DISH Network Corp (DISH) 2009 Q1 法說會逐字稿

Good morning. My name is Jean, and I will be your conference operator today. At this time, I would like to welcome everyone to the DISH Network Corporation Q1 '09 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 session. (Operator Instructions). Thank you.

Mr. Kiser, you may begin your conference.

Thank you. Thanks for joining us, everybody. My name is Jason Kiser, I'm the Treasurer here at DISH Network.

I'm joined today by Charlie Ergen, our Chairman and CEO, Tom Cullen, our Executive Vice President of DISH Network, Bernie Han, our COO, Robert Olsen, our brand new CFO here, and Stanton Dodge, our General Counsel. Before we open up for Q&A, we do need to do our Safe Harbor disclosure. So for that, I'll let Stanton run through it.

Thanks, Jason. Good morning everyone, and thank you for joining us. We invite media to participate in listen-only mode, and ask that you do not identify participants or their firms in your reports. We do not allow audio taping, and ask that you respect that.

All statements we make during this call that are not statements of historical fact, constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and from any future results expresses or implied by such forward looking statements. For a list of those factors please refer to the front of our 10-Q.

All cautionary statements we make during this call should be understood as being applicable to any forward looking statements we make whether they 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.

And with that out of the way, I'll turn it back over to Jason.

Thanks, Stanton. And Operator, we're just going to go straight into Q&A.

Alright, sir, your first question comes from Benjamin Swinburne from Morgan Stanley. Go ahead, please.

Hi, guys, it's Ben Swinburne. Good morning. A couple of questions.

I wondered if you would comment on whether the Over-the-Air transition benefited gross adds in the quarter. I don't know if there's a way to quantify that, or even a qualitative comment would be interesting on our end.

And then second, on the the cost side, SAT was down quite a bit, at least relative to where we thought it would come in. I was wondering if there were any changes to your agreement with EchoStar. I think you renewed your agreement for another year, but if there were any changes to the price points you're paying, or the margin that they're getting, or how much the year on year box cost may have declined on a like for like basis, which is the comment that was in the 10-Q. Any quantification or comment there would also be helpful, thank you.

Okay, this is Charlie. We can't really quantify the Over-the-Air transition. I would say it wasn't material to the quarter. Wasn't a lot in terms of -- we did see a loss that, set-top boxes our free TV, but there's no ongoing revenue there.

Obviously, on the margin we probably got some customers, and obviously on June 13 we'll have a better idea of that. That's certainly a one-time shot kind of thing, but I don't think that was a big part of our quarter.

Bernie might want to take the second part.

And then with respect to the SAT question, there was no change in our agreement between DISH and SAT with respect to the terms under which we buy equipment. The bigger drivers of SAT, I think we alluded to in the 10-Q filing, first and foremost was that because we had a slightly different mix in -- shift in mix in distribution channels for the quarter, a little bit more being sold through direct means versus third party means, our third party incentives were down quite a bit from a year ago.

Secondarily, the amount of marketing dollars that we spent in absolute were actually down a bit from last year first quarter, even though it was higher than our typical run rate. Last year first quarter we had spent quite a bit in marketing and SAT.

And maybe just as a follow-up, Charlie, just generally, how would you grade the Company this quarter? And you've made some management changes, how do you think you guys are positioned in the marketplace from a value perspective, and do you think you're executing now better than you have been over the last 12 months? Any comments there would be helpful. Thank you.

I mean, I think that -- I mean, I don't want to publicly give the grade. I give the grade to guide internally. But again, I think I would just sum it up with, last year we were getting worse, and so I think for us, it's really to stabilize and start getting better. And I think hopefully we're on a path to start getting better, and then once you get better, then you've got to get to be Best-in-Class, and so we've got a lot of work to do to get there.

From a big picture perspective, I feel like we've got the management -- we've had a pretty -- it's always hard for an entrepreneurial company to make a transition to a generation of management that can run the business without always that entrepreneurial influence, it's very difficult for companies. And that's kind of the transition we've been trying to make, and I feel very comfortable with our team that we have, with Robert as new CFO and Bernie now as Chief Operating Officer and Tom Cowen as Executive VP, really has all the sales and marketing, programming functions. And so, we really have, that transition is now pretty complete to really have the management team in place, A.

And the second part of the transition is to know exactly what it is you're trying to accomplish, and I think we know that, and then now you go execute. And I think once you get to the place where you go execute, life gets easier for me, for sure. But, maybe not for these guys.

But once you're all on the same page, you go execute, and I think that that's how you start getting better, and I think that's the place where we are. It will be a slow progress. It's not going to happen overnight, but I think we have the team to move forward to go execute to get better every day. And hopefully we're on -- with some incremental, on the margin, a little bit better performance in the first quarter than the fourth quarter of last year.

Thanks a lot.

Our next question comes from Jeff Wlodarczak from Hudson Square. Go ahead, please.

Hi, guys, good morning. Your subscriber related expenses were at the highest level as a percent of revenue we've seen in quite a while. Is most of that related to the MPEG-4 box swaps, and have you ramped your other retention marketing spend up materially from last year?

Yes, there's a number of things. Again, this is discussed in more detail in the Q, but there's a number of things driving our subscriber related expenses going up as a percentage of revenues.

First of all, to no one's surprise, the biggest component of subscriber related expenses are programming costs, and there's just a series of contractual increases related to our programming costs that's driving a bit of it.

Secondarily, as you know, we don't publicly disclose the absolute amounts of our retention spending. But our retention spending has sequentially been increasing over the last six or seven quarters. So yes, we have been doing quite a bit more upgrading of existing customers in recent quarters versus past quarters.

And then I think last, with respect to the cost of running our call centers and our installation services, we've been spending more there to try to shore up our operations.

Thanks, and then a follow-up on Ben's question. Does the absence of AT&T help SAT?

I don't think it really had much of an impact.

Okay. And then just one last question. Charlie, you could get a TiVo ruling any day now. How do you feel regarding DISH Network's positioning in that, and if that outcome were to go against you, other than a temporary stay, what are your realistic options?

On the TiVo question, I guess there's really two things the judge has to decide. One, is there any incremental damages during the period of time, the approximately six months before we downloaded new software, are there incremental damages during that period of time.

And second, whether we're in contempt. I guess there's actually two parts.

The second big question is whether we're in contempt of court because we are not -- Stanton, you want to take this? Let me just give a brief overview, and then Stanton can give the more legal side of it. Why don't you give the legal side of it, and then I'll just come back on the general side.

Sure, to pick up where Charlie left off, there's a supplemental damages issue, and then the question of whether or not our design around is more than colorably different than the products that were found to infringe. And if the judge determines that they are not -- or they are only colorably different, then he'll take up the issue of whether or not the designed around products actually infringe.

And I think TiVo is probably a question of whether we violated an injunction, too.

Correct, and a question whether we violate the injunction on its face by not turning off all DVRs in the field today or a substantial portion of them.

From my perspective, it's -- I mean, I kind of look at it, when you go by the law, and having participated in the trial or in the bench hearing, I think on the legal side, we know internally all the work we did to change our software. And we know how materially different our software is, so we know it's colorably different, so we feel comfortable on the law that we're on the right side of the law.

Having said that, we haven't been right on this case. We haven't won a significant ruling at the district level, ever. So, one has to be cautious there. But I think ultimately the law is what the strongest basis you can have, and I think in that case, we know we're colorably different.

We don't think we'll lose the contempt hearing. Obviously, I think a couple things will -- this case is probably going to continue on, regardless. We've been unable to -- we've had dialogue with TiVo, but nothing that was realistic from our perspective. So, obviously they're very confident, and no matter what the ruling is, probably one side or the other would appeal it, and we would have to look at the ruling to see whether we thought there was any other avenue.

Obviously, without knowing what the ruling is, we wouldn't really know how to respond to it. So, all I can tell you is we're confident that we don't violate their intellectual property today, and we think we ultimately will prevail.

Fair enough. Thank you.

Our next question is from Doug Mitchelson from Deutsche Bank. Go ahead, please.

Great. Thanks very much. Charlie, just a couple.

You said the digital transition benefit wasn't material to the quarter, but it did seem to be material to some of your peers. Since you focused a lot on winning over digital transition customers, I'm confused. Is this because you took a low share of digital transition subs, or whether it is just hard for you to pinpoint and you're giving us your gut view of the impact.

I think there's two reasons. One, it's a little bit hard to pinpoint since a lot of our sales are through third parties, it's really hard for us to pinpoint who might be a digital transition customer.

And second, we're still not operating, from an operational marketing point of view, at the level that would make it easy for those customers to actually buy from us. So, I think that perhaps our competition made it a little bit easier for those customers to buy from them, so they may have seen more impact than we did.

Makes sense, and then I think you talked in one or two of the last few calls about almost a holding back in terms of marketing aggressively as a Company, just because you want to get the execution fixed first before you more aggressively market it. I think, if I'm doing the math right, if I back out AT&T, it looks like core DISH, maybe you lost around 160,000 subs in the fourth quarter, you only lost about 45,000 in the first quarter. Is this a reflection that you're sort of reramping those marketing efforts, or is that still more to come?

Well, again, I've said many times, I don't like the discounting of programming, and we are doing that today. I think we have a consensus internally that that's probably not where we want to be long-term, and I think that for us, marketing's a lot more than running advertisements.

It's a lot about that customer experience, it's a lot about how you treat your customers. We have a lot of room for improvement there. We're making some progress, and I think, it doesn't do us a lot of good to go out there in the marketplace to get a customer to come on board only to be frustrated with us or it's a complicated process. So we just have to simplify our business a little bit. I think we know how to do that now.

And then as we get better internally, we can be -- I think that success breeds success, and as you get better internally, those marketing things just naturally kind of happen. Because the best marketing thing we have, have ever had is word of mouth, and our word of mouth, we're not Best-in-Class, and so we have to be Best-in-Class for the word of mouth kind of thing.

And can you talk a little bit -- you talked about the promotional discounting that you're doing. Is that something that's going to flow through a little bit more to sort of 2Q and 3Q as it kicks in, since it was only a partial quarter in the first quarter?

It will take a while to ramp up. Obviously, it will be -- what we're offering right now is $9.99 for the first six months for new customers, so probably in the sixth or seventh month, we'll be at our peak in terms of having the most customers enjoying that discount. So that's where you are going to see the biggest impact in our financials.

And I assume, Bernie, that that would be -- that is going to be -- put a collar on ARPU, right? Fair, for the next two or three quarters? You can run your own model, but if you ran it through, right, assuming that kind of ended, that promotion ends this summer, you've got, what, six months of that running through the P&L for, I guess about three more quarters.

Thank you very much.

Our next question comes from Spencer Wang from Credit Suisse. Go ahead, please.

Thanks, good morning. I guess my first question, I just wanted to go back to the disclosure in the Q about the mix shift to direct sales. Just curious, is this by design on DISH's part or was it a function of what's going on in the retail environment, just trying to get a sense of the sustainability of the SAT per gross sub.

And then secondly, some of the other operators have talked a little bit about some more softness in the second quarter versus the first quarter. I was wondering if you guys could give us a sense of what you're seeing today versus what you saw in the March quarter, thank you.

Hi, Spencer, it's Tom Cullen. We have made a concerted effort to bolster our internal direct sales capability. Some of that we anticipated just because of the loss of the AT&T distribution.

We're concurrently working hard to bring the third party retailer base. We just met with all of them this weekend. We had our DISH Summit, team Summit, and so it's not moving so much away from third party, as much as we are just reinforcing what we're doing internally.

So I think you'll continue to see some growth there, and we've put in new leadership there as well, and we're making some fundamental changes on how we train and compensate those internal channels.

Okay. And then on the second quarter trends, Tom?

I think it's probably too early to tell.

Okay. Great. Thank you.

Our next question is from Marci Ryvicker from Wachovia Wells Fargo. Go ahead, please.

Thank you, good morning, I have two questions. The first, in the quarter you disclosed that 5% of gross subs came from AT&T, I know 17% last year. How much do your other Telco relationships contribute to gross subs on average?

Well, first thing, the AT&T will probably be 0% next quarter. And we can give you that guidance.

And the other Telcos are the smaller regional Telcos, and they are an important part of our business. I don't think we disclose how much that is. But they're an important part of the business, really for a couple reasons.

One is that they're a bit more rural, which is more where our base is historically, but they also don't compete with us so they're not getting the customer today and then longer term, trying to switch them out to their video product as they run their lines by them. So they're good long-term strategic partners for us, and they also work closely with our -- with EchoStar, the engineering side of the Company, that can design products for them. So they're a valuable piece strategically of where we go going forward.

And we think they also fit very well with our retailer base, our historic retailer base, where those guys have a better chance of maybe working together in a synergistic fashion. So, they're important to us strategically. I wouldn't say they're -- obviously an AT&T or Verizon are much bigger, are a bigger part of anybody's business, and Qwest are bigger parts of people's business than those guys, but nonetheless they're a long-term strategic partner for us.

We complement each other well, and the direction of the set-top box road map is very complementary with their broadband play.

I guess I would say there's more opportunity for us to grow -- help them grow their business and our business, to get, kind of working together long-term than perhaps we have with the bigger guys.

Okay, and I have one more follow-up. Did you see any impact in the quarter from the Charter bankruptcy, in terms of subs?

Again, probably not quite quantifiable, but I think on the margin, yes. Obviously when a company goes bankrupt, I think on the margin there was some benefit from the digital transition, on the margin there was some benefit from Charter's bankruptcy.

Great. Thank you.

I don't expect either one of those will be a big factor by the third or fourth quarter.

Thank you.

Our next question is from Vijay Jayant from Barclays Capital. Go ahead, please.

Thanks. Charlie, just wanted to follow up on some of your recent comments at your team Summit about, what are you seeing in the economy, really in the housing market, and also on the competitive front, a very general question.

Incrementally, if you sort of look at video subscriber numbers across all the various providers, this quarter it seems like everybody gained relative to the fourth quarter. Is that sort of catch-up from the fourth quarter? If it's not all digital transition. I think some of us are baffled on that front. Thanks.

Yes, I would have not expected the net gain that we saw among all video providers, given what I saw in housing. So, I'm not sure exactly. I don't know where all that comes from myself, other than there may be more dual technology homes, or maybe people have basic cable and add satellite or bios or who knows what. So, maybe there's some dual technology homes going on a little bit more than normal.

The housing is -- obviously, there's one factor that affects us in a general way, in a video way, it would be housing. And it looks like housing's starting to -- at least in pockets of the country, looks like housing maybe has -- maybe the worst days are behind it. Then you have $8,000 credit coming from the government and so forth. So we have an opportunity. There's dishes that are foreclosed on that are owned by banks that have DISH Network on the roof.

So, we have an opportunity when somebody purchases that house to get a new customer. And hopefully, housing starts don't look like they're going to be real robust, but obviously as you get housing starts, maybe off the bottoms, you've got a chance to get a customer when he moves into a new house. Because most new customers in housing will take a look at satellite as an alternative. It's a little bit harder to get somebody who has cable for 10 years and is happy with it.

Just a follow-up on -- there's a tax swing, I think $179 million benefit in this quarter. Is that a -- you mentioned it's like a timing issue. Can you sort of talk about what that is, please?

Sure. From a book standpoint, in the quarter we incurred, I think it was like $187 million of income tax from a book standpoint. Typically in the first quarter on March 15 there's a true-up payment for previous year taxes, of which we had no true-up. And our first of the payments for 2009 did not take place until April 15. So you've got a quarter which basically have no cash taxes occurring, but $187 million of book income taxes.

So what Bernie said was, we over -- we didn't. I'm not saying that. It was a true-up.

This is just the timing difference between book and cash taxes that we usually see in the first quarter. A little bigger this year than last year, probably because our earnings are a little bigger.

Thank you.

Our next question is from Ingrid Chung from Goldman Sachs. Go ahead, please.

Thank you. So, my first set of questions is around the channel. Just wanted to dig a little deeper in terms of the retail channel. I was wondering if you could give us an idea of the impact of the retailer shutdowns you had in 1Q on churn. Are you continuing to do more of these retailer shutdowns in the second quarter?

And I was wondering if you could give us some idea of what percentage of your sales are from direct sales now versus the independent retail channel?

I don't think we talk generally about our mix of sales. With respect to the retailer shutdowns, I think you're probably alluding to, we had in the fall and into the spring, a series of retailer terminations because of certain behaviors they were engaging in that were against our Company policies. And they represented, honestly a very, very small percentage of our retailers.

Most of our thousands of retailers, we have very, very good relationships with. They're very, very good partners, and they do a lot of good for DISH.

Unfortunately, there's a few outliers, out of the thousands that we have, I think in the end we terminated somewhere around 100 retailers over the last eight or nine months, again, because of the activities.

In terms of the percentage of activations that they accounted for, relatively small in the scheme of things.

Okay. And then my second set of questions or second question, I guess is, I thought it was a really great sign that you bought back some shares below $10. I was just wondering why you didn't spend more than $19 million on buying back shares?

This is Charlie. I mean, we obviously had to set a price. We don't know what the price is going to. So we thought that was an interesting price I guess, for lack of a better word, the Board looked at it.

And second, we also were looking at Sirius Radio and had to keep a fair amount of cash, keep our powder dry in terms of looking at that. We didn't know how that was going to turn out at the time.

So a couple -- not just Sirius. We looked at a lot of different things. So that's the reason.

Okay. Great. Thank you.

Our next question is from Tuna Amobi from Standard & Poor's Equity. Go ahead, please.

Thank you very much. So, with regard to Q2 in relation to AT&T agreement, would you say the trends thus far for those markets are consistent with what you saw for the two months in Q1, or is there anything else that you're seeing out there in those markets that, maybe it's different from your expectations?

As you know, we don't comment on the current quarter activity. I will just tell you that we're going to defend our base of customers, regardless of what channel they originated from, and we're doing that aggressively.

So you don't feel that AT&T's doing anything differently now, as opposed to in the prior period, before the end of the agreement?

We're monitoring market by market, the activities that are going on by AT&T and all other competitors. As I said, we generally don't comment on current quarter activity.

I mean, I think we take AT&T at their word, that they'll honor the agreement, and obviously they can't target our joint customers, so we take them at their word and obviously we'll monitor that. But I mean, I think that all relationships I've had with AT&T have been very professional, regardless of which side that we were on.

As far as our side of it is concerned, I think what we talked about in the Q is, still holds. We said in the Q that we have roughly 1 million existing customers that are from the AT&T relationship. We have said that the churn rate that we see on this group of customers is slightly higher than the churn rate we see overall. And with respect to gross activations in the quarter, obviously the 5% that they did account for in the first quarter, obviously that was mostly in the month of January, when we still had the agreement with AT&T. So, from that, you can kind of do the math and figure out, on our side, what the impact might be.

Okay, just one housekeeping question on depreciation and amortization, seemed like a significant decline there. Is this a good run rate? I know there was some prior year items. It seemed like the software project was a part of that. So when you strip that out in terms of the lease boxes, can you give us an idea of what we should expect for that?

It's hard to say. Again, what you alluded to is actually the biggest one-item impact. Last year in the first quarter, we had a pretty big software product that we decided to discontinue or abort, and we ended up having a large depreciation impact in the first quarter.

Outside of that, the biggest impact is related to our subscriber related equipment, and we just had a lot of equipment that's been out there in the field that has fully run off, fully been depreciated.

Now, whether you can use that as an indicator of the future, depends a lot on what we decide to do and how aggressively we are in the future with implementing newer boxes, MPEG-4 boxes and things like that. So I don't think you can necessarily say that's a great run rate.

Okay, and lastly, on ARPU, I don't know if you noticed Direct TV had a major ARPU shortfall. Actually the first time I think they've had a lower ARPU than you guys in years, so I'm just wondering if you saw maybe the effect of that promotion in terms of your high number of disconnect activity, did you sense that that was a reason for some of the high churn that you had in some markets?

This is Charlie. I think -- again, I don't know their business that well, but they have the sports, NFL sports, and they have to account for that kind of in the season, so that's one, that had one impact. And I expect that next fall, obviously ARPU will go up significantly because of NFL.

And they've obviously been discounting programming for a long period of time, and have continued to be very aggressive in discounting their programming, so that's going to obviously affect their ARPU and run through their ARPU for the next -- I think their offers today are six months or a year. So they've got quite a bit of tail on that discounting the programming.

Okay. Thank you.

Our next question is from Tom Eagan from Collins Stewart. Go ahead, please.

Great, thank you very much. I guess two questions, first on free cash flow. So, it would appear that working capital was a source of cash in the first quarter, as it usually in the first quarter. So should we think that as per other quarters or previous years, that it will be a use of cash in the next -- the balance of the quarters?

And then I have a question on the offer. So just on the $9.99 offer, could you just run again through the impact? Didn't have an impact on ARPU. Didn't have an impact on gross adds. Just trying to get a sense of what the impact was all around from that offer. Thanks.

I'll answer the question about cash flow. So to the extent free cash flow, as we just talked about a few minutes ago, the biggest driver I think of free cash flow being so strong in the first quarter is the difference between book and cash taxes. Again, from a book standpoint we had about $187 million of income taxes, from a cash standpoint, it was very close to zero.

Right.

Normally, that would even out over the course of the year. But this was the one thing Charlie was starting to allude to. So typically in the second quarter, April 15, you start making the first of four payments for 2009. The only issue there is, if you look at our balance sheet as of the end of '08, we had this big receivable which represented, at the end of '08 when we looked at everything, as it turned out we had paid more in taxes than we actually needed to have paid.

So I think you're going to, from a tax standpoint ordinarily you might see a bit of a reversal in the second quarter, but in the second quarter in this case you will not, because of that phenomenon, and that, again, is probably the biggest seasonal driver. There's a little bit of book versus cash interest and some other things.

Also, I think a smaller piece of the first quarter cash flow was because it's a short quarter in terms of number of days and our intercompany agreements are on a 60 day payable basis, there was a little bit of timing difference between -- there was some payments made (inaudible) immediately after the end of the quarter because these payments between the two companies don't get executed on the 60 day. So, that smaller piece, maybe $20 million or so-.

But in general, our first quarter has historically been our largest free cash flow. And I think in terms of working capital, historically, working capital has either been negative or slightly negative for the rest of the year in terms of working capital. That will depend a little bit on how we manage inventory and receivables and payables, obviously. Depends a little bit on the transition, how much retention marketing we do in terms of upgrading people to high definition and television and things like that. We have to carry more inventory if we do that. I think you can look at historical trends as your best guide.

Okay, and then on the offer?

I'm sorry, Tom. Would you repeat the question?

Yes, it just sounded as though, from your comments, that the offer, it didn't have much of an impact on the Company's subscribers or financials, the ARPU or the gross adds. I just want to make sure that I was looking at that the right way. Thanks.

Yes, I don't think -- obviously an offer like that rings the phones, and my feeling is is that hanging your hat only on a promotional offer is probably losing a little bit of legs, and so you've probably seen how we've modified the offer recently so it includes locals and it is clear that it's a six-month period. So, at the end of the day most people don't get off the phone at $9.99. You realize that.

Right.

So, it helps us generate activity in the marketplace, but I think you'll see a change in how we position and the tone of our advertising moving forward.

As far as ARPU, I think Bernie said, I think the offer started February 1, and you would -- it's going to affect your ARPU, and your peak effect is going to be six months, I didn't run the math, but it's logically six months later.

Because you have six months worth of customers at that point who are getting $9.99, and from then until we discontinue the promotion, you'll have six months worth of new customers getting that benefit.

The biggest impact will be in the third -- I guess the biggest impact is third quarter, but certainly a bigger impact in second and third quarter.

All right. Thank you.

Than the first quarter.

Our next question is from Jessica Reif from Banc of America. Go ahead, please.

Thanks. First question is, can you talk about your priorities for free cash flow in terms of just prioritizing in terms of buyback, building your cash position, using for initiatives like AWS or acquisitions a la [Siri].

Well, I mean, I think Jessica, we just look at it and say, if we've got $1 to spend, what's the most economic way for us to spend it. Is that to get a new subscriber? Is that to get -- is that to go acquire a company? Is that to pay a dividend? Is that to repurchase debt? Is that to repurchase equity?

And I mean, obviously we set a price of equity that we thought was a no-brainer, or not a no-brainer I shouldn't say, nothing is a no-brainer. But we set a price that we said, if that's the price, we'll buy it back.

We also, obviously it was reported we looked at Sirius Radio. So, those are the two big things we looked at in the first quarter. We'll continue to look at things going on.

We're not -- if spending $1 to acquire a customer wasn't the best use of funds, and there was another use of funds that was better than that, that's what we would do. Ultimately, we're economic animals that want to spend our money wisely, so we get a return on it, and historically the return's been very good in acquiring subscribers. It's a little bit more competitive today.

The market values put subscribers at less than they did a year or two ago. And so I think you have to look at a lot of different things in how you spend your cash. But as far as a company, we think the value of our Company over time is the discounted present value of the cash that we can generate. I don't know how you value a company anything else, quite frankly.

Did the buybacks continue into the second quarter?

Well, I mean, again, it's -- that's something that we look at every quarter, and our Board makes those decisions, and we don't actually pre-announce those things, but I think what we do know is that we have a plan where we can buy up to -- Jason, how much is it?

Close to $1 billion.

So, we have a plan that we can buy back $1 billion, and we bought back $19 million of it, so far.

And then just wanted to -- completely different question, but can you talk about what kind of take up you saw in HD and DVR in the first quarter, and what is the current penetration.

We don't disclose the penetration, but I think we're very competitive in the marketplace with the number of customers who have DVRs in particular, we're probably ahead of cable and behind the other guys on HD.

--from a general perspective.

I think that -- I guess I'd say it this way. I'd say the majority of customers typically today that come into DISH network, the majority of customers are buying an advanced service, either a DVR and/or HD. I think that trend kind of continues.

I think we're well positioned there. I think we currently have more HD channels than anybody in the marketplace. Including Direct TV. And I think our DVRs have won the Cnet awards the last couple years as being the best DVRs in the business, so we have a lot of opportunity there. We may not have marketed it as well as we would have liked to, but at least the underlying product is very good.

Thank you.

Our next question is from Craig Moffett from Sanford and Bernstein. Go ahead, l please.

Yes, hi. Charlie, a question about the backdrop that's set by the Telecom operators in their core Telecom business for a second. DSL has always been sort of your primary complement, I guess, for providing broadband to your customers. How reliant are you on a strong DSL product, and what happens in markets where, when the Telcos sort of roll up DSL and start to replace it with their own fiber, how are you finding it to compete in those markets when there isn't an unaffiliated broadband offering in the market.

And then just one related clarification question, how reliant are you on Telco access lines? I remember you used to require a Telco access line as a back channel. As Telco access lines decline, are you seeing weakness in markets where you don't have a natural back channel for the customer, you have to charge them extra?

Good questions. You know, I guess, from a big picture I think that we -- it certainly is a risk factor for us if broadband is not -- that there's not competition in broadband, right. If the only broadband provider happened to be the cable company who has a video product or a Telco who has a video product, that would be -- that would not -- that would be a long-term challenge for us and something we have to be inherently aware of.

We're not relying just on DSL. We offer customers whatever broadband source they can get, whether it be our new 922, cable or wireless or satellite or Uverse all can plug into it, our DSL all can plug into it.

We'll have to wait and see how that goes, and obviously our marketplace is probably weaker where Uverse is and can do the whole bundle together, right? And it would probably be one of the things strategically we focus on, so we decided we don't have to -- don't think we have to play in the broadband space.

We looked at it a lot, looked at the broadband, looked at Direct TV, in terms of looking is there broadband play, and I think we both came to the conclusion that's not a place we need to go today. And there isn't enough spectrum, and the government policy really hasn't allowed a new entrant into that space.

As far as the phone lines, we don't -- yes, we don't require a phone line connection but customers typically pay more if they don't have a phone line connection. And that is another trend that we have to watch because 20% of the people don't have a line today, and I think we look -- we think there's technical solutions to that that we can -- because a lot of people don't have phone lines, have a broadband connection.

So all of our products over the last year have been broadband compatible, and you can plug broadband into it, and a lot of advantages once we get a customer to install broadband. I think the phone line is not a major issue, but I think that the -- that if there is not robust competition in broadband, and the broadband provider is also a video provider, that is a concern.

What kind of trends do you see, Charlie, in the markets where, say, Uverse does roll out geographically, do you start to see that immediately in your numbers and how do you combat it?

Well, I'm not sure that -- well, first, our weakest markets are where there's a good operator, gives great service at a great price that has the triple play, right, or quadruple play or even a double play. That's the toughest markets for us.

And I guess the question is, you compete by trying to differentiate yourself, and you may decide to compete in other places. So not every customer is equal to us. An investment in the Uverse market in the Northeast, where they're giving the customer great service and a triple play for $99, may not be the best place for us to try to compete.

But having said that, there's certainly markets -- there's still plenty of markets where we're very, very competitive, and we think we have the best product. And so I think for us, we have to focus on where we have the best product.

But if I lived in -- up in -- if I lived in New Jersey and lived in a $1million house and was a mile away from Uverse and Uverse brought a line into my house, I might buy Uverse. Might not. But I'd certainly take a look at it.

All right. Thanks, Charlie.

If I lived in rural Idaho, probably not going to buy Uverse.

Our next question is from Jason Bazinet from Citi. Go ahead, please.

I guess we get a lot of questions on this TiVo case regarding sort of a worst case scenario, and I think most people think -- at least most people talk about the worst case being pulling DVRs from the field. And I guess with the inventory build that you alluded to in the 10-Q, I'm assuming that there's no linkage, and it has more to do with your expectation on HD/DVR upsell, but can you just comment about the likelihood of pulling DVR boxes if you lose the case, and is the inventory build linked at all to that worst case scenario. Thanks.

I don't know how to say it any other way, I go to satellite launches, I don't have any negative thoughts, on this case I don't have any negative thoughts, so it's probably not the right thing for a CEO to do, but we're just not thinking about losing.

And is the inventory build just your internal plans in terms of an HD/DVR push organic, in terms of, unrelated to TiVo? Is that the right way to think about it?

Yes.

Okay. Thank you.

Our next question is from Todd Mitchell from Kaufman Brothers. Go ahead, please.

Yes, good afternoon. Could you talk a little bit about your efforts to stem piracy and how far you are along in that process? And maybe help us a little bit as to what that end process entails?

I'm sorry, Todd, I didn't hear the second part. In terms of the piracy and the upgrading of our smart cards, this is Tom, by the way, we are very close to completing that project. It's been -- it's a massive undertaking, one of those unpleasant things you have to do to continue to secure the service, but we are, essentially every customer has received the new cards and we are within weeks of completing the entire process.

And what sort of dynamics do you think that will have on the subscriber base and in terms of the momentum with, basically with churn and gross adds?

It's hard to forecast. I would be loathsome to give you a projection, but as we have shut off certain groups already, you do this in waves, and so we've already completed the internationals and we've completed the Latinos and some of our other segments. We are seeing a positive impact. Again, I would say it's marginal at this point. But there's generally a lag associated with it, from the time you shut off to the time they determine whether they're going to shop for new paid TV services or re-enroll legitimately.

This is Charlie. The biggest impact we know we're going to see is just from a customer service perspective. Obviously we're fielding a lot of calls as customers didn't get the card in the mail or threw it away by mistake or didn't actually -- there was a message on their screen that they've got to get a new card. If they haven't inserted it already, they'll lose the channel. They don't really pay attention to it until they lose the channel.

It will be interesting, but I think in the month of June we're going to have some disruption as we complete the card swap-out, and eliminate the stream that people have been pirating, and then the digital transition all at the same time. So it's going to be interesting to see how all that kind of translates.

But as we get into July, those things will be behind us, and we should see some trends from a customer service perspective that gets us ahead of the curve for the first time in a while, that allows us to do a much better job there.

Would you be willing to hazard a guess as to how pervasive the problem was?

I would answer in a general way. I think if you read our 10-Ks or 10-Qs, I think piracy and fraud as a group, is a significant factor in our business. And it's not just with DISH Network, it's whether the guy's stealing cable, whether he's stealing Direct TV, and there's multiple ways that people commit fraud, and multiple ways that people steal a signal. It's a little bit like whack a mole. We are knocking down those guys that had their heads up pretty high, and we know that there will be some people following in behind them.

The one thing that we will do, is we're working on next generation smart card now, so that we probably will deploy that ahead of any major piracy and continue that process, so we know we've got more upgrades ahead of us. That's something we didn't do before. I think we learned our lesson there, and I think we have a dedicated team to look at people who are being fraudulent from -- it could be as simple as a fictitious customer with a stolen Social Security number, to flipping a customer that's already an existing customer , to piracy, to hacking through the Internet.

So there's a a lot of ways that people go after you. I think we understand the current state out there. I think we're definitely getting better there. The whole industry has that problem. So if somebody else has a problem, that affects us even if we don't have a problem.

It's like Microsoft and other people who have software. It's a percentage of your business, and there's room for us and the industry to improve there. I think we're getting our house in order. Let's put it that

Good to hear it.

Our next question is from Gerald Halloran from JRPG. Go ahead, please.

I was wondering if you could comment with the D TV change coming up, some of your spectrum is going to free up. And I'm just wondering what your plans are, and what that might mean to the financial model in the, say, over the next three to six to 12 months?

We're looking at a lot of different options there and haven't come to the conclusions there. Obviously we would be very cognizant of CapEx, absent a business model that would give us a return for that CapEx. So we think it's a very viable spectrum. We're glad we have it, and we want to be prudent about how we use it. And I think it's like anything else in life, I think it's all about the timing and how you do that.

I think there's some indications, as Qualcomm frees up a lot of their spectrum, some indication with how they use it with their mobile television, and see whether that has an impact and so forth. But it's a very valuable spectrum, and I think there's a number of uses for it, and a number of potential people that you could partner with and a number of potential ways to keep your CapEx down with the spectrum.

Yes, I think that's true. Does the firming of the standards for mobile digital television and the seeming momentum coming out of NAB for mobile digital television, does that change your thinking at all?

Gerald, this is Tom. We have a team dedicated to working on this project, and as you may or may not have heard, we've been very active with the broadcasting community and were at NAB. I don't think it's going to have a material impact on CapEx, for the next several quarters.

As you know, the standard on ATSCMH is still evolving a bit, and then we have other decisions to make as to how to incorporate technology standards into a common chip set that can use multiple spectrum brands.

So we're actively working on it, but again, this isn't a -- we'll likely do some limited technology trial activity later this year to firm up our beliefs around the technology compatibility, as well as refining the business model going forward. But as Charlie said, we are talking to a lot of people because we think there are some natural partnerships here that may develop that would mitigate the total CapEx requirement on our side.

Just strikes me as a big asset out there that needs obviously some development, trying to understand what you're doing there is important.

Well, I mean, I think strategically one of the things that we do is we try -- I mean, you run the business but behind that you're trying to build -- you're trying to build building blocks for future business, and 700 megahertz spectrum is one building block in the one building block for the future. Sometimes your building blocks don't pan out, and you decide not to pour good money after bad. Sometimes building blocks become the creation of multi billion dollar businesses.

So you never know exactly where that's going to turn out. But 700 megahertz is a very unique frequency that goes through walls. It's one of a kind real estate, and I expect it will be a valuable building block for us.

All righty. Thank you.

Our next question is from James Radcliffe.

We have time for one more question. This will be our last question.

Alright, James Radcliffe from Barclays Capital. Go ahead, please.

Hi, guys, one housekeeping question. Looks like you made some restatements to the 1Q '08 cash flow statement, at least. You're coming out with a lower end of period cash balance because it looks like you dropped the end of period for '07 cash balance. What's behind that.

This is a change I think made a couple of quarters ago. Part of our cash is invested in instruments called variable rate demand notes, and previously we had them classified as cash and equivalents because the way these mechanically work is we have the ability to liquidate these within five days.

But the way it works, if the guarantee to liquidate within five days is provided by a third party, which it is, you have to look at the instrument by itself, and the instrument by itself had the maturity that's longer than five days. So we reclassified these variable rate demand notes from cash and equivalents to marketable investment securities, and that was done a couple of quarters ago.

Alright, thank you.

So I guess we will be back -- thank you for joining. We will be back in August, I, just for public record, I probably won't be on that call because that's my family birthday and family vacation, usually scheduled during that first part of August, depending on when we're able to release. So don't be surprised when I'm not on the call. But obviously, Tom and Bernie and our new CFO, Robert, will be able to -- and Stanton, will be able to handle it. So thanks for joining us.

Take care, guys.

This does conclude today's conference call. You may now disconnect. Thank you.