EchoStar Corp (SATS) 2009 Q4 法說會逐字稿

Good afternoon. I will be your conference Operator today. At this time, I would like to welcome everyone to the EchoStar Corporation Fourth Quarter 2009 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Kiser, you may begin your conference.

All right, thanks, Natasha. Well, thanks for joining us. My name is Jason Kiser. I'm joined today by Charlie Ergen, our Chairman, Mike Dugan, our CEO, Mark Jackson, President of EchoStar Technologies, Dave Rayner, our Chief Administrative Officer, Bernie Han, our CFO, Dean Olmstead, who heads up EchoStar Satellite Services, and Stanton Dodge, our General Counsel. Before we open it up for Q&A we do need to do our Safe Harbor disclosure. So with that we'll turn it over to Stanton.

Thank you, Jason, and good morning, everyone, and thank you for joining us. We invite media to participate in listen-only mode on the call and ask that you not identify participants or their firms in your reports. We also do not allow audio taping and ask that you respect that. All statements 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 expressed or implied by such forward-looking statements. For a list of those factors please refer to the front of our 10-K. All cautionary statements that we make during this call should be understood as being applicable to any forward-looking statements we make wherever they 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, Natasha. I think we're generally going to open it up for Q&A, but I think Charlie just wants to open with a few comments before we take some questions.

Yes, this is Charlie and as you know, I a few months ago resigned as CEO and Mike Dugan is now the CEO, so I'm going to turn this question and answer over to his direction, but we're pleased to have Mike back. As many of you know Mike was President of our technology Company when we were combined with DISH and really was the architect of DISH Network from an engineering perspective and all the operations and ground things that went along with that, so he comes with a wealth of knowledge about engineering and all the things that can be done from, particularly from a set-top box design point of view. And the positive side is it's difficult to be CEO of one Company, it's impossible to do that for two companies and I wasn't able to give the kind of attention to EchoStar that it really richly deserved and it's great to have Mike back on Board to focus on that and I think through his leadership, good things should happen. So with that, we'll take -- I'll turn it over to Mike for the question -- I'll turn over to you guys for question and answers but Mike will direct it.

So, Natasha, you can open up the lines.

(Operator Instructions) Your first question comes from the line of Jason Bazinet from Citi. Your line is open.

Thanks so much. I just had one question as it relates to some of the disclosures you made. I think there is a table in the September 30 Q titled Contractual Obligations and Off Balance Sheet arrangements. And there was a row under there that was titled Purchase and Other Obligations and it had like a roughly $1.5 billion, I believe. In the K you just put out that number stepped down to about $493 million and I was wondering if you could just remind us A) what that is and B) what was the cause of the material step down, thanks.

This is Bernie. I think what's in that line item, the last row of the commitments table, I think we talked about. these are generally short-term obligations. They are basically open purchase orders that the Company has. So purchase orders by components and parts that go into making our receivers and other equipment and uplink purchases to support our uplink operations as well. As far as -- I know there's normal quarter to quarter there's typically, because of the nature of what it is which is open purchase orders, there's pretty big fluctuations that we see quarter to quarter. There's even big fluctuations that we see month to month as a result of it. In terms of the specifics, I don't know if there's anything more than just that, but if there is we'll get back to you separately because I hadn't focused on that one particular number. But there's a bit of fluctuations month to month and quarter to quarter as it is.

Okay, but I mean $1 billion seems like a huge step-down.

Yes, you're right. And we'll have to look into that and get back to you with anything we find there.

Okay.

(inaudible) it includes receiver, buy receiver.

Correct, correct.

Fourth quarter seasonality.

Right.

Okay. Thank you.

Your next question comes from the line of Adam Ritzer from CRT Capital. Your line is open.

Hi, thank you. I guess I wanted to ask you a few questions about the SATMEX deal you guys just announced, I guess, yesterday. Could you give me a little more perspective on when you think this will close and what kind of legal and perhaps FCC issues there are to deal with?

This is Dean Olmstead. I'd be happy to do that. Thanks, Mike. First on the conditions to closing, we're still in a rather uncertain period. In this case, unlike some other transactions, we do require bondholder approval and that's far from being a foregone conclusion. We'll be working on that over the next 15 days to see if we can persuade them that this is a better answer for them than the other alternatives. The other approvals from the governments on both sides of the border are not expected to be anything outside of the ordinary. And current closing is scheduled for, I think we said third quarter of this year.

Okay, are there any FCC type issues?

No.

Okay, nothing there. So really, dealing with the bondholders?

Really, the bondholders are the, I think, the large risk. Of course we'll have some anti-trust considerations we'll have to go through. We think those should be fairly straightforward and we'll have some other fairly standard regulatory approvals in Mexico.

Okay. And in taking a look at SATMEX 6 K, again correct me if I'm wrong, but it looked like the floating rate notes there get 101 if there's a change in control and the high yield bonds, I guess, they get par. Do you have to take them out at par or they could essentially remain in place. Is that how you look at it or maybe there's some other things that you have to deal with?

Well, there will be a negotiated price for the seconds.

Okay, for the high yield bonds, okay?

Yes.

So the floaters they get 101 and that's it?

Presumably, but that's really up to the other side to determine.

That's up to SATMEX to determine?

That's correct. There's a certain amount that we've offered for the Company and it's up to them to allocate those resources across the classes.

Okay, so the cash you're offering and the cash on the balance sheet is going to be used to deal with the debtholders. Is that how it works?

The debtholders and the unitholders, yes.

And the unitholders, okay, right, got you. And I also, again from looking through that, it looked like there is an issue with what they call SATMEX Number 5. Is that out of service or they're having some operational difficulties that you guys may have to deal with if this deal goes through?

Yes. There are three operational satellites right now. One of those is called SATMEX 5 and during the process of negotiation of this transaction, SATMEX 5 lost its primary station keeping fuel system. It does have a back up system and the back up system provides us enough time to build a replacement satellite, but just enough time. So the risk in the transaction did change a bit during the negotiation process and that's been reflected in the price.

Okay. And I guess from listening in to some of your calls over the last year or two since the spinoff, are there any satellites that you have that are under construction? I know there has been some things in the past. Can you use any of those satellites to replace SATMEX 5 or do you have to build a complete new one for issues I may not be an expert on?

Yes, and the answer is yes and no. We do not have a satellite that we could move directly into one of the SATMEX orbital slots but we do have a couple of satellites that have a bit of capacity that could service some of the SATMEX customers and we're taking a look at that presently. But the current plan would be, and it's something that we wanted to do, this accelerates our schedule a bit, but the current plan would be to build a new satellite.

Okay.

As you know in our core fleet, we continue to increase our utilization rates. Satellites take about three years to build and as we forecast out three years, we should be full and we need a new satellite and hence the SATMEX transaction with their orbital slots makes very good sense for us.

Okay, so the going to the back-up power supply on the satellite gives you -- it doesn't give you the ultimate life expectancy, but it gives you up at least three years so you could build a new one and then replace it?

That's correct. That's correct.

Okay. And how much would a new bird cost at current prices to build to replace that?

Well, we don't say that precisely, but I think that the generally accepted industry standard for a large multi-purpose bird like this would be a total cost of, counting the satellite, the launch vehicle and the insurance, of around $300 million to $325 million.

Okay. And when you take into account that additional $300 million above what it costs you to buy SATMEX, is it still as attractive a deal. Are there upside here, synergies with your existing business. Maybe you could talk about that a little bit.

Yes, it is a very good point and the answer to that is yes, partially because, as I just mentioned, we need a growth satellite in any case. So regardless of whether we had done the transaction or not, if we had had an appropriate orbit slot we would have liked to have gotten a new satellite under construction. So this provides us a natural growth path for that. The other consideration that we're paying for the SATMEX fleet or SATMEX business is really covered by the customers in the SATMEX fleet as they exist today. So we think that all of it from a financial standpoint makes good sense. From a strategic standpoint, there are three orbit slots that come with SATMEX and two that we currently have gives us a five KU band orbit slots in sequence and rounding those up, because you're not going to want to know about the specific orbit slot details.

That's for sure.

But that is 113 west, 115, 117, 119, 121. So every two degrees we have the KU band orbit slots over the, basically over the center of the United States and that's really unparalleled in the industry. So we think we've got a very unique set of assets here to develop. Beyond that the growth rate in South America is about two to three times that in the United States, so we want to be present in that market. And we've got a full suite of services that we'll be taking into that market, both the infrastructure components for things such as cellular backhaul, but also our video business and the emerging broadband satellite internet services. So we're quite excited about growth opportunities there.

Okay. Are there any cost savings or any synergies on that side of the business?

Oh, yes, absolutely. The business scales quite well, as you see from the large operators. I will say that we're -- while we don't report our EBITDA, that we have industry leading EBITDA already. In merging the two entities we'll be looking for opportunities to continue to stay at the front edge on all of our performance metrics. And the satellites, of course as you've discussed, right now our fleet is fairly small for the FSS business and fairly tied up, but as that fleet continues to grow we'll have more opportunities to move birds around to new slots and be able to take advantage of opportunities for growth.

Okay. Excellent. I appreciate the help and I'll get back in line.

Our pleasure.

(Operator Instructions) Your next question comes from the line of Matt Karnes from CJI Capital Markets. Your line is open.

Hi, just a question with respect to the broadband stimulus package that's out there. Assuming that you apply for the second round financing, could you give us some color with respect to how those funds may be used and what your broadband strategy might be? Thanks.

Yes, this is Dean Olmstead again. We had applied in the first round, as you know. I think we were quite disappointed with the way that that trended. There were some political developments that moved that towards very small fiber projects connecting libraries. I think that's where all of the awards have been to date. They've elected not to go for a larger solution from satellite operators that would have connected the underserved around the country. We are still hopeful that in the second round, we'll be able to make some in-roads. I don't believe that we're as aggressive -- going to be as aggressive this time as we were last, given the indicators that we receive from them. Nonetheless, our focus this time around will be to help reduce the cost of adding additional satellite broadband subscribers in the rural areas. So essentially a per subscriber subsidy fee and we're looking at an alignment across the industry to help make it easier for the government to be able to award those funds.

The second round, that's an additional $7 billion or is that -- .

No, no, they were unsuccessful in awarding most of the money in the first round. I think they awarded -- so far they've announced less than $200 million out of the 2.4 that RUS had identified. So there's some money from RUS and some from NTIA, the two different agencies that added up to the $7 billion. They awarded very little in the first round. They are going to award more in the second round, we believe. And originally they were going to have a third round. Now we think there's just going to be a second. So there's a great deal of pressure on them to try to, I think, to try to move the money out the door in the second run.

And do they give you any reason as to why they didn't award you any funds in the first round and what do you need to do if you so desire to apply in the second round? What would you need to do to make that successful?

Well, I could give you the cynical political answer but I probably shouldn't. They have different set of objective functions that it's been hard to align with our view of what the right solution is. Our view is that we should put up satellites that can connect any American anywhere in the country cost effectively and their solution seems to be more to make awards on a very localized basis and it's just a different set of objective functions. As we look into the second round, what they've said is they are going to set aside a small pool of money. So far they've identified $100 million. We're hoping that that will grow, that they will allocate for these broader nationwide programs.

Got you, okay, great. Thanks very much.

Your next question comes from the line of Marc Cooperman from Omega Advisors. Your line is open.

Good afternoon. Can you clarify, please, how much of SATMEX you will own if the deal closes?

Thank you, Mike. Dean Olmstead, again. What we can say is that between us and our partner, MPS, we'll own 100% of the Company.

Thank you.

Your next question comes from the line of [Gerald Halloran from Town Hall]. Your line is open.

Yes, good morning, guys. Just kind of a dumb question here. You mentioned using satellite for backhaul. It seems like there would be some latency issues there. Could you just address that for a moment?

Latency is one -- this is Dean Olmstead again. Latency is one of the fun issues that we deal with all the time. It's a - it's got two components to it. One is, obviously, alternative technologies like to put that up as a reason for not doing it and the second is it comes from the old days back before we were actually digital and we had issues called Echo and people would confuse the echo in the channels with latency. Right now, in the current environment, what you find is that the latency in the network for internet assembling, taking apart and assembling the beds, exceeds the latency of the satellite channel, the distance up to the satellite and back down again.

So 186,000 miles a second is no longer a good idea?

It's still a very good idea and in fact it traverses that 26,000 miles pretty quickly. So the point is that the latency in the equipment in the networks today is actually larger than the satellite latency. So if you look at all of the factors that you need to put a network together into a particularly developing countries, the fact that you've got a satellite link for your cellular backhaul is, I don't want to say immaterial, but it's not the driving factor.

Is latency down to like half a second now?

Well latency, physics hasn't changed, only the perception has changed.

But is there a correction in handshaking, which always was an issue in the past?

That's right. But it is pretty quick now. And what you have is a lot of that going on in your standard internet connection. So even if you have got a fiber, broadband fiber connection, you still have these latency issues.

What would be a reasonable estimate to use for latency?

I don't even know what the budgets are now days in these networks. 900 milliseconds?

Okay, thank you.

So about a third of that from the satellite.

Wow. Thank you.

So as I say, there are all of these other factors. We have latency in every network presently and well look, don't take my word for it. Just take a look at the market. What you see is that using satellite for cellular backhaul is one of the fastest growing segments in the industry.

Okay, I will. Thank you.

Your next question comes from the line of [Daniel Shechman] from MSB Capital. Your line is open.

Hi, guys. It's [Mike Gerstner] here. Daniel sends his regards, but hope you're all well. Wanted to ask you a couple questions. I guess first on SATMEX. You kind of talked about the highlights of the deal, Dean, but I guess first of all is there a reason that you guys might not be able to divulge what the ownership structure is contemplated between SATs and MBS and how much of SAT's cash might be used to fund it?

This is Charlie. I think we can say that the -- it's a Mexican Company and so the majority ownership would be our Mexican partner, who is also our partner in DISH Mexico. The economic ownership can be different than the ownership and so as in many cases, particularly that you've seen in deals, our economic ownership would be greater than our physical ownership, I guess. I don't know what you call that. And that each Company would pay their proportion share, but you should look at it as if it's materially EchoStar's capital.

Okay, I understand.

And I think that we disclosed the offer, right? So it's $267 million.

Yes.

And incremental cash.

Right.

And it would be a little bit less than that because by the time we close we would get all the cash as of April 1st from the business and it is a positive cash flow business today.

Okay. So we would assume most of that funding then will come from sat's or the majority of the funding will come from sat's and then ownership may have its own unique structure?

That's correct.

And I guess being it's helpful to hear your, some of the highlights of it, but I mean if you step back a little bit, maybe this is a question for you, Charlie and Mike and Dean, but you guys have obviously had a lot of cash on the balance sheet for a long time and have been looking at a lot of different alternatives for that. What is it about this particular transaction that made it so exciting for you guys?

This is Dean. I think the fact that it provides us both exposure into the fast growing markets, but also a measure of depth. We've been very pleased with our DISH Mexico successes. I would hope over time that we'll be able to replicate those, but this gives us several businesses now in the same region that we have a very positive outlook on. There's another element of this and that is that historically, satellite ventures have been financeable. We don't have any specific plans there, but as we will look at the markets going forward, that's something that we'll be mindful of.

Yes, I mean -- this is Charlie. From my perspective, it just gives us some scale. We talked about it last, I think on last call that to be in this business we either needed to get a bit more scale or look at other alternatives and I don't know that we're all the way there on scale, but I think you could -- we could make the case that we have enough scale now to participate in this business for a long period of time at this point. But we can still look at other transactions as well.

And when Dean talked about the five orbital slots that are together, that is pretty unique and allows you to ultimately share some satellites and back up customers in ways that we just weren't able to do before. And these -- South America is growing a bit better fiscally, but if you look long-term it's a little bit better positioned to grow for all of the macroeconomic reasons, as well as their infrastructure is not at the level of the United States. So satellites are more important where your infrastructure is not as developed. So it's all of those factors. It is a highly risky deal, particularly because of the need to build a new satellite and launch it with a very short window without much margin, So otherwise, you could stand to lose some customers and have some gaps in your customer base. So the word probably unique, we're probably a unique Company. We take this kind of risk for return for a variety of reasons, but it's primarily strategic and we'll have to see how it goes.

And I guess on that point of risk return, can you give us any insight into your thinking about how you thought about valuation here?

Well, the opportunity of $7 million and for a penny more, I don't want it, and for a penny less, we would be happy with it. I mean, we made our set of assumptions, ran our numbers and just like when we go to auction we come to a price and we don't get emotional about it and this is what we think it's worth and to us and maybe if the bondholders or somebody else thinks it's worth more to them, they ought to go bid for it.

Is there a way you can -- .

We'll take a break up and then you can go home.

Yes

So, we look at -- look, we offered at a number of deals over the years, most of them we don't get. So we evaluated this one like everything else and but it's a number that we're comfortable with given the risk return ratio.

And I'm not sure you can tell us, but is there a rate of return that you're hoping to achieve on that price?

Well, better than putting our cash in the bank.

Hopefully that since it's zero today.

Better than buying back our stock, better than paying a dividend.

Okay.

Or the other things -- or the other companies we've looked at our investing in? It's the one, the best one we had in front of us at this point.

Okay, great. Could you guys also give us a general update on just business development activity, both on the domestic and international set-top side and this is a big part of FSS, but anything else going on on that side of the business as well?

Sure, Mike, this is Mark. Basically we're in lab tests both in Europe and in the United States with some fairly large companies, which we won't name yet. So we're past the docking stage and actually trying to get qualified on their platforms, which has been a big development effort for us. So we're optimistic that we're going to get some design wins here in the near future. But in saying that, it's a very, very long process to get there. And in the Sling side, they're doing wonderful. I don't know if you were at CS or heard from that, but they've got a lot of products out and we also got AT&T to announce usage on the iPhone on the 3G network, which we are very excited about. So the Sling guys are putting out some great products and we hope to get some further adaptation in the market. And to that end, Bell Canada has signed up for a lot of our products and they did a big push right before the Olympics.

And, Mark, I guess were you saying the development work is both on the international and domestic side?

That's correct.

And how far do you guys think you are from rolling out the Sling-enabled boxes with DISH or someone else, whoever the first customer will be? Meaning the DISH kind of DVR combo.

Yes, we're all ready to go for DISH to push -- I know DISH had some plans that I can't speak to to rollout the product here in the near future, but from an EchoStar side we're all ready to go.

Okay, that's good to hear. How are things on the satellite side of the business, generally being on the business development activities?

Yes. Well, as you know, generally last year was a slow year, still we grew at I'd say low double digits and we aren't unhappy with that. This year we've got a lot more in the pipeline looking quite a bit better. We -- that's for sort of the standard run of the mill business. In addition to that, as you know, we've put a lot into our IPTV service via satellite called VIPTV and we've been taking it a bit on the chin for that investment. It's been slow rolling it out to the telcos, but it's picking up pace and we've recently announced a number of deals with resellers to expand our breadth into other applications. We continue to believe that that technology is the right technology and well positioned in the marketplace and we'll be able to serve hospitality, universities, small cable companies, as well as the telcos. So we're continuing our press on the IPTV front.

Great. And just last question, I guess for Mike. I mean, Mike, what was it about the opportunity to come be CEO of this Company that kind of pulled you into it. If you could just talk a little bit about that because I don't we've sort of heard that from you yet.

No, it's a fair question. First of all I've been involved with EchoStar since it was spun out, been the senior technical advisor working with Charlie on various initiatives. We started talking about the challenges for EchoStar to move to the IPTV platform a little bit quicker than maybe we've been able to focus on and he started talking to me about being able to provide more day-to-day coverage since I was just an advisor. That kind of developed into the fact that as I started to attend meetings, I realized that the last couple of years I felt a little bit under-challenged on the technical side and I think that evolved over a period of weeks into us deciding this might be a good role, both to give me the technical challenge I was missing and also to provide a little better focus on DISH Network and Bell Express here. Because of the number of years running DISH Network directly, I understand a lot of the challenges and so on. So I think I can offload some of that from the current executives and let them focus better on their day-to-day business.

I mean, the Company kind of became independent at a tough time in the world over the last two years and I think Charlie even candidly said last quarter like the progress has not been what you hoped for but, what kind of -- as you look forward, what kind of goals do you think about for the near-term for the Company, Mike?

Well, it's obvious the set-top box business is challenging and getting more challenging as you look across the international marketplace and you continue to get your margin squeezed and so we've got to apply technology a lot better on that. I think IPTV is another beachhead and I think the acquisition of Sling was very timely to give EchoStar some of the technology and tools we need to become a leader in some of that evolution. I think we're looking at additional initiatives like DISH Mexico and some of the international opportunities that Dean is working on. My main goal is to again get us a little bit better focused and provide some additional leadership to allow the division heads to focus down into the organization and work closer with Charlie on strategic planning, because we've got to do more than build set-top boxes and build satellites over the next three years, I'm sure of that, and we're looking at a couple other major investments that may give us some additional lines of business going forward.

Thank you guys very much.

Your next question comes from the line of Jon Freidland from Porter Orlin. Your line is open.

Hi, thank you. A couple of my questions are going to be repetitive with the last questioner's kind of line of questioning, so I hope you'll bear with me. I wanted to pick up, as was mentioned, Charlie, on the last call. You gave a pretty frank assessment of the things that you hoped to do better going forward. I just hope you could give us another assessment by the divisions, the equipment sales and the services as to whether anything has changed meaningfully, particularly in light of the fact that equipment sales to other parties, as well as services to other parties showed very nice growth year-over-year, as well as sequentially and perhaps as part of your remarks you might say whether that's more along the lines of normal bouncing around on a quarterly basis or have you developed some new relationships that might make those lines maintain at a higher level going forward?

Yes, this is Charlie. I mean, I would say that we've made progress in all three of our divisions over the last year, particularly the last three months. But we still have challenges in all of those and I think Mike's probably biggest challenge is to get additional customers than these current customers he has today and he has got it. So whether that comes internationally or domestically or combinations is one challenge. The other challenge I think he has is to take the tremendous technology that he has around the world today and make sure that goes into a profitable product that consumers will use. Sling is just one example of that.

It was a great technology, but it's not so easy to explain to customers how to use it or it is not so easy to implement. So the big picture is that they have a group of very bright digital engineers around the world and they are capable of taking advantage from an engineering point of view at the digital age. They've got to show they can do that with products and that was a focus I wasn't able to give them. And secondly, they have got to broaden their base both in a different -- both to rely less on set-top box manufacturing and rely less on their current customers. So Mike can maybe speak to those challenges.

Well the other part of your question I think was about where did the growth come from or I noticed growth whatever, I think we saw pretty good uptick in major shipments to Bell Canada and we've seen a lot of uptake in their growth. They've done very well and that's public. We're now contributing selling boxes above the contribution level at DISH Mexico and that's shown some growth for us now. which we think will continue. They've been, I think, more successful than what we originally projected and that's real exciting for us. I think that some of the options that Mark pointed out internationally and even in the US, we are in labs, we are trying to get qualified for some additional, to be a vendor to additional companies. And we've gotten a couple small wins, which really aren't significant. And we're really hoping for a better performance in the next quarter, but we'll just have to see how it all works out.

Okay. And then just a small question on this Sling App. Do I recall correctly that AT&T had kind of disallowed Sling coming across their wireless network some months ago and whether or not I recall correctly. I just wonder if you could give some details as to whether that started to be downloaded, started to be sold or not and at what magnitude?

No, on the Sling iPhone App, which there's a couple of different ones, there was the basic Sling App, so you could get Sling capability on your iPhone. So Apple, and we don't know why or any of the politics of what goes on within there, but Apple said only released it to use on Wi-Fi. And then as part of that, we've kept working to show Apple and AT&T that we were a good corporate partner with them and that we could manage the bandwidth on their network very, very well and we've both come to the conclusion that yes, you guys do do a good job of that and so very recently we got an expansion of that App beyond Wi-Fi on to the 3G network.

And have downloads begun? Do you have any statistics?

Yes, downloads have been very very nice. We also did an upgrade on existing customers who already bought the App. The App sells for about $40. So if you'd already bought the App, we were able to upgrade you as part of that and now what we've done is we're getting additional sales beyond that to new customers and we're not releasing that numbers but we're pretty happy with what we're seeing.

Okay, thank you.

Your next question comes from the line of Robert Wells from Lennox Research. Your line is open.

Yes, gentlemen. It's Bob Wells with Lennox Research up in Boulder here. I'm wondering if you could comment a little bit more on the Sling media and Sling media technology, particularly with an eye to your future competitive, your ability to compete against such players as Hulu, Roku, Netflix, and Apple TV, and your ability to be a major player in the On Demand video arena and I'm also wondering what your perception is of the impact of devices like the iPad, which it would appear are in the process of legitimizing the tablet form factor and whether that's going to be an energizing force in the, say, wireless personal video space.

Robert, this is Mark again. So we're really excited that Sling really helps all these players, because we're kind of content agnostic, right. What we want to be able to do is to be able to take your content and take it and push it anywhere and everywhere. So you've seen a lot of the MSOs and content guys talk about their TV everywhere, TV anywhere initiatives. So what Sling will allow them to do is to take content that the consumer already has legal rights to and push it many, many, many different spots, either mobile, laptop, to your PC to your third or fourth televisions in the home. So from a technology standpoint it's a game chamber. What we're struggling with is getting everybody to understand that and we're starting to get a lot of people that see it, especially as we introduce new products.

At CS we had a whole new product line that makes it easy to get Sling technology into already existing MSOs' infrastructure and set-top box manufacturers. so they didn't necessarily have to buy a EchoStar set-top box, that they would buy a piece of it, get Sling working and then we hope to follow-up with that with an integrated solution that's more elegant that gives the consumer a lot more flexibility. So we think we're well positioned with everybody and then you talk about the iPad. Well Sling is a perfect product for the iPad. The iPad we're very excited about because we believe we'll be able to push video that the consumer already owns through whatever method to their iPad easily and just have a great experience with that on the iPad. So we're excited about the future.

I've been following Charlie's role as a technology visionary for lo these many years and I was wondering whether Charlie would have some thoughts. We've seen the impact that the iPhone has had on the telephone market and what his thoughts are about whether the iPad is going to have some kind of profound effect on the video world.

Well, I'm clearly not a visionary, but I'm really good at stealing other peoples' ideas, which typically has come from really Mark and Mike over the years when it comes to technology. I think the iPad will probably be more successful than people think, maybe not initially but will be, because I think you are just going to end up -- I mean, the way I understand it and the way some of my kids have talked to me about it, if you'd imagine that you get Sports Illustrated today, but now you download it on an iPad, but you want to see the hockey game -- you see just a still picture today of a hockey goal being scored, but now you can just push the button and play the actual sequence of the hockey being scored. Or you have a newspaper that you print all that paper and now you just get the newspaper but there's an ad in the newspaper you can just click on it to buy something or get more information. Or you can see an earthquake. If you read about an earthquake you can see the earthquake and I think that's just revolutionary.

What's interesting about Sling, as Mark talked about it, one is that we have a -- we will license Sling to anybody. And there's no -- sometimes people worry about their relationship with DISH Network, but the fact is that we've already had people license Sling and they have carte blanch to license Sling to anybody they want to. So everybody can be treated very fairly with the Sling type technology. And when it from an iPad perspective I'm sure that Amazon.com is not going to sit by and not improve the Kindle and Sony's not going to sit by. You are going to see some very, very elegant wireless devices that replace paper. And Sling is -- authenticates, it dynamically changes your video, any of your video to IP video and dynamically allocates it depending on the bandwidth you have and so the biggest use is probably going to be around your home, but it also, as Mark said, gets you to anywhere else.

So we'll have to wait and see, but it's certainly a core technology that's going to be needed to get the full benefit out of these new pad devices or tablets and I just think like many things we probably underestimate it initially, but it's probably going to be fairly revolutionary.

That's all I've got guys, thank you.

Your next question comes from the line of Adam Ritzer from CRT Capital. Your line is open.

I just had a follow-up question on the acquisition price of SATMEX. So I know you're paying $276 million of cash, but I'm just a little confused on the debt. Are you guys responsible for paying that off and if not, who is?

This is Dave. The debt is being paid off out of the combination of the proceeds and the cash on the balance sheet. And it's up to SATMEX too. That's why we said before, it's up to SATMEX to figure out the apportionment allocation of that cash across the various debt classes and unitholders.

But it, I mean, no offense, but if you're paying $267 million of cash and I think in the release it said they had about $107 million of cash plus any free cash they build up from the last balance sheet until now, doesn't look like it's enough to pay off the debt. I'm just wondering how are the equityholders there getting any money out of this?

Well, you're correct. There was plenty to pay off when we started the negotiations. There were some run up in the second liens when asked to assess whether that was a wise activity or not, but that's really, it's up to them to sort out how to allocate it and what this looks like relative to their alternatives.

This is Charlie. Bottom line is we're paying $267 million of cash, they can have up to $107 million of cash and they have to figure out how to allocate that. They have to feed the equity first and second lien paper mouth out of that. Or they can choose not to accept our deal and they can either restructure or continue the way they are continuing, right? That's -- .

Oh, okay, so basically, the first lien, call them -- they are owed $238 million, that comes out of the chunk of money that's at their disposal. The difference goes to pay off the second lien, let's call them -- it's not -- you guys don't care what they get, right? Here is what it is. If it's not enough, well we're walking away. That's basically what you're saying, right?

I think it's been very clear for a long period of time that SATMEX has never had the ability to pay off all their debt at par under any circumstance. I think that's been evident for a long, long period of time. The second problem is that they, by losing their propulsion system, the primary propulsion system, they now lost some additional revenue and they've increased the risk to the business materially. If the satellite runs out of fuel before you have a replacement you lose those customers and you can't get -- you won't necessarily get them all back even if you have a replacement. So that's a very risk , trust me, that's a very risky proposition.

Okay, so what you're looking at is I'm giving you $267 million of cash and then if I do take this business over, I am now responsible for paying up to $300 million roughly to build a new satellite to support the business?

That's correct.

That's now going to become -- .

And I'm taking the risk that I can get it done in time before you run out of fuel, so that's the play. So it's, again, it's -- of deals we have done in the past, it's in the top 10% of risky deals we've done from that perspective. Having said that, there is a strategic element because of the orbital slots that justify that level of risk for us to take, in our opinion.

Okay. So, Charlie, the way you -- again, you said you're looking at it, it's $267 million of cash, it is not my responsibility to pay off the debt, that's on your end, but then I have to come up with, let's say, $300 million to build a new bird, so that's going to be your all in cost, the $300 million plus the $267 million?

I think that's a fair--

Roughly, roughly.

I think what we're saying is $267million, you keep the cash that you got today, you give us a free and clear business, we keep the cash, we keep the revenue on an ongoing basis and we take the risk on an ongoing basis.

Got you.

Our door number two is you take the risk.

Your door number two is -- .

My experience with bondholders has been and I think we all know, you can't get them to agree if the sun is shining when you get different classes of bonds so they will have to figure it out. I certainly wasn't going to get in the middle of that.

Okay, thanks very much. I appreciate the candidacy. Thank you.

I think that was probably our last question. So I probably won't be back, but Mike and team will be back I guess in May. Any parting words, Mike?

No. Thanks for joining us and hopefully I'll be a little bit more on top of the business by the next call.

Thanks.

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