EchoStar Corp (SATS) 2015 Q2 法說會逐字稿

Good morning, my name is Selima, and I will be your conference operator today. At this time, I would like to welcome everyone to the EchoStar Q2 2015 earnings conference call.

(Operator instructions)

I will now turn today's conference call over to Mr. Deepak Dutt. Please go ahead, sir.

Thank you, operator. Good day, everybody, and welcome to call today. I'm joined today by Mike Dugan, our CEO; Dave Rayner, CFO; Pradman Kaul, President of Hughes; Mark Jackson; President of EchoStar Technology; Anders Johnson, President of EchoStar Satellite Services; Ken Carroll, Executive Vice President Corporate and Business Development; and Dean Manson, Executive Vice President and General Counsel.

As you know, we invite media to participate in a listen-only mode on the call and ask that you do not identify participants or their phones in your reports. We also do not allow audio recording, which we ask that you respect. Let me turn this over to Dean Manson for the Safe Harbor disclosure.

Thanks, Deepak, and good morning. All statements we make during this call, other than statements of historical fact, constitute forward-looking statements that 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 and risks, please refer to our annual report on Form 10-K and our quarterly report on Form 10-Q filed in connection with our earnings.

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 any undue reliance on forward-looking statements. We assume no responsibility for updating any forward-looking statements.

Now I'll turn the call over to Mike Dugan.

Thank you, Dean, and welcome, everyone, to our Q2 earnings call. EchoStar revenue in the quarter was $794 million, slightly below the $880 million in second quarter of 2014. This decline was related to lower EPC set-top box sales to DISH Network. Dave Rayner, our CFO, will address our financials in greater detail a little bit later in the call.

First, we'd like to talk about two new developments. In June our Hughes division entered into an exciting partnership with OneWeb. OneWeb will be launching a large constellation of low Earth orbit, or LEO, satellites to offer broadband service worldwide. We did invest equity in this project, along with a number of other well-known companies, and Hughes will have a significant role in the development side of this project. Pradman will talk more about this initiative in a few minutes. Second development has to do with EchoStar 19/Jupiter 2's launch vehicle. As you know, EchoStar 19 is a large and complex next-generation broadband satellite. We are very fortunate to have secured a launch position with United Launch Alliance on an Atlas V launcher for late 2016. This vehicle provides the capabilities and schedule needed to get EchoStar 19 into service at the earliest possible date.

There are a number of other exciting projects that we are investing in. The construction of EchoStar 21, EchoStar 23, EchoStar 105 and EUTELSAT 65 West A. We also continued the development delivery of the SAGE home automation system and continue to expand the Sling TV infrastructure for DISH Network within ETC. All of these activities will drive our growth as they get launched and expanded. Our business unit Presidents will talk to these areas in their own segments. Also, at the Q1 call I briefly mentioned the signing of an agreement with the Kudelski Group where we will become a shareholder in SmarDTV, a subsidiary of Kudelski S.A. As expected, the transition closed in Q2 and Mark Jackson will comment on this in the ETC section.

So let me turn it over to Mark at this time to talk a little bit about ETC specifics. Mark?

Thanks, Mike, and good morning, everyone. In regards to EchoStar Technology revenue for the second quarter, it was $332 million, compared to $419 million in the second quarter of 2014. Again, as Mike has stated, it was driven by reduced sales of set-top boxes and related equipment to DISH Network.

As we move further into the second half of 2015, we continued to work with DISH on our next-generation products to build upon our existing product line. However, we do not see overall sales trends changing in Q3. Our objective has always been to develop set-top boxes to allow DISH to reduce churn and acquire subs by improving the customer experience with enhanced features and services. On the Slingbox front, the new Slingbox M2 has been well received by streaming TV customers, with the M2 Sling customers are no longer required to pay for the Sling player app on each device they use. Plus the M2 allows consumers to shift content from their mobile devices to other TVs by way of Apple TV, Chromecast, Fire TV or a Roku box.

We have previously discussed our SAGE product set of home automation and security and are planning for a launch later this year. We are continuing to develop the road map of features and supported devices to prepare for the launch of this unique, simple and yet disruptive ecosystem to the marketplace. With our expertise in video in the secure communications realm, we have been able to engage in discussions related to long-term partnerships with some of the most well-known names in the security and home automation arena. Also, as Mike mentioned earlier in Q2 we closed on a transaction with the Kudelski Group of Switzerland, where EchoStar became a shareholder in SmarDTV, S.A., which is a subsidiary of the Kudelski Group. The joint venture is a consolidation of our collective strengths, that creates an entity that will be well positioned to sell throughout the European territory.

EchoStar brings engineering hardware and software design expertise, while Kudelski offers conditional access and sales channels. And combined, we have a vertically integrated solution to repeat for small to medium operators in an environment that is quickly consolidating. We are looking forward to this partnership and the opportunities it will bring. Our group continues developing, supporting and operating the Sling TV platform for DISH, and we are beginning conversations with other operators on how we can meet their OTT needs. With all the expertise we have within our engineering organizations, we continue to initiate a variety of project development projects. Hopefully some of these will result in meaningful revenue opportunities, while others will undoubtedly only add to our experience and knowledge base. But all of these projects are intended to help build revenue streams to replace the DISH set-top box revenue over time.

So that is it for ETC and the trouble we are causing, so we'll hand it over to Anders Johnson.

Thanks, Mark. ESS revenue in the second quarter of 2015 was $125 million, compared to $129 million in the second quarter of 2014. The ESS team continues to manage the fleet expansion initiatives that we've mentioned on previous calls, specifically EchoStar 21 for EchoStar Mobile, our European mobile venture; the EchoStar 23, multi-mission DBS satellite; and the EchoStar 105 commercial Ku-band satellite; in addition to working closely with the Hughes team on the Echo 19; and the EUTELSAT 65 West payload.

As you are probably aware, the satellite industry experienced launch failures in the second quarter on two primary launch platforms. We are obviously closely following the investigations regarding these failures and their potential impact on our current launch manifest. EchoStar 21 was scheduled to launch in the first quarter of 2016 on an ILS Proton-M Breeze M vehicle, but given the delays which have already occurred and the full manifest that ILS holds, our expectations are that this launch will be delayed. EchoStar 23 and EchoStar 105 are both slated to launch on the SpaceX Falcon 9 vehicle. Since both of those missions are more than a year away, we are currently optimistic no delays will occur with regard to their scheduled launches.

We'll now turn it over to Pradman.

Thank you, Anders. First, about our role in the one venture which Mike referred to in his opening comments. It will be a LEO constellation of approximately 800 satellites, growing to 1,600 in the second generation. What makes this such a compelling global broadband service is the availability of high user speeds, low latency and competitive pricing. Hughes will be the sole supplier of gateways to the venture, and it is expected there will be up to 50 gateways worldwide. We will also supply at least one-third of the user terminals for this project. We also have the right of first refusal to lease capacity from OneWeb and provide broadband service in North America, Europe, Brazil and India, where we have a long-standing presence already. In total, OneWeb has raised approximately $500 million and plans to start service in 2019. We are excited to be part of this venture.

Now to our financials in Q2. Hughes had another very strong quarter and Q2 revenue was $335 million, compared to $330 million in Q2 of last year. Our international business was impacted by FX headwinds in Q2 and on a constant-currency basis we grew our overall revenue by 4% in Q2 2015 over Q2 2014. Our North American consumer business continues to be our primary growth driver, so let me share some highlights. We had 97,000 gross adds in the quarter, with the retail contributing 71% of these gross adds. As in the previous quarters, this is a strong metric and a clear indicator of the continuing demand for our service. We have been able to maintain gross adds of approximately 100,000 a quarter, for the last six quarters, including this past quarter, which is typically a seasonally low quarter. This is despite the popular beams being saturated. We had net adds of 15,000 in Q2, 2015, which we are pleased with, considering the increasing capacity constrained on Echo 17/Jupiter 1.

Churn remains higher than what we would like to see, but it's lower than a year ago and we continue our efforts to improve. The makeup of our net adds continues the pattern from previous quarters. In Q2 2015 Gen4 net adds were up by 31,000, offset by a reduction of 16,000 legacy subs. This is once again very much in line with our strategy of increasing the subscriber base of our Gen4 platform while reducing our legacy base. We ended the quarter with 1.014 million retail, wholesale and SME subs. We continue to be the undisputed market leader in the satellite-based internet service provider space.

As we have pointed out in prior calls, our EchoStar 17 satellite is currently capacity constrained in some parts of the country, and we expect this will be mitigated with the launch of our new, high-throughput Ku-band satellite, Echo 19/Jupiter 2, in late 2016. Echo 19 will argument nationwide capacity for our consumer business in the U S and Canada, as well as expand our ability to provide service in Mexico. Once this initial capacity is available, we expect to resume strong growth in our consumer business.

Now to our broadband consumer service initiative in Brazil. As mentioned previously, we'll be leasing the Ku-band capacity on the EUTELSAT 65 West satellite, which is currently under construction, with an expected launch in 2016. EUTELSAT 65 will host the Ku-band payload with 16 spot beams, which have covered a significant portion of the Brazilian population and will generate approximately 25 gigabits of throughput. We'll use Jupiter technology for the ground system and customer premise terminals. We are also actively looking at other opportunities to expand our broadband consumer service in other parts of Latin America.

In regards to our enterprise business, backlog at the end of Q2 was $1.2 billion. In North America we booked large orders from Jack in the Box, Bon-Ton Stores, Murphy's Oil, Yum, Gtech and ConocoPhillips. Our international and mobile satellite businesses also received large orders from the African Development Bank, Media Networks, GSE Escrow, Vivo, Globalstar and Triad. We are currently working on a number of additional large opportunities which we hope to close shortly. Our delivery of global managed network services, whether satellite or terrestrial, for enterprises also continues to expand through our various international subsidiaries, as well as through our service partners.

So to wrap up, we continue to expand our market leadership in both consumer and enterprise products and services. In Q2 we reached important milestones by shipping our 5 million 3 sat terminal and exceeding 1 million consumer customers. Our North American consumer broadband service is the largest and most successful satellite service in the world. And with the Jupiter 2/Echo 19 launch, our ability to grow will be even further enhanced. This growth will continue to expand globally, as we'll see our first expansion of consumer service beyond North America in 2016 as we deliver broadband services in Brazil. And in the longer term, we are looking to even more exciting global growth, through our partnership at OneWeb.

I'll now hand the call over to Dave Rayner.

Thank you, Pradman. As Mike mentioned, EchoStar revenue this quarter was $794 million compared to $880 million in the second quarter of 2014, with the decline primarily attributable to decline in equipment sales to DISH within the ETC segment. EBITDA was $212 million the second quarter compared to $233 million the second quarter of 2014, once again primarily due to the decline in DISH sales and some one-time expenses, partially offset by growth in our consumer broadband business. Sequentially from Q1 revenue was down $5 million, with once again lower DISH sales more than offsetting growth in other areas. EBITDA declined by approximately $1 million from Q1, due to the lower revenue and some unusual expense items in the current quarter that we'll address as we walk through the segment details.

Net income attributable to EchoStar common stock was $33.9 million compared to $33.8 million in the second quarter of 2014. And diluted earnings per share were $0.36, the same as last year. Our capital expenditures for the quarter were $179 million compared to $156 million last year. This spending increase was primarily related to the ramp-up in satellite construction. As we indicated on the last earnings call, I would expect 2015 capital spending to be in the mid $800 million range, with satellites and related ground infrastructure accounting for well over half that amount. Free cash flow, which we define as EBITDA minus CapEx, was $33 million in the second quarter, compared to $77 million in the same quarter last year, with the reduction primarily due to the ramp-up in satellite construction.

Turning to the business segments, EchoStar Technology revenue, as you heard, in the second quarter was $332 million compared to $419 million last year. As Mark mentioned, the decline's primarily due to lower equipment sales to DISH Network offset partially by additional revenue for DISH uplink services and engineering services for Sling TV. ETC EBITDA in the second quarter was $29 million compared to $42 million last year, the reduction primarily due to the margin in the lower revenue, as well as $2.5 million of costs related to a litigation settlement and $2.6 million of charges incurred due to the deconsolidation of some of our European entities and the transaction that Mike and Mark mentioned. Sequentially, EBITDA increased by approximately $4 million, even with the decreased revenue of $14 million quarter over quarter. And that includes the deconsolidation charge of $2.6 million. Litigation settlement did not impact the Q1, Q2 comparison, as Q1 had a similar charge. We do not expect any additional costs on this litigation, going forward.

Hughes revenue in the second quarter was $335 million for a growth of 1.5% over last year led by the Hughes Net Consumer Services. The overall growth was somewhat muted by the impact of foreign currency exchange rates. As Pradman mentioned, without the FX impact, Hughes growth was 4% year over year. The vast majority of our international equipment sales are conducted in dollars, whereas most of our international services are conducted in local currency, as are the majority of our operating costs associated with those services. So local operations are not impacted by fluctuating exchange rates, but when translated into dollars both revenue and margins are impacted.

Hughes EBITDA in the second quarter was $103 million, a 15% increase over last year. The primary contributor to the strong EBITDA growth was a higher mix of consumer service revenue with the associated higher margins, somewhat offset by lower international service margin and increased R&D spending. Sequentially, revenue increased by $10 million from Q1, driven by consumer growth and increased hardware sales. EBITDA increased by $12 million based on the revenue growth, as well as reduced sales and marketing expense primarily related to the consumer business.

EchoStar Satellite Service revenue was $125 million in the second quarter compared to $129 million last year, the small decline being primarily from reduced capacity available for sale on AMC 15 as a result of our renegotiated lease at the beginning of the year. ESS EBITDA in Q2 was $104 million compared to $112 million last year, primarily due to the lower revenue and accounting for AMC 15 and 16 leases as operating leases this year versus capital lease in 2014. Sequentially revenue was essentially flat while EBITDA was down approximately $3 million, due to some one-time benefits in Q1 and a full quarter of AMC operating lease accounting change impact in Q2.

In the all other and elimination segment where we record gains and losses on sale of securities, eliminations for inter-segment sales and other corporate transactions, EBITDA in the second quarter was a negative $24 million compared to negative $12 million last year. The change was primarily due to the $5 million charge related to premium and write-off of the deferred financing fees and the redemption of $110 million over a secured debt in June, a $3 million contingency reserve on bonds used to secure orbital slot filings at the FCC and a $4.6 million impairment of certain of our investments. These items also impacted the Q1, Q2 comparison.

We continue to have a very robust balance sheet with approximately $1.5 billion of cash and marketable securities at the end of the second quarter, compared to $1.7 billion at the end of the first quarter this year. The reduction in our cash balance reflects our ongoing commitment to use our liquidity wisely, our partial debt redemption and our strategic investments in OneWeb and the SmarDTV joint venture in Europe, as well as operational uses such as the semi-annual payment of interest on our debt. The early redemption on the debt will save us approximately $7.2 million of cash interest costs on an analyzed basis going forward. Our indebtedness to cash flow ratio as defined by our debt covenant stands at 2.7 as of June 30. During the quarter, S&P raised the debt ratings and Moody's raised our outlook to stable on all of our outstanding bonds.

I'll now turn it back over to Mike.

Thank you, Dave. Thanks for everybody's patience and we'll get to question-and-answer shortly. I would like to make a couple of closing comments. First, about EchoStar Mobile our S-band venture in Europe. EchoStar 21 satellite construction is proceeding well and was scheduled to launch in early 2016. As Anders mentioned earlier, the recent launch failures on Proton could potentially delay this launch and we are watching the situation carefully.

The development by the Hughes mobile sat team of ground infrastructure, including the gateway and earth stations, as well as the terminal components of the network, are progressing very well. We continue to be in contact with potential customers of the service in advance of 2016 service launch. We also continue to work with EU and member states to more clearly define and harmonize the regulations related to operation of satellite and terrestrial-delivered services in order to offer a more robust product offering to the EU marketplace.

On the Brazil BTH video project we do not have any updates to report at this time. Our business development group has been busy evaluating multiple projects and potential acquisition opportunity. We will continue to be diligent in examining these opportunities and will not put ourselves in a position of over-reaching or over-spending just for the sake of getting a deal done. Our decision to redeem some our bonds should not be viewed as a change to our ability and desire to identify opportunities in which to invest our cash. There was a deadline in our indenture to redeem some of the bonds, and as we looked at our borrowing capacity and market rates, we determined it was an appropriate action to take.

It's now time for question and answers, so operator, would you please start that process?

(Operator Instructions)

Tim Quillin with Stephens Inc.

Hi, good morning. In the 10-Q, there was a lengthier, and I thought more meaningful discussion of the tracking stock than there was in the 10-Q from the previous quarter. There seemed to be some suggestion that there could be a distribution of the tracking stock, or something else like that. Is there anything you can say about that additional language that was added into the Q?

Yes, Tim, this is Dave. We had reduced the disclosures in Q1 from the 10-K. After reviewing those disclosures, we felt it was more appropriate to put the full 10-K disclosure back in there and make sure that EchoStar shareholders continue to understand the full ramifications of the HRG stock. But there is no transaction or any other activity that we anticipate at this time.

Okay that's helpful, thank you. And then, on the -- Mark, you said that you're causing problems but there is a lot going on within the EchoStar Technologies business. One question is when do you expect to have the next generation product out? As specific as possible.

Do you feel like we're hitting a period of faster secular decline? DISH appears to be focusing a little bit more on Sling TV, and is now discussing that as part of their pay TV business in terms of number of subscribers. But do you feel like we're in a period of faster secular decline on the set-top box business?

And then, if you could -- sorry, this is the third question in a series, but if you could talk about the support services that you provide for Sling TV, which I think were pretty significant in the quarter, and how those might progress over time. Thank you.

I'll take the last question first, because about sling TV. So EchoStar, ETC and Mark's organization, we've fully integrated the Sling TV operation and engineering function that resides mostly in Utah, within ETC. And we continue to quickly expand that as the subscriber growth has continued to go very well. And also the channel growth and so on, has gone probably quicker than most people expected. So we are excited about that part of the business. You got to be careful asking us questions about what do we think DISH is doing. You had the opportunity to ask them directly yesterday. We can only provide guidance that they continue to ask and drive for enhanced featured functions and expansion of the infrastructure on Sling TV and that is really good for EchoStar and ETC. Set top boxes, Mark, do you want to talk a little bit about the set-top box?

So we can't really comment on when DISH is going to roll out the next generation, but I think it's fair to say they should be in position to do so at the end of the year. And it's obvious that our set-top box sales are in decline, so we are trying to react to that and get into some new business segments like we do with SAGE on our home automation security, which looks very, very promising. And we've got some other stuff that are aligned with DISH and getting into some new businesses that we're working hard on, but it's a little bit premature to talk about those. But rest assured that we're off trying to grow our revenue, not contract, and we're working hard on a lot of new ideas and ventures to do so.

The other thing to add to that, this is Mike again, is we talked quarters ago, that we created this downward curve, to a certain extent onset-top boxes, with the implementation of the Hopper technology with the very simple, low-cost Joeys, where typically a house would take three full-cost set-top boxes. Today it takes a hopper with a couple of very low-cost Joeys, and all of that, combined with some potential reduction in their subscriber, new subscriber, numbers, this has had the effect that we, I think we have been very up front with, for many quarters. So that's the best we can say, right now.

Okay. And then if I just sneak in a couple more and then I'll step back in the queue. But on Hughes, the margins were up quite a bit quarter over quarter. I think you mentioned that part of the reason is that there's a reduction in sales and marketing. So is it at this point, given the state of the capacity utilization in certain beams, are you starting to pull back on sales and marketing? And should we expect EBITDA margins to be at this level until the launch of the next satellite where you put the pedal to the metal again?

And then if you can talk about why you switched the launch partners on Jupiter 2. Is that just making certain that you don't get additional slippage because of issues?

I don't know where the question, switch launch partners. We signed after a lot of work and a lot of analysis. And the final evolution of the satellite weight and complexity, we signed the launch contract with Atlas. So I think that speaks for itself. Pradman, I don't know if you want to talk about the fact you have been more focused in your marketing and so on?

Sure. As you mentioned, margins are improving but I think probably the dominant reason why they were improving is that the consumer revenue is becoming a bigger and bigger portion of our total revenues. And the margins we make in our service businesses, and especially the consumer businesses, is very good. So I expect that business continues to grow faster than the rest, we should be improving our EBITDA margins. We are not consciously cutting back on sales and marketing, because as I mentioned in my talk earlier, we're continuing to add 100,000, approximately 100,000 gross subs every quarter. So the cost of adding those 100,000 gross subs is staying pretty constant.

Thank you.

Andrew Spinola with Wells Fargo.

Pradman, your main competitor in the US broadband market had said that they essentially cut their marketing to zero in the second quarter. It sounds like you didn't cut back, based on your comments. And I'm wondering, at least for me, it was a surprisingly strong net add number. It is surprising to me that your gross add numbers in Q2 are as strong as they are in the other quarters. Do you think you took share this quarter? Or why is it that you can run at this level? And will we see normal seasonality in the back half?

Well, we're working very hard to maintain this kind of gross add level. Probably about six months ago, we looked at our market and we said we're going to make an extra special effort to increase our marketing of subs in the low fill beams, because that is where we had capacity. And we've done well in capturing subs in the low fill beams. So when it comes to what our competition's doing, I'm not going to comment on. Hopefully when they put out their earnings release we'll see how much they cut back or how many subs they got. But we still see in the next few quarters that we should be able to maintain a reasonably healthy net gross adds.

Got it. And question for Anders, in Europe, maybe you can clarify one thing for me in terms of what you plan to do with the S band. Is the initiative at least for now, going to be an all satellite-based service? Or are you working on deploying a ground network in conjunction with the launch of the satellite at this point?

Right now we are focused on standing up the MSS service, which is a requirement of our licenses in Europe. Certainly, as we discussed with partners, the evolution of what the capability of the satellite network, complemented by a potential terrestrial network, it opens up a lot more opportunity to be creative in the products and services that one might offer. But our first phase is to stand up the MSS service, which includes a significant terrestrial component in the gateway and other calibration stations across the EU.

And if you did decide to move forward with an LT network, would you be able to piggyback on the initiatives of Inmarsat to get the standard approved and what not for LT in that band? Or how long do you think it would take to you stand up an LT network?

It would be speculative to try and answer that question. I think Inmarsat's first phase of development, they are pursuing a very different path than we are. They are primarily focused on establishing a satellite and terrestrial-based arrow network to support connectivity to aircraft. And as they pursue the standards necessary to implement such a roll-out, we are pursuing the establishment of standards consistent with our own ambitions. Sometimes those efforts complement one another and sometimes they don't. So I can't speak to what they're doing. I know that we very much have a plan and a road map, which we are pursuing. And we are quite happy with where we are right now.

Got it. One last one for me. Back on the sling TV, staying away from the DISH side of it, but thinking about it from the EchoStar revenue line and ETC, is that a business that I should think of as subscribers grow, your revenue grows in a linear fashion? Or is it something where you are providing a set amount of services and that revenue is not likely to grow much?

Well I think -- I think the revenue from DISH that supports Sling TV to expansion is going to grow to a certain extent. But we also believe the technology and all of the engineering that's taking place is pretty much industry-leading, and we expect there is going to be other paths for ETC to gain revenue other than just subscriber growth on the DISH side.

Got it, thank you.

Jason Bazinet with Citi.

Without getting into the specifics of what your aspirations are on Echo 21, do you have a reasonable timeframe when you think investors might know what your ultimate ambitions are? Is that a 2016 event? Is it 2017, 2018?

Right now we are focused on getting the satellite in the air in 2016, calibrating and initiating service in 2016 across all of the member states. That is phase 1. Phase 2 is ongoing today, which is identifying partners with whom to collaborate in the development of various products, as well as potentially the standing up of a product or service that would utilize the complimentary ground component portion of the authorization. But right now, we are focused on complying with our milestones with regards to both our EU level license and then our member state licenses, which were pretty much all synchronized. So as far as what the future holds, I think once we get into 2016, and we comply with all our milestones, that is when the real development discussions will start significantly.

Okay, makes sense. Thank you very much.

Andrew [McGathery] with Macquarie Capital.

Thanks. First question for Mark. I was just wondering do you see the SmarDTV partnership as expanding in the US eventually?

No, we honestly don't. We are really trying to attack Europe and maybe a little bit of North Africa.

Got it. And this question is for Pradman. On the OneWeb initiative, the 50 gateways worldwide, you said you were going to supply it to the entity. What do you think the timing is around that? Is this something that will likely be deployed ahead of the service launch? Or would this be something that would happen afterwards?

Well, I think a portion of them will definitely be deployed before the service launch. But then, as the network expands, the number of subscribers expands, we'd be adding capacity by adding gateways and antennas to each gateway during the growth, the initial growth part of the network.

Got it. And last question. I know this might be a little early, but do you see any indirect impact from the launch failures? In particular on launch insurance and such?

Well, I think the effect of the failures on the insurance market, we ourselves will realize whether there is any effect when we go out into the market to place insurance. But right now, I think as both the two platforms which experienced the launches return to flight, and the details relevant to the initial failures become known, the insurance markets themselves, right now, seem to have a high level of resiliency to launch failures. So as of yet, we don't know what those effects are, if any. But as we proceed with our manifest, we'll certainly become aware of those factors.

Great thank you.

Chris Quilty with Raymond James.

Thanks. One more follow-up on the launch. The Atlas V tends to be a more expensive option in the market. Was the launch cost and insurance within your previous budget?

Well, I think there were a number of factors in play in our decision. I think the Atlas V, while certainly it drives a higher initial cost for the launch vehicle itself, it does yield savings on the insurance side. And when put in the context of our overall business plan, with regards to Echo 19, it was a smart decision for us.

It also yields us a better life profile on the satellite.

And is that because of a direct injection into orbit?

It should get us a significant improvement in life over some of the other launchers, just because of the weight of the satellite and so on.

Yes, and the variance of the Atlas V that we're purchasing is a fairly high-performance variant.

Got you. With the consolidation that's been ongoing in the set-top box business, do you think that provides any chance for EchoStar to become a more viable alternative for customers out there that are now seeing their options narrow?

I think there's certainly opportunities for us. We specialize more in the high-end set-top box than low-end zapper boxes that a lot of the overseas markets look for, because there is not a lot of margin in the low-end box itself. To the extent customers want high-feature sets, innovative products, it certainly will open the window for us with the consolidation.

Okay. And one more question on the Jupiter launch. Can you give us an update on the timeline from launch through in-orbit testing to when the satellite would actually come online for service? Now that you have a tighter projected launch date?

That's something that we are constantly working on. The in-orbit testing after the launch typically takes 30 to 45 days. And then probably another 30 to 45 days to test the network out. So you are probably looking at about a 3-month time period from launch.

Okay. And Pradman, you didn't make any significant changes or upgrades to the ground network to support Jupiter 2, is that correct?

No, there are changes. More efficiency, more speeds, more capacity. So, for example, we have a new ASIC on the [D-Mod] that will operate at higher speeds. Nothing dramatic, but significant changes in terms of capacity and speeds.

And does that, when you are talking about a new ASIC, you are talking about in the actual modem itself?

Yes, the actual modem itself.

Or are you talking in the gateways?

Well, it will be in both ends, right? The high-speed modem is in the user terminals, because that's where the TVM streams come out at very high speeds. We'll be exceeding the speeds that we have in our current ASIC for Jupiter 1.

Got you. And have you guys come up with what you think are the appropriate consumer plans, given the higher capacity on the new satellite? Or are you basically going to have to adjust to what ViaSat does in terms of their pricing plans?

Hopefully we'll get ViaSat to adjust to our plans. (laughter)

Well, you should be on orbit and in service first.

We will, yes.

I think you got to realize ViaSat's not the only competitor out there. We've got a lot of unknowns to deal with by the time we get the bird in the air. Do we have specific plans fully defined right now? Absolutely not.

Okay. And in terms of projecting -- (multiple speakers)

We have the capability to have a lot of flexibility in the plans that we'll have.

Got you. And Pradman, I think you said you expect reasonably healthy gross adds on a go-forward basis. How does that translate into net adds? And if I think about the last time you got capacity constrained with the Spaceway satellite in front of the first Jupiter 1 launch, you actually went negative in terms of net adds. Is that something we should anticipate in the current cycle?

We are looking at it one point at a time and obviously we are not giving guidance on the subs. But I think at this stage, that would definitely be a constraint as capacity starts getting tighter. So we have to work on our churn, because that impacts our net adds too. And we'll work hard to keep our net adds positive.

And how does that translate into your subscriber acquisition costs? Do you anticipate having to step that up in order to maintain a rate of net adds on a go-forward basis?

Again, we'll take it quarter to quarter, Chris, we don't really have projections at this stage.

Got you. Thank you very much.

Andrew Spinola with Wells Fargo.

Pradman, I wanted to ask one follow-up with the OneWeb investment. You have the ability to resell their capacity over North America. And when I'm normally thinking about the consumer broadband business I'm thinking about the capacity you're adding and the capacity that ViaSat is adding, and I'm wondering, A, what would be the -- the consolation is in theory going to be 10 terabits, so what would be the capacity over North America, or United States, in terms of how many subs you could potentially do with a 50 megabit connection on OneWeb, when it's launched? And how that's impacting your decisions about a possible Jupiter 3 and adding more capacity in some of the markets where you'll have access to OneWeb?

I think it's a little bit premature. We've just started the task of developing the network architecture and looking at the network capacities along with our partners Qualcomm and Airbus. So it will probably be a while before we nail that down. And I think at the end OneWeb should be the one telling the world what the capacity of their network is going to be.

Fair enough.

So I think it's a little early.

Fair enough. Thank you.

There are no further questions at this time.

Okay, we really appreciate a lot of good questions today. Some of them we weren't able to fully answer, because they were a little premature, but a lot of good questions. We appreciate your support of EchoStar and I look forward to the next call. Thanks so much.

Thank you. This will conclude today's conference call. You may disconnect your lines.