recurring income, and billing and installations, and the very similar things that we do today at Dish Network. We thought that was a good fit from a partnership perspective.

As far as 700 megahertz, 700 megahertz, we don't have our 700 megahertz because the digital delay is not until June now, but we see our 700 megahertz as a strategic play at some point, and not necessarily, it wasn't necessarily related to a play to Sirius.

Just one follow-up question, on Sling Media, given all the recent changes there, can you remind us again, in terms of your long-term vision for that asset, has there been any changes at all in your thinking?

Well, Sling, I think Sling, I think perhaps our previous management was thought of as a product, and we at Dish, kind of think of it as a feature, in the sense that it is really play shifting, so it is similar in it's importance, as to a DVR, except this time it allows you to take your programming with you. It does it in a unique way that ties the video to the subscriber. And we think that is important for programmers and copyright holders. So if not, we think that the way we do it at Sling is the correct way to do it, and obviously there is risk if people do it a different way.

We think it is a fundamental technology, it is a building block that consumers are going to want, because they are going to want their video product more than just in their home, and so I think the first step really is to make it a feature, and if you are going to make a feature, then it needs to be in the product, very similar to the way we did a DVR in the product.

So our first product comes out this summer in the 9/22 at Dish, where we have Sling enabled in the box. And it is seamless to the consumer. So we will see whether our theory is right. I caution you that DVR took, that the DVR was around for four or five years before it became mainstream, and it became a product that the customers couldn't live without. I assume that something like Sling will be on the same kind of growth pattern.

I think for those people that are knowledgeable, and who travel, and who want their video in another place besides their house, or other rooms in their house, right, that is the other thing that it does it allows you to go in a wireless fashion to other rooms in your house. So if you wanted, other than your main video source, if you went it someplace else, Sling is going to be a technology you are going, that I think you are going to need. And so we are very optimistic about the future of that feature set.

Okay. Thank you very much.

Our next question comes from Vijay Jayant from Barclays Capital.

Thanks. Charlie, I have a bunch of questions. Starting first on what you sort of suggested in your 10-K, about reinvesting back in the business, the box swap-out, in [turns back post], can you sort of give us really in that turnaround that you have been going through, where we are, how comfortable are you in really getting it all sort of worked out? What is really the cost of the box swap-out? And I have a couple of follow-ups.

Let me give you kind of a big picture answer. As I have looked at the Company the last year, I look, we've done a couple of things really right.

One is our balance sheet is in good shape, and we didn't get in the kind of situation that others have, with having a bad balance sheet, and maybe having payments due, in fact we paid $1.5 billion off last year, and we had the money to do it. We don't have another major payment until October 2011, so we are not forced to go into the credit markets today. So we have a good clean balance sheet, and so we have done that right.

Second thing we have done right is I believe that we have the best video product out there. So if consumers are on a mission, and they had a choice between us or our competitors for video, I believe that they would pick our product more often than not. So in other words we really, really have a good product.

Having said that the over the last three, four years we have allowed our operations to degrade, and our customer service has suffered. And it has taken lots of different forms. It starts kind of with our processes, in terms of how you actually take the customer order, and how you actually install the product, and we have become way too complicated in how we did that. Way too complicated in our marketing. Way too complicated in our product. Way too complicated in how it operates.

Another part of our operation that also suffered then, was really what I would call fraud and piracy. Our system became compromised. We were behind that curve. There were fraudulent actions by beaters, where they just resigned up the same customer which became an add and a churn at the same time, but it increased SAC to our company. We have had to kind of go back and revamp those things.

I would say it this way, 2008 was kind of a year where our goal was to stop getting worse, all right, in 2009 we are now prepared to go forward by getting better, and it is much easier to manage a company when you are trying to get better, than when you are trying to stop getting worse. And so we have had to put some building blocks in place to get better. That includes some changes in management, but primarily a focused management, to that realize everything that we do, impacts other parts of our business.

So I am much more comfortable with the management team we have, and the focus we have kind of going forward, in terms of getting better. So I think that I am glad we have done a couple of the major things right, but disappointed that operationally we have made our product too complex, and made it too difficult for customers to do business with us. That is something that you can change, it doesn't change overnight, it takes you a lot of years to mess it up a little bit, but that is something that is much easier to change than your product. It is much easier to change than your balance sheet.

The $9.99 promotion I think it has been there for month, has the phone been ringing, have you got your processes in place to sort of self-select the best customers that don't become a problem two years later as their contract ends, any color on that would be great?

Well, it is too early to tell. I would say from a big picture perspective obviously AT&T, there is lots of AT&T, I believe it was about 19% of our business in the fourth quarter of our gross adds. So obviously that enables us to, that is a negative in a sense, but it is also a positive in a sense that we are able to go out and get subscribers, where we are not dealing with a competitor, both a competitor and a partner. So we are able to develop long-term those kind of partners that aren't going to be on the same page for us long-term. We have to go replace that business.

But our operations, we are able to go out and promote more aggressively than we have in the past, because our operations are more solid than they were. So that, and we will have to see how that, those kind of things balance out going forward through the year.

And having said that, we certainly have tightened up our credit standards, in terms of the kind of customers we would take, and certainly there are large number of customers who are calling on our promotions, who don't qualify from a credit perspective. That is kind of the anecdotally the first thing we found out, which is okay. In the past we might have taken those customers, and it doesn't make sense in this environment to do that.

Finally, Charlie, on the Tivo situation, if the judge rules against you, and the outcome is to shutoff the DVRs, can you give us some sort of base analysis? I am sure you have done all the options, and obviously looked at what could happen. Can you give us sort of how you look at the various outcomes? Obviously if you win the case then great, but if you look at the other options, can you talk about how you sort of see the outcomes there?

I mean for a big picture, I would expect that at some point we would be doing business with Tivo. So the ideal outcome is obviously, that you would have a business arrangement with Tivo today. But we have an honest disagreement, in terms of the way we operate our system, and the way that we think, that they think we operate our system, and the way that they have told the judge and jury in Texas, that they do operate their system. And so we remain far apart today.

A judge more than likely will make a ruling in favor of one company or the other, and that would probably set the ground rules going forward. And we again, we have a lot in common with Tivo outside of the intellectual property realm, but we have a major disagreement, we think the intellectual property laws are to encourage innovation, and that is what we have done, and we know we worked hard to design around the way they have told the courts their system operates. So there is certainly risk for both sides in the case. But I guess we look at it fundamentally two ways.

One is what did we do and we know we did a lot of work here, so we know better than anybody else the kind of things that we did, to design around their intellectual property, and the second thing is, what does the law say? And we think we are on the right side of both of those things. And obviously it takes a lot of courage when you believe you are right, but we believe we are right. Ultimately a judge's ruling, there are any number of things the judge could say, and we would have to look at that ruling before we would have a strategy going forward. We would have to actually see what he says. And that would give us another road map to how we would proceed going forward.

But having said all of that, at some point I expect that at least on some business terms even though it may not include intellectual property, that there are many things that are similar, with what we want to accomplish and what Tivo wants to accomplish, and there are ways for both of us to make money, and those conversations only take place when, I don't know, that you can't get to that point if both sides are far apart on their beliefs. And so sometimes a third party has to settle the beliefs.

What is the DVR base, and just a housekeeping question on the CP CapEx for the quarter? Thank you.

The CP CapEx for the quarter was 224. The full year is 920 million. And actually we started putting that number in our SEC filings. If you look under our cash flow from investing activities you will see the 920 million number in there, and you will see that going forward as well.

Thanks.

Just as a reminder, (Operator Instructions). Our next question comes from Craig Moffett from Stanford C. Bernstein.

Hi, good morning, guys. Charlie, you mentioned a moment ago that the AT&T accounted for about 19% of your gross adds. I guess assuming it was about 10% when it was half the footprint about a year ago, it would look like your gross adds are down about 25% year-over-year. That presumably is not just a customer service issue. Can you talk more about the gross add trends that you are seeing, and what it is you can do in '09 to reverse the down trend in gross adds?

I guess some of it was self-inflicted. I just didn't feel like we should be out aggressively in the marketplace, at least vis-a-vis what our competitors were doing. And a situation where we weren't handling the current customers that we had very well, and weren't handling the phone calls that we had very well, in terms of answering our calls on time. We had to spend a fair amount of time last year, in terms of building that management team and that infrastructure to be able to move forward.

The second thing I think would be from a marketing perspective. We are still very much second tier from a marketing perspective, compared to any number of our competitors. So we have to improve that side of our business as well.

If I could ask one follow-up.

And obviously that is going to be a focus for us going forward. How it all shakes out remains to be seen.

One obviously way to do it is to become more promotional on the margin, or more price oriented, and your $9.99 promotion sort of sets a new price point. You haven't seen customers sort of spending down, as I think some people call it, in the recession, but is it your sense that price is going to play a meaningful part of this, or do you think RPUs can hold up pretty well, as you start to regrow gross adds?

I think RPUs, in the industry they were quite aggressive pricing promotions all of last year, except kind of within our side. And pricing promotions that are certainly kind of equal to what we are doing today with $9.99, because that is only for six months, and some people have stuff that goes on for a year, $20 off for a year, that kind of stuff, bundled discounts of pricing, probably even more extreme than that.

And so it will be interest to see, how it kind of all shakes out, but the consumer is looking to save money anywhere they can. Consumers are downsizing in general. And kind of the low cost producer in this industry that is a good thing for us. Wal-Mart, they seem to be fairly well in tough markets, and we have to be operationally efficient to do well, but assuming that we can become operationally efficient, we should do pretty well in this environment, but we will see.

Thanks, Charlie.

Our next question comes from Jessica Reif-Cohen from Bank of America/Merrill Lynch.

Thank you, a couple of questions. Could I just go back to Sirius for a second. What was the gain on that transaction, and do you see any competitive disadvantage with Liberty coming in, is there any impact at all on your business?

Well, we don't know what Liberty will do with the asset, and obviously my reading of it is they are still in a minority position, so I assume the current management will continue to run the company, and make the decisions for the benefit of their shareholders, and not Liberty. But only time will tell, and I don't know their strategy. And we haven't recorded any gain at this point from the series of transactions.

That would be a Q1 event?

If there were any, it would be a Q1 event.

Have you renegotiated your Univision deal yet?

I don't think we have disclosed, we have programming contracts that come up from time to time, even occasionally we have somebody come off the air, and we have any number of contracts come up from time to time, and we don't comment on those individually. We prefer to really negotiate those privately.

How should we think about overall programming costs in '09 versus '08?

They will be higher. I guess I would answer the question this way, most of our programming contracts are long-term. I think that we are similar to other people in the industry, where programming costs, depending on the particular provider, are going up anywhere from what we will call it 4 to 8%, depending on who the provider might be. It is slightly higher than the rates of inflation.

Obviously now we have deflation, so to the extent that we have programming contracts in place, our programming prices, our programming costs have actually gone up quite a bit higher than the rate of inflation. So.

So the high single digits?

I think everybody in the video business is probably in that situation.

Right. But overall it is high single-digits is a good place to be?

High single digits would not be a good place to be, but again I don't know exactly, but I think programming contracts that we have done in the past, might have been in that 4 to 6, 7, 8%, and probably we would look for any programming contracts in the future to be materially lower than that. Just given that we don't have inflation any more.

The last thing, can you elaborate on the timing of the Voom litigation?

The which one?

Voom.

You want to take that one, Stanton?

It is hard to say at this point. We are just in the middle of discovery.

So I imagine that will go on for a few years. That is the wheels of justice grind slowly sometimes on those kinds of cases.

Okay. Thank you.

Our next question comes from Tom Eagan from Collins Stewart.

Great, thank you. Charlie, you mentioned feeling better about operations as you prepare for 2009. What metric were you kind of thinking about that made you feel, to say it was worth it to offer the promotion for $9.99? And then also just maybe some thought on how Q1 is pacing so far? Thanks.

Well, we don't give guidance so I won't talk about Q1, but I think the metric we focus on, that we focus on today is really our call in rate from our customers. So, as in sales costs. So why are your customers calling in then, and can you handle those calls. Right? AT&T causes a disproportionate number of call-ins to our call-in rate, and the absence of AT&T automatically helps us with some operational efficiencies.

What happens with AT&T is they billed our customers, so when a customer called us on a billing question, we couldn't answer the question, and they called AT&T and AT&T said we can't answer the question, you have got to call Dish, and the customer got routed back and forth. Even though we have some operational inefficiencies with the current AT&T customers going forward, when we sell the customer direct or we sell it through a retailer, or we bill the customer direct, we have some built-in op efficiencies there.

Then of course obviously in our focus of our management, and so forth, we are getting better at what we do, and some of the things to get really efficient will take longer, because they involve IT resources, and things like that. But I think guess I would just, again, I can't say any simpler, than last year was about stopping getting worse. We really were getting worse for most of the year.

And this year is about getting better in everything that we do. It is easier to manage it when you are getting better. You are feeling better. You are seeing progress, those things, it is hard when you know you are getting worse, and at what point do you turn the corner?

Right, Charlie. In terms of AT&T, you mentioned about 17% of the gross adds were from AT&T. That may translate to about 125,000 in the quarter. So did you actually net gross subscribers for the AT&T base, or did you lose subs, and what was the churn? Last I remember the churn was a little bit above your churn for the overall business?

Well, you can calculate based on was just said there but we said I think last quarter I believe this may still be in there that the churn for AT&T subs is a bit higher than our average churn overall, probably based on the numbers you just cited, you probably would figure out roughly.

We gave the total number of AT&T subs we had, did we do that?

Yes, we said roughly 1 million.

Roughly 1 million subs. So what did we have 1.8% churn so that is 5.5% churn of 1 million, so 55,000, and your 17, so you can figure out that would be a net gain of AT&T, it would have been.

Okay. Thank you.

Our next question comes from Jason Bazinet from Citi.

Hi, just have a two questions. We are in the middle of a pretty bad bear market. Your stock is down more than the market. You are doing over $2 a share of free cash. You mentioned your balance sheet is lean. You don't really have any maturities until the back half of '11, and yet you bought back $1 million of stock in the quarter. Can you just talk about how you are thinking about your cash, and sort of why you are so risk adverse, given how cheap your stock is, and how benign your maturity schedule is?

Well, I answer this question pretty much the same way every time. We are risk adverse, but that doesn't mean that we wouldn't ever not buy our own stock back. I mean we looked at where our cash was.

We thought that three weeks ago, we thought maybe using some of our cash to help Sirius was a good idea. That didn't work out. That didn't work out long-term, but short term that might not have been a bad move for us. That cash now is available to do other things.

We take a look at other situations like Sirius out there, where there are good companies that we maybe can help out, that strategically might also be important to us. There are lots of thing we look out.

We balance that versus buying back stock, versus buying back debt, versus paying a dividend, with maybe the tax rates going up on dividends, and we factor all those things in, and our Board of Directors has a lot of input into how we would look at that, and we kind of try to make rational decisions based on that, and in hindsight I think we did, I think we made a good decision not to aggressively buy our stock back. A) it has gone down and, B) the capital crunch closed the markets desk, so we had to pay back $1.5 billion of debt.

So I think we made those big decisions correctly, and I think we have been a good steward of our cash.

Can I ask one follow-up? In terms of your Accounts Receivable in terms of days, I think it moved up to about $800 million of Receivables, or about 25 days. Which is a bit higher than normal. Can you provide any color, in terms of what might be happening?

Bernie, you want to take that?

There was nothing terribly material there. Our days receivable actually was Echostar went down a little bit, our days receivable I think with all others slightly up. Anything noteworthy? Nothing material. I think it was fairly normal fluctuations that we see period to period.

I wouldn't say that. I think we would like to be a few days less than 25. I think the overall tone of the market, people are taking a little bit longer. And I think there may be, I don't think there is any more risk in there. That I think is business as but I think our AR guys probably need to get that down a couple of days.

Okay. Thank you.

(Operator Instructions). Our next question comes from Paul [Rainey], who is a private investor.

Yes, Charlie, I have been an investor since the mid-'90s since you first started, and I can remember at one point, in a conference call, or maybe it a Charlie Chat, do you remember those, that you remarked that the Company would be profitable at 4 million subscribers, thereabouts. We are now fast forward 10, 12 years to 13 million subscribers. My question is this. Do you ever see a point in time when we stop spending so much money on SAC, and instead put that money back to the stockholders?

I would say it a different way, Paul. There is a day, alright, when spending money on SAC would not be the best investment we can make. And as an example, at our stock price today, I don't know what the math is, but the stock market may only be giving us value for $900 a subscriber, or $800 a subscriber. If SAC was materially, was more than that, it might not make sense to get a new subscriber. And so what else would you do with that? And so I think that years ago it was a no-brainer to spend your money on SAC.

And I think that as the video business matures, as it becomes more competitive with phone companies, there could be a day when not all SAC expenditures will make sense financially. Then I think it will take a lot of guts and a lot of courage as a management team, to say let's go spend that money wiser, in a wiser way for our shareholders, whether that is paying a dividend, whether that is somehow getting it back to shareholders, whether that is acquiring a company, or whether that is doing something else with the capital. And so we look at that.

Okay. Thank you.

Our next question comes from Lee Cooperman from Omega Advisors.

Thank you, this is really is a subset of Jason's question. In September we bought back a little over 3 million shares, paid $26.82. We took time off in October, November. Maybe you were distracted by other things, and then in December we bought stock back about $1 million worth of, as Jason mentioned at 9.99. I am assuming I would just be curious, do you think the value of our business, not forget the stock market, but the economic value of our business went from $27 to $10 in a three-month period?

I am trying to figure out why would you buy less by a major factor, than you bought at 3 times the current price, or close to 3 times? Secondly, I noticed we rebalanced upward the program back to $1 billion, but for some reason we said we couldn't buy back more than 20% of the Company. I assume if it is cheap enough we want to buy it all back, within the confines of the market. Any help you could be in trying to interpolate, and try to get into your head, and figure out what we are thinking?

Lee, I would just give you a couple of points. One is any stock buybacks we do are some point, are what is that program called, the 10-B-51 program. So we have to set long-term initiatives there. So that could explain the 9.99 stock price, in the sense that we would that we set a price.

The second thing is we don't think the economic value of our company changes nearly with the kind of volatility that the investor does, because obviously the investor has redemptions from a hedge finished, or too much or too little in a portfolio of something so they move on other factors. We look at it a little bit longer term there.

The third is obviously we were doing some other things in the timeframe. We thought that made sense, rather than by our stock back with Sirius just being one of them. Or one example of it. So I mean if you ask the question, we like the company, we like the company. Do we like the company that we think, do we think we should be able to build more value than what we are getting credit for? Yes, we do, but we have to go execute, our job is to prove the people that have our stock at this price wrong. We haven't done a very good job of that the last couple of years.

That is the opportunity that Mr. Mark has given you to capitalize on. What I am trying to figure out, and maybe the answer is the Sirius distraction, but to buy 3 million at 27, and to buy 82,000 at 9.99 isn't too logical, but I think I understand --?

Well, on the surface it probably doesn't look logical, but behind the scenes I think it was very logical, let's put it that way.

Is there anything magical about this 20% limit?

Oh. I think that was in relation to just the amount of cash we had, and we didn't want to go into the marketplace to borrow money, so I think the Board put a secondary limit on it. So even though we had a $1 billion authorization, they put a secondary limit on it, because they didn't want us to go into capital markets, to acquire debt to buy back our stock.

Assuming your business, which your somewhat optimistic view in a very difficult environment, seemed confident for obvious reasons on your balance sheet. I don't know if it is an unfair question but if your stock was $10 for most of 2009, would you like to spend $1 billion from buying it back?

It depends on what else we can do with the money. It depends on what our alternatives were. But I guess where I would say I am optimistic is, as a business person I am excited about, the current environment is so bad, in a general economic way.

That you are really going to have to be good to be successful, and we haven't performed that well the last couple of years. But if you can really perform well, you can separate yourself from the rest of the markets. And we have an opportunity to do that. And in this kind of environment because you really have to be good. And this is not an environment where a rising tide lifts all ships. So we have a good balance sheet, good cash flow, I think we have good management now.

And we are in a TV business where no matter how bad it gets, people are still going to turn on their TV to see how bad it is. And so we are in one of the better industries for this kind of environment. So how can we parlay that into growing our business? And that is the real challenge for us. And we will, this is not a one-year kind of, let's take a look at a 3 or 5-year timeframe, and we are uniquely positioned to look a little longer term than most companies, let's see how we do 3 or 5 years from now, can we make long-term decisions that make some sense.

For what it is worth, if somebody is going to figure it out, you will figure it out. Good luck.

Thanks.

Next question, [Gerard Halloran, JRPG].

Good morning. My questions relate, and these may turn out to be Echostar rather than Dish questions, but if you can provide some clarity I would appreciate that? What's the status of what is going on in China with the satellite, and with your contract to provide?

That is going to be an Echostar question, and we will be doing that conference call right after this one.

Okay. Thank you.

Our next question comes from Benjamin Swinburne from Morgan Stanley.

Thanks, guys. Charlie, just a couple of questions on churn. Obviously you could drive the value of your customer base up by getting churn under control and bringing that down, you have got a lot of stuff you talked about, like piracy, substantially impacting that. When you look at DirecTV spending 1.5 billion to 1.6 billion a year of cash on retention marketing, there is certainly a relationship there. Do you need to increase your spending on the existing sub base to try to get the churn down? Is that a pay-off that you think starts to make more sense as the market developments?

How do you think about that balance, and then secondarily unrelated, Dish has always been a leader in international programming. You guys have done well in Hispanic tiers and Chinese tiers, the cable industry is talking about either switch digital, to add a lot more ethnic programming. Do you see that in your business yet? Do you expect to see that, and do you have any changes in mind to try to offset that risk? Thanks.

On the international side, it is certainly more a competitive industry today, not only with cable but also with DirecTV. Where there are any number of international programming, whether it be switch digital or regular cable, particularly in a highly Hispanic market, but we continue to do pretty well in that market.

In terms of retention marketing at least, we are in much better shape there today, because at least in a retention market today, we know that if we go out and do something to upgrade a customer, we probably don't have to go back in for a fairly long period of time. In other words, we have finished our transition to MPEG 4, so we only produce MPEG 4 boxes today.

Obviously our set-top box designs are fairly mature, fairly well along other than the Sling-enabled box, but with the hard drive and external hard drive, and all those kind of things, and our satellite fleet is now, we suffered a loss last year, but we have recovered that with our successful launch a couple months ago, so our satellite fleet now is in all of our locations, so if we do an upgrade today, in theory we are not going to have to go back.

Last year we knew if we didn't upgrade, we would be going back a year later. So we can be much more efficient in our upgrade process today. And so we have made a lot of, whether it makes sense to spend at the levels that some of our competitors spend, remains to be seen yet. You have to continue to run that math. As to, in some instances it is better to have churn. In some instances, it is better to save the customer.

But we look at it typically that, how good is the customer and if we do the upgrade, is that upgrade going to last for three, four, five years, or are we going to have to go back in and do it again, and those are some of the variables that we kind of take a look at. And I certainly would, I just think we are in a better position in a retention market to spend it efficiently and know that we are going to get a return on it, than we have been in the past couple of years.

Just a follow-up, do you think you have the intelligence and systems in place internally, to know whether a customer warrants an upgrade or not at this point?

We may get it wrong occasionally with a specific customer, but I think we have our customers segmented in general buckets, in terms of their value. We know we have customers out of that 13.5 million customers that we don't make money on. And they call up and ask for an upgrade, we may give them somebody else's phone number, and then we have customers that we know would certainly justify an upgrade no questions asked. And the trick is to make sure that your 10,000 customers service agents are all trained in that. But the systems are there to identify them.

Thank you.

We have a follow-up question from Vijay Jayant.

Wanted to confirm your interest in Sirius, was that a Dish or a sat call? Thanks.

I think the offer came from Dish. Is that fair? It came from Dish.

Thank you.

Our next question follow-up question comes from Tuna Amobi.

Thank you very much for taking a follow-up, and just want to do commend you guys for devoting the whole length of the call to Q&A. I wish some of your peers could take a cue from that. The question hear a follow up Charlie on the AT&T, I think you said on the last call that contractually that DirecTV couldn't market to those guys. My question is as you kind of begin to track those some of these churning subscribers, are you going to be able to isolate those that perhaps could have churned you to any kind of direct contact, or otherwise how you really intend to kind of attribute any kind of churn in that subscriber base?

You are correct, contractually AT&T can't target our customers to switch them to DirecTV, or to UVerse for that matter. But having said that from a practical matter, even when we had a relationship with AT&T, a slightly higher, there was a slightly higher churn rate, in part because they had an incentive to move them to Uverse, when they went into a Uverse town. We certainly could see when AT&T started Uverse in a particular community, that our subscribers went down, and our churn went up.

We will have to be vigilant. We have the ability to track that. We are tracking that. We work with AT&T, and AT&T has shown themselves to be a good actor in good faith when presented with facts. In the past, we will see if that continues, but we think it will. We will be vigilant to make sure that they aren't violating that part of our contract.

But long-term it is one of the risks you have when you deal with somebody who is a partner and a competitor, is that good business relationships work when both parties have the same motivations. And usually they don't work long-term when there are different motivations.

While I think that our loss of AT&T is certainly a setback for us in 2009 long-term, assuming we managed properly long-term it may be a positive for us, because we can focus on those partners who will be long-term partners that have the same motivation that we have, and the same incentives.

Okay. Thank you very much.

I have no more further questions in queue. I will turn it back to management for any closing remarks.

Thank you for joining. I guess we will be back in May. Thanks for joining us today.

This now concludes your Dish Network Q4 earnings call. You may now disconnect.