EchoStar Corp (SATS) 2010 Q4 法說會逐字稿

Good afternoon. My name is Sheila and I will be your conference operator today. At this time I would like to welcome everyone to the EchoStar Corporation Q4 2010 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. Jason Kiser, (inaudible) you may begin your conference.

All right. Thanks, Sheila. Well, thanks for joining us. My name is Jason Kiser. I'm joined today by Mike Dugan, our CEO; Mark Jackson, President of EchoStar Technologies; Dave Rayner, our CFO; Ken Carroll, COO of EchoStar Services; Paul Orban, our Controller; Stanton Dodge, our General Counsel; and Charlie Ergen, our Chairman.

Before we open up for Q&A, we do need to do our Safe Harbor disclosure, so for that we will turn over to Stanton.

Thanks, Jason. Good morning, everyone, and thank you for joining us. As you know, 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 audiotaping 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 can cause our actual results to be materially different from historical results; 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 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, which we assume no responsibility for updating. With that out of the way, I'll turn it back over to Jason.

Thanks, Stan. Sheila, we're just going to go straight into q&a, so we're ready for the first question.

(Operator Instructions)

And your first question comes from the line of Jason Bazinet of Citi. Your line is now open.

Thanks so much. I just have four quick ones. I was wondering if you could tell us how much net debt is at DISH Mexico? Where is the Loral equity investment at SATS, or DISH? Third, is the largest potential synergy with Hughes related to Hughes' transponder lease costs, and can you bring those onto your own fleet over time? And then fourth, if you can give us any color in terms of the cause of the termination of an agreement with TerreStar, and potential next steps. Thank you.

Well, I'll take my two, and then you can take the other. This is Charlie. And as far as Hughes, just in general, it's not so much -- there is some synergy potential in the lease costs that they have on KU band transponders, but the main thing with Hughes, it's really a mirror fit for EchoStar there. They -- in the satellite business, they -- which we know pretty well -- they are used to -- they have an organize that can manage very complex engineering projects, and they've done that around the world. They are in the -- they're in a similar business to where we've been, where they're doing data instead of video, and we like the -- we like a lot of the things about the satellite data business in terms of its potential economics. They're an engineering company by background and that's their core talent, is engineering, which I think is kind of similar to EchoStar. And they fit into where -- they fit into the kind of three buckets at EchoStar, which is satellite capacity, which they have, and engineering, and international. And I think that Hughes is really the leader in the world in many engineering aspects, and certainly one of those is satellite broadband. So, it's a good fit there.

There are some synergies. There's not -- this is not one of those over the top synergistic things where you save a lot of money when you put two companies together, but certainly satellite leases long-term would be one of them. But I think -- I think more than that, you just have a -- I think you have a more strategic outlook at EchoStar that probably coincides with where Management at Hughes would like to go in terms of expanding the business in the United States and around the world. And this is not a financial asset that we're looking to -- it's a different motivation than a private equity company would have with Apollo. Apollo obviously did a great job with the Company, and now it's time to grow the Company and really reach its potential. The second part of it was--

Termination on TerreStar.

Oh, in TerreStar -- two things happened with TerreStar. One is -- The main thing is we were (inaudible) support of the management organization, because we couldn't get the minority bond holders to accept reasonable terms that minority bond holders we think should have accepted. So, we just couldn't get a deal in front of the judge that everybody would, would accept. So, we didn't really have any alternative there, except to withdraw. Second thing that happened is, when we actually were, actually were named the Winner of the Aauction for Hughes, we just felt like that was a much, much better strategic focus for us than spectrum that was going to take -- spectrum was going to take more investment and take much longer, versus a company that was more a mirror fit to what we do today and that any investment we would do in Hughes is more immediate return on it. So, we just like the Hughes. If you only had a dollar to spend, the Hughes acquisition was a much, much better dollar for us to spend than on Spectrum and TerreStar. So, we're still a large holder of debt at TerreStar, and we're hopeful that management moves ahead with the process that will, that will -- we can realize a return on that investment. But there's no guarantees of that, of course.

Jason, this is Dave Rayner. In terms of the net debt question at DISH Mexico, I think you're aware we do not consolidate DISH Mexico into our financial statement, so I'm not familiar with what their exact number is in terms of net debt. But in the case of Loral, Loral is included in our marketable investment securities on the balance sheet.

Okay, thank you.

(Operator Instructions)

Your next question comes from the line of Jason Ratcliffe from Barclays Capital. Your line is now open.

Hi, it's James Ratcliffe. I'll leave Jason to Jason. Two questions actually related to the Hughes deal. First of all, how does this affect your existing WildBlue relationship? And secondly, on the residential, the consumer broadband side, Hughes is traditionally taking a reasonably moderate approach to growing that business in a disciplined kind of way. Going forward as part of EchoStar, do you see opportunity to accelerate the growth in that business in more of a land grab kind of environment for world broadband, or would you expect to continue those same kind of policies? Thanks.

Yes, this is Charlie. We don't -- at EchoStar, we don't really have a relationship with ViaSat, am I correct on that? That's a great company. And on the DISH side, they have had a great relationship with them. You would have to ask the DISH guys, but I don't see any reason why those guys wouldn't have a good relationship. So, hopefully they figure out what they want to do. We, obviously, on the Hughes side, I'm sure Hughes will be trying to get business from DISH as well, among other customers that they would try to. The -- clearly, look, there's 110 million homes in the United States. Satellite broadband is not the answer for a vast majority of those customers, but certainly there's at least 10 million homes, maybe 20 million homes, where satellite broadband is a very economical product for customers and would not have to be, not have to be heavily subsidized by taxpayers to get a very good broadband product.

When you look at the next generation of satellite broadband, ViaSat -- I think ViaSat has the next generation going up this year and Hughes has it going up next year. That's really the attraction, which is to take, take a product that's, is not a compelling product today, but with the next generation of satellites, you get almost a ten-fold increase in your capacity. And so your speeds can be materially higher for rural broadband. You can give a very equivalent broadband experience to rural America that they can get in the city. So, second, the President of the United States and the FCC have talked about how broadband is important and we're supportive of the, of what the Chairman of the FCC and the President are trying to do. And we think that we can go out and do it in a way that, that is much more efficient than perhaps some of the plans that are in front of them, which is next generation stuff. Third is, it's not just the United States, but the market may even be bigger outside of the United States, because there's a lot more rural people, people who don't have access to broadband in other parts of the world, and satellite is just a very efficient way of doing it with this new technology. And Hughes, really I think is the leader. They are number one in that industry. They are, they are the actual leading guys in the world on how to do it. They have good competition out there from other companies, but they are the leader. So, it's kind of their deal to lose out there, and so I just -- it's an exciting long-term investment for EchoStar and it fits in kind of where we are, and it gives us -- Mike, you might want to talk just briefly about what you see there, because it fits in strategically. I think Mike wants to go.

Yes, I think Hughes has great engineering on the RF side. We certainly compliment that, but I would say they are the leader there. They have got certainly skills in the two-way that we, EchoStar's being pressed to develop to support DISH and some of our other customers. That's a great asset. I think the separation of the two companies over the last couple years has given us a couple areas where we have struggled and we really believe that Hughes is going to help us with some of that infrastructure and organization on a more stand-alone basis. So, I think it also expands our customer base and lets us do what we've talked about the last couple calls, which is lower our reliance on DISH Network on a day to day basis, and I think that's a huge asset as well.

James, just to be perfectly clear, EchoStar has no consumer relationship with WildBlue in terms of supporting their customers, but we do have some capacity, satellite capacity leases with them. Right.

So those could be, those could be in jeopardy, although they are fairly immaterial, is that fair?

Yes.

Thank you.

By the way, this is Charlie. I always thought that DISH and DIRECTV should have worked more closely together on things that didn't benefit one company or the other, and I certainly think Hughes and ViaSat should be working on things together that don't -- that don't benefit either company, but like backup and infrastructure costs and things. There are things they could do that are very synergistic that don't give one company the advantage over the other, but lower their costs and make them more efficient. And I think maybe there's some opportunity there.

Your next question comes from the line of Chris Little from Longfellow Capital. Your line is now open.

Hi, guys. Two questions. What, what is the (inaudible) and DISH Mexico, SATS? And then, Charlie, if you could just comment, looking forward, if you look at the Hughes assets internationally, where do you think specifically internationally the greatest opportunities lie in the two to three-year period? Thanks.

Well, while Paul is looking at that, internationally, Hughes management gave -- I probably should have had Pradman on the call. I think -- Ken, you're not there. So, I would say that Pradman would say, only because we spend a fair amount talking -- he would say, India is certainly an area that he thinks, and Latin America, particularly Brazil, would be pretty high priorities. I think there's -- one of the things I've done last year was spent a lot of time traveling around the world. I can't think of any place, I can't think of any single place in the world where there's not an opportunity. Having said that, it's very difficult, because you need local partners. The government application approval process, so you're just not going to be allowed to go everywhere. And I think -- (inaudible) and Avanti have done a pretty good job in Europe. While Europe's a pretty good market, there's some other people moving forward. And I think what Hughes would like to do is, they don't have to build the satellites to go -- advance broadband around the world. I mean, people like (inaudible) and SES have satellites or they could build satellites as a core business. They could certainly venture with them. They certainly could sell just equipment, and it's a business where other people could start their own, could start their business in local countries. So, there's a lot of avenues for Hughes to participate internationally, and I think the other piece of it is that in the United States, we have, we do have -- because we have some KU band capacity, we also have the advantage to combine them -- a unicast of one-to-one relationship of data with broadcast of video as well. There's lots of ways this fits together.

And then, the percent intercept in Sky Mexico?

It's DISH Mexico. And this is Paul. It's roughly 49%.

Thanks.

There are no more questions in the queue. I turn the call back over to the presenters.

Well, thanks, everyone.

We had this one time before and turned out there were questions, so --.

Yes, there was an issue where no one could get on the line. Sheila, let's just double-check that you've got nobody else in queue.

You do have some more questions coming through right now. Your next question comes from the line of Jon Friedland from Porter Orlin. Your line is now open.

Hi. Could you discuss AMC-16 and your ViP-TV service, if it's a service already or an initiative in light of Hughes, and perhaps, how you're thinking to use that capacity now.

Ken, why don't you take that one.

Okay. Hi. This is Ken. I think, first off, on the ViP-TV application, we've been working on that for a while. I would say we've had limited success in that, certainly, we looked at the Telco market opportunity as pretty big. And it certainly hasn't proven itself. So, I think as we move forward on that, we're going to look to streamline that product line a little, and then, as Charlie mentioned earlier, with the [HNS] transaction, if we can get that consummated, I think there's opportunity to use some of that capacity to support them in overall -- in the US marketplace and perhaps, opportunities in Central America as well. So, I think that's probably where we're going to go with, the AMC-16 capacity in the relative near future.

Okay, that's great. And then, Charlie, I would just like to hear your thoughts on Sling, other technology that EchoStar has now and will be acquiring with Hughes. What role -- can you just talk in some broad strokes about what role you see SATS playing, as IPTV evolves, cable over the Internet, television over the Internet evolves.

Well, I think at EchoStar, they have put together some pretty unique assets that allow them to be hopefully a factor in what we see as happening more and more around the world, which is obviously broadband-fed video, as well as data and voice. So, Sling was a strategic asset and then what Sling does is allows you to watch your own television anywhere in the world without -- and you can control it and you can watch your own DVR. And that's unique. Nobody else -- everybody else's TV everywhere else doesn't really do that.

The recent acquisition of Move does something a little bit different, which is it's really a -- what we thought the leading technology in actually putting video on a server and then making it work in a low bit-rate environment, or better than other people in a low bit-rate environment. We put those two things together, you kind of have the best of both worlds, which is where you can put something on a server, you can use Move technology, and where you can't put it in a server, you can use Sling technology. So, it allows EchoStar to develop a lot of different businesses around that or technology around that. And then the -- obviously, the Hughes acquisition allows you to send data to people who otherwise can't get a cable or fiber or wireless connection, and that opens up some opportunities for voice and video and data, because they are all zeros and ones. Now you have kind of a leader in that technology. So, those building blocks are all going together. It's up to Mike to put those in a cohesive product that could be profitable to the Company. But you have got to start -- when I look at strategy, which is all I really do at EchoStar, you have to have the building blocks to get where you want to go. And once you have the building blocks, the hard part kind of comes, and that's what Mike has to do, which is to put together in a cohesive way, but if you don't have the building blocks, you never can get there. And we've put together I think some really good assets there.

Okay. That's very helpful. So, with regard to offering a full bouquet of video channels over the Internet, and Charlie, I'm sure you have some insight from DISH and contracts there, is it legal for a Comcast or for a DISH to offer a full bouquet of services over the Internet rather than over coaxial cable or over a satellite, over a satellite dish? Do you have the licenses that would--

Well, it's a general -- I can only give you a general answer. It contractually depends on what you are -- there's lots of laws that affect it. There's a First Use Law and a -- there's all kinds of laws that affect it. But in general that would give you rights just because of the general nature of law out there, but in general, it's your contract with the programmer. And some programmers have given rights to people to put it on the Internet. For example, NetFlix has the right to put Starz on the Internet, right? Starz movies on the Internet. So, contractually, some people have given the rights. Some people like HBO haven't gone that far yet. So, it just depends. Where is it going to be five years from now? I think there's going to be a lot more product that's available on broadband. Major League Baseball, for example, has their product on the Internet today. You can get it for $99 directly from Major League Baseball. If you went to a satellite or cable provider, it would cost you $199. So, you're going to get -- that's why I think Sling and Move together are such an important asset. Some programming you are going to be able to get on the Internet, which makes a Move server kind of technology make sense. And some you can't, which means Sling makes a lot of sense, because you're getting it from your own set-top box, which is legal. So, it's -- I don't know, Stan, do you want to add anything to that? I don't want to get into the legal stuff because I'm not a lawyer.

This is Stanton. I think Charlie hit it on the head when he said it depends. It's a very complicated question; it's impacted by contractual rights, various federal statutes and case law. So there's really no simple answer to the question.

Yes, I mean, our philosophy is to work with the program -- I think at EchoStar, our philosophy is to work with programmers to put the enabling technology out there for the programmers to do what they want to do, and for them to maximize how they want to do it. We really would be almost a subcontractor to programmers who want to do it. Move networks used to, used to before they -- Move actually tried to get into the direct to home business and they actually -- in a way, they kind of -- they weren't successful there, but they had a really good core business of streaming video off servers for major companies, major programmers, and they kind of went away from that business. And I think they actually should maybe look at that business -- get back into that kind of business, because that's probably a better model for them.

Okay, thank you. And then just a question on CapEx, it looks to me as though with your current satellite build plan, your CapEx should drop by a good bit in 2011, in the neighborhood of $150 million, $160 million. Is that directionally -- does that sound reasonable?

Yes, this is Dave. Right now we've got two satellites obviously under construction in (inaudible) Echo16 -- once those are completed, we don't have major capital investments going forward, unless we start building additional satellites.

Right.

This is Charlie. I don't think -- I think you should assume that if we're going to make -- the investment in Hughes would be something that we would like to continue to invest in. That's certainly a place we would look.

What are the big capital investment opportunities at Hughes? What do you see as the most exciting things, as you said, to invest a dollar at Hughes once you actually own the thing?

Yes, it's a little bit premature for me to talk about, but in general, I think that Hughes has certainly talked about, management has talked about additional satellites for the United States or somewhere in the world where they can use their technology, or to perhaps, partner with people who are in the satellite building business, some of the people who are already in that business to lease capacity. For Hughes to grow their business, they need to get more terminals out there. If they want more terminals out there, they need more next generation satellites capable of broadband. Because the next generation of satellites for broadband are just materially better than what they have got today.

Okay, great. Thank you very much. I'll get back in the queue now.

Your next question comes from the line of Adam Spielman from PPM America. Your line is now open.

Thank you. I have two questions. First, can you just comment on the additional amount of debt you're going to take on with Hughes? I mean, historically SATS has been pretty much a debt-free business. You're taking on, I think, 1.8 billion. Can you talk about that? Are you're comfortable with that, and is there a plan to reduce debt, reduce leverage over time?

I'll take it briefly, and Dave, you may. We're very comfortable with that level of debt in the business. That's not for sure that we take on that much debt, but we're certainly very comfortable with that. You know, there's over a billion dollars of cash with EchoStar today. I think leverage properly used makes a lot of sense, as long as you don't overdo it. Dave?

Yes, and obviously, you talk about it historically, we haven't had a lot of debt. Historically, we've only existed for three years, and the amount of debt that I think we're incurring here is certainly manageable and we've looked at business plans for both ourselves, as well as Hughes going forward, and are very comfortable with that level of debt, that it's very manageable.

Okay, and the second question, just on the satellite fleet, just looking across, obviously, a lot of the satellite capacity is lease backed to DISH. Is there a master plan of where you own satellites versus where DISH owns satellites and who is leasing to whom?

This is Charlie. I wouldn't say there's a master plan, but there's, there are places where it makes sense for -- where DISH owns -- when we split the companies, we had some logic when we did it, in terms of an Eastern Arc and a Western Arc. Where DISH owns capacity, they typically would build a satellite. Where they don't own capacity and they lease the capacity from somebody else who has the license for the spec, for the particular Orbital slot, they typically would lease it. Or EchoStar would lease that to somebody else or build it and operate themselves. So, there is some logic there to how we do it. There's also tax rates and other things you look at as to where somebody might, might build it. But in general, there's a real logic to the fact that EchoStar owns most of the satellites in the Eastern part of the Orbital Arc and now with the Hughes acquisition, I think you pick up 97 degrees, 107 degrees. So 97 and 107 for -- so, I think you would probably see EchoStar expand more than DISH would.

Thank you.

Your next question comes from the line of Kenneth Miller from Nokomis Capital. Your line is now open.

Hello. I wanted to ask about a couple of things in relation to Hughes' new broadband satellite launch. It's my understanding that Hughes is continuing to grow their satellite broadband business and add subscribers because it still has network capacity to lease, whereas WildBlue has been more flat, because their capacity is more or less leased up until ViaSat launches that new satellite. And for that reason, Hughes has been growing nicely. What do you think the business is going to look like for the kind of nine to twelve months where ViaSat has a new satellite in operation with next generation speeds and Hughes doesn't? Do you think that's going to bend down the cost -- the growth of Hughes' business for that time?

Yes, this is Charlie. It's really a great question for the Hughes management, but I can -- as an outside observer, I would say that your analysis, logic is probably correct. I would think that Hughes has an advantage to grow today and that ViaSat, if they have a successful launch later this year, they would have an advantage until, Hughes launches. And then -- so, ViaSat's growth would go up and Hughes' growth would go down -- would stabilize or go down. So that's -- but the only thing I would say is I think there's enough -- I would say it this way -- there's enough capacity for both those companies to do very well, or enough demand that both those companies can do very well. And the key, the key for those, for certainly Hughes to do well and I think probably goes without saying for ViaSat as well, is how fast you can fill up your -- how fast you can fill your satellites up. And, that's -- in the acquisition price, we ran a model of where we think we can get to pretty conservatively and that's why we're willing to pay what we're willing to pay.

Okay, got it.

And we took your logic totally into consideration, by the way.

Okay. Well, I figured as much. What's the latest thinking on how long this gap is going to be where ViaSat will have a new satellite in front of Hughes?

I think, last I heard, ViaSat was talking about launching in July. And I think, I think Hughes was talking about launching about a year later. They are both very similar satellites. They are very complex satellites. If Hughes is on an [Orion] rocket -- a little more dependable rocket in terms of schedule and reliability. Hughes' satellite gets to go second, so if there are any issues with the very complex satellite, they get to fix them before they launch them, so they have a couple of advantages. I don't always -- when it comes to satellites, and they are very complex, you may not always want to be first. So, I think Hughes has less risk in a couple of areas, but they don't have a time to market (inaudible) time to market advantage. But again, I think both of them are going to do very well. I just don't see either one of them having a problem.

Okay, and being somewhat familiar with ViaSat, in the past, their management has talked about having some IP advantages that let them get lower cost per bit for their satellite, and potentially even -- satellites that were getting close to theirs in cost per bit were potentially violating their IP. Is that an issue that you looked into at all for this acquisition? And also, what kind of IP does Hughes have around satellite broadband that you think might be a counter weight?

I guess in general, I would rather have Hughes' IP than ViaSat's IP. But I think they both have good IP portfolios and they're both excellent. They're both - I mean, this is just my personal opinion, I think they both have excellent managements, they both have excellent technology, including IP, and they are -- I can't say anything -- in each of them, satellite is -- again, this is me talking. I'm not a satellite engineer, but both satellites are fairly equivalent. And you can play lots of games with bits and rates, but it's uplinks and downlinks, and how much you're going to put on your throughput, and how big is your DISH, and a bigger DISH gives you more bits, but it looks uglier and takes more wind loading and costs more to install. So, there's lots of trade-offs there. They essentially are equivalent. They both can do, they both can have very profitable satellite projects and they may make different decisions on what their equipment looks like to the customers, and they use slightly different, slightly different equipment, but they are really -- it's really -- I don't know how to say it. It's really -- It's Pepsi and Coke. It's Pepsi and Coke. They both taste pretty good. And they cost about the same to manufacture.

Okay, well, thanks very much.

That's the real answer. Now, if Hughes -- if Pradman was here, he would tell you all the ways that they're better than ViaSat and Mark would tell you all the ways that ViaSat is better than Hughes. My analysis is they are pretty equivalent. Both with great products.

Okay. Actually one last quick question. How rapidly do you expect Hughes to get a relationship selling broadband through DISH?

Well, I think that remains to be seen, to be honest with you. A, they would have to -- Hughes has tried to get a relationship in the past, hadn't been able to, so I think that remains to be seen. I know the guy over at DISH, he would probably see who gives him the best deal.

Okay. Once again, thank you very much. That was very helpful.

Your next question comes from the line of Ben (inaudible) from Morgan Stanley. Your line is now open.

Hi, is this Ben? I think that was me.

That's you.

Okay. Hi, guys. Charlie, you've talked about StarBand in the past and the investments you've made in satellite broadband, but do you think with the latest technology that satellite broadband is a strong competitor to wire line over the next five to ten years, when you sort of map out the business case, or is this more of a rural market focused opportunity?

Well, two big differences. First of all, we've invested in both StarBand and WildBlue and I think we've written off $150 million for those investments, right? So, it's been sticking in my craw for a long time. The difference with Hughes here is that in -- an investment we made before, we never controlled the core technology. So, where we would see things we wanted to change, we couldn't do it. If ViaSat didn't want to change it or if (inaudible) it didn't get changed. And so we couldn't really control the technology. With the Hughes acquisition, we're on the ground floor with working in conjunction with the Hughes management to change the way we think it needs to be changed for the consumer. The second thing, so what's different now is we're -- if the acquisition is approved, we're in control of core technology, which really is the leading one around the world, right? The second thing is that the satellite technology has improved probably 100-fold since the early StarBand days. Just to give you an idea, the current Hughes satellite is something like 10 gigabits of data and the next one's 100 gigabits. You know, that includes up and down, so you got to count all that together. So it's almost 10x more capacity that allows you then to be -- to give a lot better speeds to customers on the ground, which then allows you to be more competitive with the wire-line customer. Having said that, my focus would be to go after customers who do not have an alternative. If I was to pick -- if I objectively as a consumer out there today, if I could pick a cable modem, I would pick a cable modem for -- I have a cable modem in my house, right? That's the fastest speeds I can get. I got a WildBlue system, too, right? But I got a cable modem. That's what I use. Next thing I would pick down the list would be a good DSL -- well, next thing -- first thing I would pick might be FiOS from Verizon if I lived there, but a good cable system would be right there. Then I'd probably pick a good DSL system if I was close enough to the central office to get good speeds. And then I would probably pick -- it would be close between a terrestrial wireless provider and satellite provider. Next generation of satellites will move me up beyond the curve beyond the terrestrial wireless guys, and move me up to what a DSL customer who is a couple miles from the central office experiences today. So, you kind of move up the food chain. You're probably at a pretty good economic alternative for 20 or 30 million homes. Having said that, cable's going to continue to get better. DSL's going to continue to get better. So the focus would be on those 10 or 15 million homes that probably are going to be outside of wire-line.But that's a lot when you got a satellite that only can do a million something, a million and a half customers.

Yes, so that makes sense.

And I think, I'm cautiously optimistic that the government, as they look at universal service and they look at some of the subsidies, some of the stimulus things they have done, that satellite can become a bigger component of that, because it just makes a lot more sense than, than extending a wire, a twisted pair another 20 miles to the last farm house on the left. So, I think there's a lot of positives there. It really is a pretty good technology. It really is a much, much improved product.

Let me then take the next question to something along those lines, which is ATC -- I've read -- I'm sure you've read the LightSquared Waiver. I'm just curious if you think that template is appropriate in part of your investment case on the TerreStar side, and obviously, you could ask the same question about DBSD. But since this is SATS, on the TerreStar side. -- how important is that terrestrial-only option to you?

Yes, well, of course EchoStar has dropped out of the TerreStar sweepstakes, so to speak, and doesn't have a, doesn't have a position in DBSD, so it's not that relevant for this call. I can give you a general question, because I don't want to dodge the question. But I think that, I think that what we've always -- what we liked about TerreStar was the satellite component. We actually liked that piece of it. So, it wasn't -- having -- we thought that the management there has things they can do with that to make a lot of sense. The ATC is certainly, potentially "icing on the cake" for any provider if you can also use -- it's more options if you can use it with satellite and/or terrestrial. And then what LightSquared is doing, is they have done a good job to take L-band spectrum and make it much more robust in terms of what their options are, and in terms of what they can do, because they have got an exemption from the satellite component. So, they just made their spectrum -- when they did that, they made it more valuable, but they also had conditions to build it out faster, so they also have a lot of capital expenditures to do that. So, there's a balance there and, what makes sense. But I expect the LightSquared will be a very interesting project to watch and I certainly wouldn't underestimate them.

Okay. I didn't realize you guys weren't out of the TerreStar. Hard to keep up sometimes.

Yes, and we talked about it earlier. But the reason -- somebody asked about debt and those things. One, we just couldn't get the minority bond holders to agree to our offer, but once we, once we were announced the winner for the Hughes acquisition, that's a better place for us to put our money, our cash. So, it doesn't make sense to leverage yourselves up for spectrum, and that's probably going to have a bunch more expenses to utilize it when you got a bird in the hand with Hughes, where you can really touch and feel and have a pretty good idea of every dollar investment and what kind of return you get. It's much more -- spectrum is much more speculative.

So, you sold that position, just to be clear?

We have not sold that position. We're waiting for TerreStar management to decide what they are going to do to get out of bankruptcy, and obviously, since our offer wasn't accepted, we hope somebody else will come in with an offer.

All right.

TerreStar management's got to get that out of bankruptcy or risk losing everything.

Right, Okay.

That's not our -- we don't have a say in that until they have a plan.

Right.

Then we have a say.

And just switching gears on the set-top box side, I'm curious how the SATS team looks out over the next three to five years at the set-top box US and internationally? And just to throw out a couple of ideas, you have the Google TV, the partnership at DISH, which is one approach where you're partnering with an IP delivery mechanism. If the FCC has some ideas around this universal box, which is kind of vague, but it's in the broadband plan, I've heard some of the cable operators actually talk about going with the no set-top box approach of just an IP stream direct to one of these Internet connected televisions, which could be kind of interesting in terms of capital intensity levels for them; sort of curious how you think about that piece. And the last one, just to throw out there, going back to the old, I think it was called Homezone, the AT&T/DISH product, which brought broadcast satellite with online-delivered on demand content; seemed to be a very elegant solution from a technology perspective. So, if you put all of that in a hat, how are the SATS people speaking about the next couple of years on the set-top box front?

First of all, we think the no set-top box TV solution is going to have some limitations, because if they are going to put the horsepower in the TV to display the type of UIs that are developing and people are demanding, that's going to add cost to the TV. It's possible that it's going to limit the operator's ability to differentiate himself. So, I think there's still a good opportunity for unique and stand-alone set-top boxes, just because we continue to believe at SATS that the best user interface and usability tends to win the game and that's why we continue to focus on that. We do -- we are continuing to attack the price point onset top boxes, while we increase hard drive sizes and feature sets and whole home DVR technology and all of those things that go with it. We are also developing IP boxes and Sling set-top box; we continue to do all that work. I think to deal with the Homezone question, I'll pass that off to the guy that was in charge of that, Mr. Jackson and let him deal with that question.

So, we still think there's a lot of synergy. The internet, the PC, and the set-top box are kind of coming together. And the other thing I'll just expand upon what Mike says, is TV technology is fairly stagnant and you own your TV for quite a while, right? Where the set-top boxes, we do new design almost every year. So, you have to believe that the set-top box is going to have the better feature set, the better UIs, and the overall better operation than a TV that's going to be stagnant in your home for 10 to 12 years, right? So, and we're not quite on the TV capital mode today. That remains to be seen how our customers will react to that, but we kind of think we'll win that battle in technology. And we just keep adding more and more technology into the set-top box. So, you're going to see lots of cool, different features and you'll see a set-top box become more of a PC, and also need the pipe coming in to feed some of those features from a broadband perspective, which is what gives us synergies back with Hughes and some of our other customers, who have pipes that will feed some of these new feature sets coming down the pipe.

Yes, I think to expand on that, Mark and I spend so much time dealing with the fact that set-top boxes designed two years ago can't meet current user demands, that, we believe you have to have some flexibility outside the TV when it's got a long life span. Of course, some of the newer TVs don't have that longer life span. But I think the manufacturers are working on that.

Do you guys think an IP set-top platform will be rolled out in the US?

Well, there's a lot of IP set-top boxes -- -- Already here.

Well, I guess I should say by the -- other than AT&T, so, either DIRECTV, DISH, or the cable guys.

Well, our current boxes are what we call "hybrid boxes" today. They can take video from the Internet or from satellite. So, we continue to focus on that because it's still the cheapest way to get mass content through satellite, where it's point-to-point distribution, and your differentiated content seems to be going more and more IP-based, right? So, that's why hybrid today makes a lot of sense.

The other question is - what's the definition of an IP box? Does a cable -- does a replacement cable box that then converts to IP delivery of, say, Comcast signals or so on, but then limits the availability to other content on the network or on the Internet, is that your definition of an IP box? Is it an open standard that then you can get content from anywhere? Are the guys that own the pipes really going to support that, even with the current legislation on the docket? So, there's a lot of uncertainty here as to how that's going to grow.

Yes, and I don't know if you guys want to weigh in on Google TV at this point as a product or technology; if you think that's in the experimental phase, or if --?

Well, realize EchoStar's responsibility to that was to develop the API, integrate the functionality, make the user interface support the Google experience. For questions about its success, I think you ought to look at the press on Google and the fact they are in a total redesign and also -- (inaudible).

Right, that makes sense. And last question is just on satellite capacity opportunities with DISH. There was some language in the DISH K about Echo. I think it's Echo 8, which is currently undergoing testing for anomalies. Just wondering if that satellite has larger issues, if there's capacity in the same slot or nearby that you guys could benefit from, in terms of backup and revenue generation backup.

This is Mike Dougan. I'll take that call. Echo 8 suffered an electrical disturbance and actually the ground controllers, which aren't our controllers, we actually subcontract controlling Echo 8 to another entity, lost control of the satellite due to a shutdown, and it took them several hours to get back into control of the satellite, get it re-pointed on the earth. The, the cause of the abnormality is still under investigation. We don't have a good answer as to what happened. So, the space craft's fully functional. We elected to move most of that capacity to its sister space craft, which is Echo 6, and we've restored all capacity that previously was on 8 to 6 and we put 8 in the backup role that Echo 6 was playing, just as a precaution. Because any time you can't understand what caused the disturbance, there was no big solar winds or anything like that, so, we're continuing to investigate the mishap and that's about all I know right now.

Thanks, Mike. I appreciate it. Thanks, guys.

Your next question comes from the line of Elie Mishaan from Corsair. Your line is open.

Hi, guys. Thanks for taking the question. Just a quick question. Have you discussed how you're paying for the Hughes deal in terms of the cash, the debt, and if there's any equity involved?

In the 8-K, we released -- we talked about the $1.8 billion of debt, plus cash on the balance sheet that was going to be used to buy the existing equity, as well as refinance Hughes' existing debt. We have no plans to use any of our equity at this point to finance that acquisition.

Okay, great. Thanks.

Your next question comes from the line of Chris Little from Longfellow Capital. Your line is now open.

Thanks, guys, for the time for the follow-up. On the $10 million estimated market of where the Hughes bought (inaudible) product makes sense to you, Charlie, are you willing to give kind of a guesstimate of what you think the number of DISH subs in those areas are?

You know, I -- good question. I don't know, but I would say that between -- I would say that there's probably a high percentage of dishes, some of which are DISH and some of which are DIRECTV. I would say that in those homes, you probably -- more than half of those homes have satellite dishes, would be my guess.

Okay, and then just as a follow-up to that, earlier I asked about the international opportunity at Hughes. Do you expect that to be more of a commercial opportunity in the near term, or more of a residential broadband opportunity, or both?

Well, I think it's a question for Hughes. I'm not sure -- I don't know. Hughes would have a better feel, management would have a better feel for it. But my gut feeling is that Hughes would be more than happy to sell hardware and uplinks and everything to people as they have done in the past, with companies like Thuraya in the Middle East and so forth, and do system design. And they would be happy to sell terminals, but they also would look at that being more, more in the value-add of the satellite and the whole loop to small businesses or consumers, if that made sense, right? But normally, internationally, you need a good -- to be successful, you need good partner or partners, and so you -- everyone will have a different probably business plan. And I can envision Hughes being just a supplier to some people and other people, I can see them going directly to the home and everything in between.

I guess what I'm trying to get at is, historically, the experience you all have had about going internationally and JVing -- does Hughes bring something to the table that can make those opportunities more likely to give you, say, a better position in the value-add type of the service?

This is Charlie. I think probably can. I mean, they have, they have -- you can get video on a satellite from a lot of companies, but you can't get data on a satellite but from a handful of companies. And Hughes is probably at the top of the chart of being able to do that. So, they certainly bring some technical skills that don't exist within our company today. And then, secondly, they are already doing a fair amount of international businesses and they are located -- supporting international customers today. When Egypt -- when they turned off the cell systems in Egypt, the one guy that didn't get turned off was Hughes' systems. So, they were communicating with the world out of Egypt because of Hughes and maybe some other guys, not because of the cell phone operators. So, they have got ability to expand there. That's my opinion. Hughes management would have to focus a little bit more on that question.

Okay, thanks for your time.

I mean, we'll -- if we get FCC approval, we'll have Hughes management on the call, because I'm just not competent as Pradman would be to answer some of this stuff.

(Operator Instructions)

I think we have time for one more question.

Okay. Your next question, or your last question, comes from the line of Michael Gertsner from MSD Capital. Your line is now open.

Hi, Charlie. Hi, guys. Quick question for you, Charlie, just a general one. You had talked on the DISH call, and I think you made a comment about how, you had wondered where the direction of the business was going over the last several years and now you kind of feel comfortable where you see it going. And I wonder if you could, just stepping back from some of the good information you've shared on this call, if you could maybe paint a picture of where you see the future for SATS in the same regard, looking out philosophically over the next few years?

Well, I think, satellite -- I think we have a pretty good feel for where SATS will go, too. They have three main businesses, right? They have satellite capacity, which is basically a landlord and they lease capacity. We think that's still a business where we either have to get -- we've gotten bigger there with the Hughes acquisition. They have -- they are a technology company, so we've gotten a lot better there with Hughes, a lot better. We've gotten a lot better there with Move, their acquisition of Move, and previously with Sling. And then I think that, that the international side of the business, where the US economy's probably not going to grow at the rate of some other emerging economies are going to grow over the next decade, you're going to see higher growth rates in India and China, in Latin America than you are in Indonesia, probably than you are in the United States. So, I think by getting a company with technology that's state of the art and a leader, you have a chance to expand internationally much easier than we have with the assets we have in EchoStar today. So, that's why Hughes is such a good fit, because it helps us in all three of our core businesses potentially. And, it's a question then of where do you -- I think, Mike and his management team will have 20 projects that could all make sense to them to go after, and they have to have to pick the top two or three, if that makes sense.

Understood. And I guess, what I was getting at maybe a little more specifically was, it sounded like you had, I don't know if struggling is the right word, but sorting through some thoughts on the DISH side of the business longer term. And it sounded like you have kind of -- you used the words "I feel confident that I see where that's going now," and specifically as it relates to DISH, as far as customer (inaudible). Could you maybe address specifically, what you think you see in the future for DISH (inaudible) and things like mobile, video; things like that come to mind when you made that comment to me.

Yes, there's going to be a business for TV everywhere, which is going to need Move and Sling technologies, in my opinion. So, we're well positioned there. There's going to be a need for set-top boxes that are just IP set-top boxes, and there's going to be a need for boxes that are IP and satellite or cable combined. And I think we're pretty well positioned there in terms of that. And there's going to be a need for data to every place on the earth, and I think satellite is going to play a role there, and I think we're well positioned now for that. And that data was also going to include video and voice. So I think we're going to be in a different spot with the Hughes acquisition.

Okay, I appreciate that.

I'm going to guess -- the Hughes management, the company's been running for -- it has been owned by a private equity, majority owned by private equity company, so they have had limits on growing their business, in my opinion, right? That obviously is the right thing for the private equity company to do, but it's not the right thing for us to do, because we're not a seller of that company in the short-term or in the long-term, hopefully. Right? All I know, I think it's a good place to put money.

Well, sounds great. Appreciate the chance to talk with you guys today. Speak soon.

All right. I guess I'm probably not on the next call. I wanted to be on today because it was year-end and because I knew there would be a lot of Hughes questions. But we'll be on in May, I guess. I probably won't be on in May.

That's it. We can wrap it up.

Thank you.

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