EchoStar Corp (SATS) 2009 Q3 法說會逐字稿

Good afternoon. My name is Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to the EchoStar Corporation third quarter 2009 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.

Thanks, Chelsea. Thanks for joining us. My name is Jason Kiser, I'm joined today by Charlie Ergen, our Chairman and CEO, Mark Jackson, President of EchoStar Technologies, Dave Rayner, our Chief Administrative Officer, Dean Olmstead, who heads up our Satellite Services Group, Bernie Han, our CFO, Paul Orban, our Controller and Stanton Dodge, our General Counsel. Before we open up for Q&A, we need to do our Safe Harbor disclosures, for that, I'll turn it over to Stan.

Thank you, Jason. We invite media to participate in listen-only mode on the call and ask that you do not identify participants or their firms in your reports. We also do not allow audiotaping and ask that you respect that. All statements made during this call that are not statements are historical fact constitute forward-looking statements. These involve known and unknown risks, uncertainties, and other factors that may cause our actual results to be materially different from historical results or 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-Q.

All cautionary statements we make during this call should be understood to be 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 any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements. With that, I'll turn it over to Jason.

Thanks, Stan. Chelsea, I think we're going to go straight to Q&A. You can open up the lines for us.

(Operator Instructions). Your first question comes from Jason Bazinet with Citi.

Thanks so much. I have two questions. First, when I go back and I sort of read the reason for this company to exist as a public company, back in the filings you made two years ago, it seemed like there were a lot of long-term options that you were going to capture regarding selling set-top boxes ahead of the DTV transition and Sling and it doesn't -- even though we're sort of two years into this, it doesn't seem at a high level like we've been able to really move the needle in terms of contract wins or big things that have sort of helped the top line other than the relationship with DISH.

So my first question, I guess, is for Mr. Ergen, just is this company sort of progressing at the pace that you anticipated, now that we're two years into it? And my second question is for better or worse, it seems like the stock is trading close -- at a level that's approximated more by the value of the cash than the assets on the balance sheet. Is there any color you can give us regarding what the investments are? And the reason I ask is I'm afraid that if -- if we all begin to sort of lock in these values in terms of our valuation and then subsequently discover that some public listed securities declined in value, the NAV may prove ephemeral. Thanks, so much.

Good questions. I'll take the first part. I think your premise holds water true, that we haven't progressed as fast as we'd like. But we have had some progression. We now have a direct to home service in Mexico that is doing well and is potentially a longer term customer for EchoStar. We've strengthened our relationship in Canada. So in North America, we've actually made some progress.

We haven't had any kind of significant wins in the cable side of the business from a set-top box, nor have we been successful yet in turning what we -- strategically with Sling -- turned Sling into a feature as opposed to really a product, and we really haven't been successful there yet, and so things have not -- I guess if you ask me, things have not progressed as fast as I would have liked to. Having said that, we are putting the building blocks in place to move forward on those issues. We also haven't been as successful as I'd like in the leasing of satellite business in terms of being an FSS fixed satellite service business, and that's been a soft market and we kind of entered that in what was a soft market and that market really hasn't improved for us materially. We may not have the scale that we quite need and we haven't done as good a job from a marketing perspective to market the other things that we have besides capacity. Because we have uplinks and fiber connectivity and set top boxes and encryption and billing and customer service and installation network and other things at our disposal that we haven't been able to market as well. So we haven't progressed and the stock price reflects that.

As far as I didn't totally understand the investment side of it. Investments typically are strategic. They typically relate to something in the international satellite or set-top box field and I guess they tend to go up and down in value only because of the incredible market gyrations we've seen over the last year, but I would anticipate we're not going to see those kind of gyrations in the future, but I think the key for us is to develop a business that has long-term -- we're kind of a break-even business, right, and the key for us is to develop those contracts and things that take advantage of the unique skill sets we have and so we have long-term earnings and cash flow from this business or we make investments in things that will get us there.

Okay. Thank you very much.

Your next question comes from Larry Harris with CL King.

Yes. I thank you. A few questions, if I could. I guess sort of a follow-up to the last one, you demonstrated, you know, some of your Sling capability at the recent cable show and do you feel more optimistic today than, say, six months or so ago with respect to the opportunity to sell the product into the cable industry or do you think you might go more retail?

Well, this is Mark, Larry. So basically as Charlie pointed out earlier, we really think the product is a better feature than it is a stand-alone product. So we've done a lot of work to integrate it into cable boxes for the US and also to progress Sling clients to other parts of the industry such as television and BluRay DVD players. So it's taking a while to get all that work done, but the building blocks, as Charlie said, are in place right now, so we're trying very hard to get the product out into the market into other people's platforms more so than just stand-alone retail product.

And this is Charlie again. The first product that should have already been out was a product really for Canada, for Bell Express in Canada and for DISH in the United States of Sling-enabled set-top boxes and that product is not out yet, isn't quite stable enough yet to put out, and it's a very sophisticated product, but it's -- that's where people will see Sling as a feature instead of a product and that where I think you can start seeing the product start getting some legs, because Sling does a lot more than just give you video IP, it also gives you wireless in your house.

So a lot of our customers that use Sling today actually use it internally in their house as opposed to a different screen while they're traveling. So the other thing that Sling does as well is can project your computer on your TV set, which more and more people -- we know more and more people are sticking to the computer over by the TV set now and Sling does that in a unique way. So it's a product where we just got to do a better job of marketing or get people to market for us in terms of licensing them and, you know, that's something we have a team working on and people are being treated fairly and the relationship with DISH and my personal relationship sometimes works against us there.

Okay. Are the cable operators, I'm assuming that they are evaluating the Sling boxes at this point; is that correct?

We have some engagements with cable operators in the United States and in Europe.

Great. Great. One thing I noticed, looking at the cash flow statement was that the capital expenditures were down this quarter and I know it can fluctuate from quarter to quarter. Is that the case here? I guess it was about $19 million in the September quarter.

Can you take that, Paul?

Yes. There's nothing unusual there, just normal fluctuations from quarter to quarter.

I see. I see. Okay. And, of course, DISH Network announced a dividend today and I notice that there's -- there was some share repurchase on the part of EchoStar, although it wasn't a huge amount relative to where your authorization is. What are your current thoughts in terms of distributing cash to shareholders at EchoStar?

This is Charlie. We answer this question pretty much every time, but we evaluate the opportunities we see out there and, again, our number one objective would be to use the cash internally or to generate more business and to the extent that we don't see those opportunities, we would look at stock buy backs and/or dividends. In this quarter, we did a little bit on the stock repurchase side. We, obviously we had some investment gains where we were -- I guess it was public, we invested in Sirius and were unsuccessful, but that was something where we thought having the cash on hand would have been a good thing to help them and so we do continue to see some opportunity out in the marketplace for EchoStar to grow the business internally and/or acquisition.

It looked like you had a fairly significant gain in terms of securities this quarter.

That's correct. That was our entire earnings -- some of that's just mark to market, is that fair, and some of it was actual gain.

Correct. The $100 million is realized. The unrealized gain on the fair value accounting is just temporary, it's not realized yet.

Understood. Okay. Thank you very much.

Your next question comes from John Smith with GMX Research.

Hello. Thank you. Regarding your venture in Mexico, can you tell how the venture is going? And, also, if you plan to stay to a ten-year commitment after it's been mentioned that Mexico's participation been a little bit overselling results and especially after MVF has announced that subject to regulatory approvals, they have talked with Telemex so they could have participation in the venture.

This is Charlie. I don't know that I understood the whole question, but the business in Mexico has done quite well. I think we're pleased by the performance. We're pleased with the relationship with our partner in Mexico. Obviously Mexico is a competitive market in the voice, broadband and video business and there could be fundamental changes there regulatory-wise, and we think that our joint venture in Mexico is well positioned for that.

But it continues, I think we look at it in two ways. One is it's a potential source of income from set-top boxes, continued set-top box sales and it's also a source of building value in the company as we get subscribers in Mexico, who are paying a recurring income every month just like they -- in the direct to home business just like the United States. So it's off to a very good start.

And we've also announced a project now in Taiwan, so we continue to look around the world for opportunities to use our expertise. We're a unique company in the sense that we know how to build satellites, we know how to launch satellites, we know how to build set top boxes, we know how to build, we know how to encrypt, we know how to build and install, there aren't a lot of companies that can do that and we have the ability do TV anywhere with Sling and I think in a broader sense and Mark may speak to it later if we have a question on it, but we have an ability to integrate IPTV in a way that is unique as well. So I think we have lots of really good assets, lots of good building blocks and it's up to management to turn those into -- into more revenue and more earnings and we haven't gone along as fast as we'd like to there, but I think we're positioned.

One other question. Are you planning to stick to your ten-year commitment?

Well, yes, we plan to continue our investment in Mexico. Obviously anything could -- regulatory changes or if companies want to get involved in there in a different way, obviously things can change. You never say never about anything. If you're asking how we plan for Mexico, yes, we look at it in a five to ten-year time frame.

Okay. Thank you.

(Operator Instructions). Your next question comes from [John Farland] with Porter Orlin.

Hi, gentlemen. I have a couple of questions around trying to understand a bit better your book value and your investments. The first is, can you give any detail on, you have $718 million as of end of 2008 for furniture, fixtures and improvements in your PP& E line. That's a gross number before depreciation, but can you give some sense as to what that is? Is that related to the set-top box business primarily?

That's mainly related to uplink equipment at our various uplink centers.

Okay.

And you might tell him we have six uplink centers today?

Correct.

Okay. And then CMB Star, can you tell me what is that on the books for now? Where is it on the books? What stage of completion is it in? How much more CapEx is required and what do you plan to do with that asset?

Well, it's currently on the books in the CIP line and as we disclosed last year, we did impair that asset at the end of last year.

Yes.

We give the total -- we don't give the total dollars. We don't give a specific total. But it's impaired significantly.

Right. I thought you had an $85 million impairment, but you had $230 million in satellite construction and process or you did at the end of 2008. Would that be substantially all for CMB Star or are there some other things in that line as well?

No, it would be other satellites that we've made prepayments on. So it would include the $85 million you allude to as well as the other satellites that we had under construction at that point in time.

I see. And may I just ask broadly, we have got, 30 to 40% of our capacity leased on the satellites. Why continue paying money to build more satellites when we have so much spare capacity? In general, can you give some sense as to why these satellites are being constructed and why we think they'll generate a return given the low lease rates we currently have?

Right. This is Dean Olmstead. The answer to that really turns on frequency bands and we use different frequency bands for different attributes of the services. Some we use for the direct to home and others we use for what I describe as more business to business. The ones that we have the lower fill rates on are the business to business portion and the new satellites that we're building are for the ATH business.

Okay. Okay. Understood. And so are you able to say how many satellites are under construction and when they may be launched?

I don't know what we've announced. We're just checking to see what we've released.

I think we have a table.

Sure.

It's in the K.

It's in the K.

You might refer to the last K.

Okay. Okay. And I assume that mimic and I may not pronounce this correctly, but KET set, those are leased satellite that you provide services for, are those in satellite CIP or is someone else bearing the CapEx to construct those?

Any prepayments that we've made to the vendor, it would be included in those numbers.

So you still have to make prepayments to the vendor, although you'll only be leasing them?

Correct.

This is Charlie. We have made some prepayments to reduce the lease costs, but the prepayments will be included in our CapEx and then the lease payments will be shown in our future obligations in a table somewhere.

Yes, they are.

Yes.

They're in the commitments table that's shown on page 20.

The commitments table will have the future lease payments.

That's on page 22 of the Q?

Page 20.

Page 20. Yes. And what is the $1.4 billion in outstanding obligations -- purchase obligations for 2009 on page 22?

That's the total. The obligations is -- are $71 million for 2009.

$1.4 billion is in the life of all of the satellites we leased.

Okay.

That goes through 2000 --

It looks to me like --

It's probably 15 years.

Does it not say in the 2009 column under note ten on page 22 that there's $1.472 billion in 2009 and the total is 1.487?

To clarify, that's total -- that's purchased and other obligations. That's not for satellite build. So that would be for set-top boxes, things of that sort that we have firm POs outstanding.

Can you break that out for him what the satellite obligation in 2009 is? Yes, the satellite related obligation is the $70.8 million that's in the 2009 column.

So the vast majority of that is for set-top boxes, fair?

Of the $1.47 billion, yes.

Okay.

Those are purchased almost exclusively when we have an order from a customer.

Okay. Fair enough.

It's not -- we're not taking significant inventory risk there.

Okay. That was at the root of my question, of course. And then just finally, on these leased satellites, I understand that -- well, I understand that as part of your core capabilities is launching, managing and installing satellites. I also understand that going lease rates may be in the ten, 15, 20% of leased revenues for providing satellite services and as far as Mimic and KET set, are those reasonable ranges to be thinking about, 10 to 15% of total lease revenues for your work?

I'm not sure I understand the question.

Yes, we're not quite following your math.

10 to 15% what?

Well, I understand that the -- for a DBS satellite, which I believe the Mimic five is, the transponders are leased just say in the $3 million per transponder range, and you've got commitments to lease the entire satellite and so my question is whether it's reasonable to expect that EchoStar may be receiving 10 to 15% of that $3 million per transponder as a fee for providing these satellite services?

Okay. You want to take it?

Will you take it?

You can take it. Dave Rayner will take it.

This is Dave Rayner. On what we're paying to a Mimic or a KET set, that's a specific negotiation that we have with those companies and specific rates. When we turn around and then lease that to DISH or to other customers, we certainly have a margin expectation coming off of that. I don't think we've ever disclosed specifically what those margins are, but clearly there is a margin expectation. You commented on $3 million a year for VSS rates. I think that may be possible on a very spot rate market basis, very short-term, but that is not typically what we would see under a longer term arrangement, either from a lease -- where we're leasing it, or where we're leasing it to somebody else.

In North America.

In North America, correct.

Okay. Okay. Fair enough. Thank you, gentlemen.

I mean I -- I think -- this is Charlie. From a broader perspective, on the BSS, the direct to home, you know, that -- such as DISH is in and so forth, that capacity we typically lease out the vast majority of it, and we have customers that we know want that capacity, right, so we have a customer in Mexico, we have a customer in the United States, which is typically DISH.

So there we experience very high utilization rates. Where we have not done very well is in the medium powered fixed satellite service spectrum, which is the KU band spectrum that typically is more business to business or more back haul distribution business to where there's an excess capacity now in the United States and we haven't done very well there in terms of leasing that capacity out at rates that approach our cost.

And so we have a lot of room for improvement there and there's only two things we really can do there. One is the market has to improve because there becomes more demand and that we don't have much control over and the second thing is to develop uses of that spectrum and be creative so that we can go out and create uses for spectrum that maybe otherwise hasn't existed so far. So --

But why not an option three which is cut prices and win customers? You have all this vacant -- you have no incumbent position to protect.

Well, that we can do, we just lose less. And so we certainly look at that and Dean could probably speak to that. That's certainly something that we do do. But I happened to see 60 Minutes last night and they're talking about people, video pirates and stealing people's movies. Well, we actually have a system that probably would actually reduce that kind of piracy if they were to use spectrum for a back haul to movie theaters and that probably would reduce some of the piracy that they have today. That would make sense, but that's a long lead kind of sale and might require -- and also requires digital projectors and things like that, so there's things where we could go out and build a business in a way that didn't exist at the time.

IPTV, for example, where you might want a fixed bit rate television signal to a head end for a hospital or a university or a cable system or a phone company makes a lot of sense, but to put that in place and get all the programming done and all the back haul takes a bit of time. In doing that, you're adding value beyond just the rate of the capacity. So I think that those are the kind of things that I think Dean you want to speak to, Dean is trying to do within his organization to build long-term value there.

That's right. I think the only thing I can add to that is that it's -- Charlie mentioned that it's been a soft market. So cutting prices in a soft market doesn't really help a whole lot. We certainly are creative and flexible as we approach the market, but it's really a question of whether there are new customers that have risk capital that they're willing to deploy in the current economy and there's not been a whole lot of that. So we've picked up a couple of customers, but it's been a bit slow going in that arena.

Okay. And then if you can just indulge me one more last question. Charlie, you had said that we may not have -- it just may be we don't have the scale to do what we want to do in this market in response to Jason's question initially and I wonder if you have a time line in your own mind as to when -- when you need to kind of either prove that you can do what you set out to do or you start to more seriously consider trying to sell the assets or whatever else?

Yes, I think a historical perspective might help you a little bit here. The fixed satellite capacity that we have really was something that DISH entered into because they couldn't get enough BSS capacity. Ultimately they were able to get BSS capacity from Canada, that they never expected which then made the FSS capacity not really conducive to what they wanted to do. So we got it in the spend. We got the asset and we got the obligation. And so we take a real long-term approach to it and say is that something that we can build over time or is that something where we don't have scale and it -- we're just not going to get there and I don't think we've come to firm decisions on that one way or the other.

But obviously we're not -- we're economic animals and we look at maximizing the value out of that asset with -- with the areas where we -- we don't control market demand except by being innovative, so I believe that the real answer is for us to be innovative and create markets for our capacity. And if we're really, really good, we ought to be able to do that. So that's -- that's where a lot of focus is and that is a long-term plan at that. Having said that, you don't have to own the capacity necessarily to do some of the things that we're doing. I mean, you could create value and lease capacity from somebody else as well and there's -- so we'll have to wait and see.

Thank you very much.

Your next question comes from Gerard Hallaren with TownHall Investment.

Good morning. Again, a couple of things. You touched upon this in your last answer. Could you help me understand what the broadband applications are for the satellite capacity? You mentioned television station for programming back haul. What else would you see?

Dean, you want to take the broadband?

Now when you say broadband -- are you thinking video or internet connectivity?

Well, I'm trying to understand really back haul and what are the applications that you have where the satellite does particularly well as a back haul device?

As a back haul device. Well, I would have to say generally it doesn't and that's one of the reasons why things are slow going.

That's kind of what I thought and was surprised by your comment.

No, it still fits in in certain circumstances and particularly in other countries, but in the US, fiber is so cheap now that oftentimes given time, people will move the back haul to fiber. Is that what you're getting at? So it's more of a transitory market for us. The things where we're trying to build value are more like the -- what we call the ViP-TV platform.

Yes.

And I think we had three press releases on that today, if you're interested in that part of the business.

Yes, I saw them. No, I just -- I was sort of surprised by the comment and thought there was maybe some wrinkle that I was unfamiliar with.

I think Charlie was maybe just mentioning some of the examples of various applications that the satellite is used for and we do still have a number of back haul customers and, for example, we've got the Olympics coming up in Vancouver. We've leased out a lot of occasional use capacity for that in January, really a back haul application. So that's where people don't want to put in permanent networks.

Yes.

And that's a good business, but it's not a long-term value creation business.

Yes. Okay. That makes a lot more sense to my thinking. The next question I have really relates to the set-top box market and how -- what are your thoughts about entering the internet set-top box business with -- there are products out there like I believe it's called the RockYou from NetFlix, it would seem like this would be a natural growth area for you guys, no?

I think -- that's a good question. I think we're uniquely positioned in the sense that I don't know that just an internet box, I think, would make a lot of sense for us. There are a number of companies who can make a fairly simple device to get you TV off the internet. I think where we're uniquely positioned is where you might want to combine a cable signal and a broadband signal or a satellite signal and a broadband signal and particularly if you want to have that TV anywhere in your house or on your computer, on a mobile device with Sling, there I think we're uniquely positioned and we're actually building that box for BelL Express View and DISH today that combine all those things into one set-top box and we have to make it less expensive than we are building it today, we have to make the operating system much easier to use than we're doing today, but I think that's a -- that is a potential future growth market for us to the extent that we can out-engineer and out-produce other people in terms of a product. Mark, you might want to speak a little bit more to that.

Right. What Charlie says is how you melt the technologies today, so the whole PC and internet and TV are all melding together in a big fight right now. The issue is how do you create a service with reoccurring revenue and be successful with that. Just the box business, as Charlie pointed out, is very low margin, is not very interesting, but if you can add value added services and products to that, that's of a lot better interest to us. So we're working really hard on the set-top box side to create the box low but create the services to generate revenue. We've covered our bets and we've also worked with Microsoft on an additional product that as the PC really gains traction, we also have the ability to play in that arena also. So we're excited about the future, a lot of things are coming and we just have to stay on top of it. And I would also point out lastly that net neutrality will be a big issue for guys like us to be able to play equally in the marketplace.

So --

This is Charlie again. I'll give you the grand vision, right, which is really most people on this call right now probably at some time in the next few years, if you're not already, are going to look at TV from a linear provider, whether it be a cable or a phone company or satellite provider and you're going to get TV from the internet, and you want to -- you're going to want to do that in a seamless fashion. You're not going to want to push the button and then for a movie and wait for it to load and so forth. You're just going to want to push the movie and watch it. In fact, you're probably going to start watching TV just by punching in what you want to watch. So tonight you want to watch the Denver Broncos and Pittsburgh Steelers. You're not going to punch in ESPN or anything else, you're going to put in the game and it's going to show up and you don't know whether you're getting it from satellite or cable or the phone company or the internet. And that -- we have the ability to put those things together in a way that most companies do not.

Yes. Most of the -- like the RockYou and View Now and the Voodoo and all these others, they're pretty rudimentary and their program guides are abysmal and their way of doing things is abysmal. I would think with your expertise, particularly in the human interface side of things, you could go in there and capture a fairly large market without having to move to the higher value added stuff?

So that's a future opportunity for us and that's just not the United States. People are going to want that product, around the world and so that's an opportunity for us and it reminds me a lot of where we were in 1995, when we decided to build our first satellite set-top box, and it took us a while to get it right, but it became a big business for us. So, that's certainly a focus and an upside kind of we have the capital to do it, we have the engineering resources around the world to do it, and we just haven't been successful at it yet in part because of the interfaces -- the interfaces run clear, the way that people actually put their content on the internet is not -- is much different, each company uses a little different -- I'm going to say it wrong, not modulation scheme, but Kodak or what -- Kodak and Rapper, they use it a different way and you've got to get that to one place. But, that is an exciting part about where we can go in the future.

So if you look at the business, it's really kind of -- set-top box design and putting that all together, I think it's a bit -- and we have upside on the satellite leasing capacity business because we're not doing very well, we have some upside there and then international business, hopefully we have some upside in taking what we do in the -- and the expertise we learned in the United States, direct it to home business and take that to other places in the world, particularly in a high definition television environment. So we have all those things. Whether we're successful with them or not, of course, remains to be seen.

Right. Thanks. By the way, are you joining me in offering all those good people in Pittsburgh our condolences?

Well, I always like to underpromise and overdeliver. So I think we'll be lucky to stay with them.

All right.

Your next question comes from Michael Morin with Barclays Capital.

Hi. I was wondering if -- there was an earlier question on Mexico, I was hoping to follow up on that. I don't know if you can share any metrics with us in terms of subscribers, net adds, maybe ARPU, those sort of things? I haven't seen any of that from you.

I don't think -- because we're actually a minority partner in Mexico and we would let our partner share those metrics at the time that they feel that they want to. I would only say that in general the business is -- the business has created -- has gotten off to a good start and clearly has gotten the attention of the competition and it's doing -- it's performing, very well and we're pleased with the progress so far.

Can we track kind of the revenue from your set-top boxes as a proxy for how that business is going, or is there a difference in terms of how those revenues get booked relative to how the underlying business is performing?

That's a good question because we made an investment in Mexico and the majority of the set-top box sales today is a contribution to -- is a contribution in kind or a contribution to the joint venture. So maybe, Paul, you want to explain that?

The vast majority of the hardware sales to DISH Mexico, like Charlie said, fulfill our commitment to them. So we have no revenue recognition. However, this quarter, they have started to order from us product above and beyond their original commitment and we are getting full revenue recognition for those sales.

So it's -- it's probably a 2010 kind of event that you're going to see revenue from Mexico and to the extent that they got large enough, we'd break it out. Right.

Is that business -- I don't know if you can answer this, but is that business still losing money? Is it still kind of in that start-up phase or are we already getting close to break even or even beyond break even now?

It's still in start up phase. We didn't make money in DISH Network until we had 7 million subscribers. They aren't there yet. It is a business that has, good growth potential and profitability potential.

Great. Thanks very much.

Your next question comes from Michael Gerstner with MSD Capital.

Hey, guys, how are you?

Good.

Daniel is here with me, today, Daniel Shuckman.

Sorry we missed you guys last week.

Yes, sorry we couldn't catch up with you, Charlie. Just had a few questions today, though. I know some folks have talked about this already, but there were tons of sort of investment gains on the P&L this quarter, it totaled up to about -- to our eye, about 350, $400 million of that kind of stuff. I think from what you said, the $100 million of realized gains and securities sounds like it was probably related to the Sirius investment, if that's right?

Well, we don't comment on each individual investment, but I think obviously the gains of 300 -- I think $332 million are one-time gains and you just -- it's nice to have, but it doesn't improve the value of your company. It doesn't improve the value of our company, because it doesn't help us in the future earnings.

Right.

Unless we turn those into something else. But again, I think the broad picture is we're still kind of a break even company that's still kind of finding its way out there that has a lot of building blocks in place and it's up to our management to take those and find a way to make money at them and, you know, we've been successful in the past at doing that with the kind of parent company DISH. We haven't been so successful on our own and, my expectation is that we're going to learn how to do that.

Yes. The reason I ask this one, I guess, is when you total up the cash and investments today, someone alluded to this, but you got about $17.75 per share of cash and investments, which is kind of not far off from where the stock happens to be trading, so --

We haven't made --

The enterprise is being heavily discounted.

If you're saying we haven't made believers out of people, you're right.

But I guess what I was going to say, you know, just since that's where a large store value is, just looking through to some of that disclosure in the Q, one of the things that stood out was in long-term investments, there's this large bucket of sort of other noncurrent investments, which is up quite a bit this year. I mean, you mentioned that debt securities and sounded like treasury bonds or government bonds. Is that -- is that kind of stuff there for liquidity purposes? Are those -- those are not strategic investments because they're not categorized as such, but what's -- how do you think about those?

Maybe Paul will want to jump in here, but from a cash perspective, our board has set out some specific criteria for us and a large portion of that becomes is held in liquid non-risky -- hopefully non-risky securities, although we know everything has got risk. So that's just -- I don't know how much of that you want to speak to. I don't think we give out the details of that, but --

Well, I think you're alluding to the long-term marketable securities we have and the vast majority of it, if you look on page eight of the Q, it's detailed there.

Yes.

Earnings to our marketable securities that we account for at fair value and those are mainly strategic investments that we've made.

So most of that 700 is strategic, would you say, or no?

Yes, yes.

Yes. And we just mark to market?

Correct.

Okay.

And so don't -- you can't infer that that's all liquid, fair?

That's fair.

Right. Okay. I mean, we have a few questions about the business, which is probably the more interesting part to talk about for you guys, but, I guess we saw Mimic Five launched in October and probably today we haven't seen any P&L impact from that yet, right, because the DISH lease will kick in once that started in service?

This is Charlie. The satellite has -- is now in service and so that's a fourth quarter -- that will be a fourth quarter event.

Oh, okay.

The satellite didn't go into service until the fourth quarter.

Okay. And have you all ever talked about or is there any color you can provide around the size of, you know, that sort of contract with DISH? I guess they're taking all 32 transponders?

All I can say is that we would tend to get a small margin for managing that satellite and leasing the capacity.

Yes.

And for -- and for the orbital slot, used and so forth and so on, although that orbital slot I think is a Canadian orbital slot, so we probably don't get anything there. It's not a straight pass through, but it's a small margin.

Yes. And on the satellite side, I mean --

By the way, I don't mean to -- realize that that's a negotiation between typically independent board members and back and forth between what DISH is willing to pay for capacity and what they can get it somewhere else an I don't think -- I think it would be unwise to take it on a satellite per satellite basis. You would have to look at the total -- kind of the total relationship there in terms of revenue. And obviously DISH is one of our bigger customers from our satellite -- is our biggest customer from a satellite perspective and while the margins are small, we have a great customer with good credit that long-term leases that, will be a good customer for a long time.

And I mean your commentary on the overall satellite remark was helpful earlier. I guess as you think about third-party opportunities in that division, is there any reason -- do you guys have any sense that the outlook is kind of changing? I mean I've heard Dean and you both talk --

No.

-- so far in the call about how difficult the market has been.

No, the outlook has not improved.

Okay.

One caveat I would put on that is not domestically, not in the US.

Right, okay. I understand. On the -- go ahead.

I was just going to say as you know the lead time in the satellite business is fairly long and so as the capital markets begin to improve, we'd expect to see more entrepreneurial economic activity, but it takes a little while for that to materialize.

I understand. Thank you, Dean. I guess on the set-top box side, then, there was some commentary around dish units and pricing. Can you guys speak about those trends at all? It seemed like dish --

Well, I think the big unknown for us is to the extent that DISH will -- and so some extent Express View in Canada will update customers to MPEG 4, so the vast majority I think of Express View and DISH's HDTV content is in Mpeg 4, so as people make a transition to HDTV, they need to upgrade. That's a good thing for us because it allows us to sell another set-top box to an existing customer. And in a set-top box, the margins we negotiate are typically about the same, it's just that it's a higher -- it's a higher cost box. So the -- and then one further step to the extent that people upgrade to IPTV and HDTV, that's a different -- that's another set-top box that some customers would have to upgrade to and so this change in technology in a way is good for EchoStar and -- because it just gives us an opportunity and now that DISH's base has been growing the last couple of quarters, it gives us some renewed optimism that set-top box sales can increase, but --

I understand.

That remains to be seen. And for the most part because DISH leases boxes, you know, there's not -- there's not a huge -- there's not really an opportunity for us in the MPEG 2 boxes, the standard box because they lease them, they get them back in turn but the biggest opportunity for us is MPEG 4 and advanced boxes. So we're dependent upon the speed at which customers upgrade. That seems to have been fairly consistent this year. And, one could make the case as the economy improves, that might accelerate.

So the pricing pressure that you guys discussed in the Q related to DISH was more from just kind of a halt or a step-down in the upgrade cycle? Did I understand that correctly?

Are you talking about a DISH question or an EchoStar question?

Well, in EchoStar, you guys talked about how the average pricing per unit on the set-top boxes had declined in the sales to DISH.

Yes. And that's just because we continue to get costs out of the set-top box and so DISH has alternatives to buy set-top boxes, so we have to remain competitive and the set-top box prices go down as we engineer costs out.

Okay. And it also mentioned kind of a mix to lower end boxes, I think, is what the Q said? Relates to the upgrade cycle or --

It says lower cost models, but that includes both low end and high end. Both -- in fact, the high end boxes probably have come down -- Mark, am I correct, have probably come down more than the low end cost prices.

Correct. We have gotten a lot of costs out over the year.

I mean if we're successful, that will continue.

Right. Okay. Last question, then, just kind of circling back to what we started with on the investments. I guess, Charlie, the strategic investments, even though you don't talk about those as much, I guess what you're still classifying as strategic today would be ones that you would think might lead to sort of transformational type transactions down the road, and that's why they remain classified as strategic if I understand that correctly?

I'd say it a little different way. We kind of see ourselves in three businesses, right? One is -- one is the design and sale of digital set -- digital set-top boxes. One is, we're kind of in the real estate business in outer space and we also lease some of that real estate, sell or lease that real estate, and then we're in the international business and the international business could be either buying and selling, leasing satellites or set-top boxes or direct to home business. So those are the three businesses that we're in. To the extent that we can find strategic investments in those three areas, that's kind of what we'd look at that would maybe help us in one of those three areas. That's kind of how we look at that strategy as opposed to just making an investment in some company.

And typically when we look at a strategic investment, we believe that we could add value to that company at some point in time if they were -- if they were to ask us to help add value or that some kind of business relationship with that company would add value to them and us. No guarantees of that, but that's kind of how we look at it. And as a result of that, we see a fair amount of potential strategic investments out there and we've tried a lot of things. We've been unsuccessful in most of them. We looked at Sirius as a strategic investment. There was a satellite that was auctioned a week ago.

Protostar.

Protostar. We looked at it as a strategic investment, we were unsuccessful, we were outbid. So we continue to, you know, to look at things that we think are interesting and, you know, our track record is mixed, but if we can win more times than we lose, then we'll come out ahead.

Charlie, Daniel Shuckman, if I could just quickly chime in before you run.

Okay.

Do I take it from all the commentary, in particular what you were just saying, that in contrast to your situation at DISH where earlier on the previous call you were discussing the special dividend there and saying, among other factors, you couldn't find a lot of exciting uses for capital plus your view of the future tax policy changes favoring dividends now rather than later, it sounds like at EchoStar, correct me if I'm wrong, you're still seeing enough opportunities both around the businesses that you have internally, the assets you have internally as well as outside potential investments and acquisitions that you feel like you want to retain capital at the company today, notwithstanding those other factors?

The answer is a partial yes to that. The only thing I would add to it is that we also don't see access to the capital markets at EchoStar very easily. We don't have a recurring -- a recurring income.

Yes.

So while we -- so we see opportunities everywhere out there, but we don't see -- but the opportunities we see in EchoStar, we say, we may have to be able to take it -- use the cash that we have to do some of these things, we may not be able to go to the marketplace to do it until we become a pretty steady, recurrent income kind of company.

Right. Which calls for having more capital at the ready even if there's nothing to do at the moment?

Yes. That's right. And by the way -- I mean there's not -- I wouldn't say there was nothing to do, we just haven't been successful in getting something at the price that we think makes sense for us.

Understood.

I like this market. Technology is changing very rapidly and I like that piece of it. It gives us that chance to move up the food -- move up the ladder, so to speak, to the extent we make good decisions.

One general comment -- this is Dean. One general comment here as well on future upside. We had the Wild Blue merger announced this last quarter and as you know, wild blue is a customer of ours, so we're very pleased to see that progress, solidifies the satellite broadband portion of the business and they're continuing to pull down capacity. You will see more of that in future. So that's a very positive development. We talk a lot about DPH, but the satellite broadband to home particularly outside the US, we see as a large potential market to go capture and use our core skills.

So I think with that, we probably have run out of our time here. So we'll be back again in late February. And appreciate everybody on the call. Thanks.

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