EchoStar Corp (SATS) 2015 Q3 法說會逐字稿

Good morning. My name is Karen and I will be your conference operator today. At this time I would like to welcome everyone to the Q3 earnings call.

(Operator Instructions)

I would now like to introduce Mr. Deepak Dutt, Vice President Investor Relations. Go ahead, sir.

Thank you, Karen. And good day, everybody. Welcome to our call. I'm joined today by Mike Dugan, our CEO; Dave Rayner, CFO; Pradman Kaul, President of Hughes; Mark Jackson, President of EchoStar Technologies; Anders Johnson, President of EchoStar Satellite Services; Ken Carroll, EVP of Corporate and Business Development; Dean Manson, EVP and General Counsel; and Joe Turitz, Associate General Counsel.

As you know, we invite media to participate in a 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 recording, which we ask that you respect.

Let me now turn this over to Joe for the Safe Harbor disclosure. Joe?

Thanks, Deepak and hello, everyone.

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 report and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statement.

I will now turn the call over to Mike Dugan.

Thank you, Joe. Good morning and welcome, everyone, to our third quarter 2015 earnings call.

Before we get to our discussion about this quarter's results, I want to spend a short time talking about the changing landscape of our industry and our exciting role in these developments. It is obvious that people in the world today want to have broadband access to the Internet for information, entertainment, and commerce. Today, billions of people are on the unserved side of the digital divide. We believe over the next 10 to 15 years many of them will require this capability. Wireless and fiber infrastructures will be an important part of this transition, but as a Company, we believe that other systems like GEO high throughput satellites, LEO networks like OneWeb, balloons, and high altitude platforms with the acronym HAPS, H-A-P-S, will have their own critical role. EchoStar is well positioned with these technologies, global presence, relationship, highly skilled and experienced personnel, and extensive track record, to be an important player in all of these developing markets.

With HDS satellites like Spaceway, EchoStar 17 -- previously known as Jupiter 1 -- and EchoStar 19, we have a major position in North America today. Next year we will launch a consumer service in Brazil and we continue to work on other GEO-HTS endeavors. Our investment in OneWeb gives us a unique capability in both equipment and global service revenue using OneWeb's LEO. We continue to work in other related areas to increase our participation in all of these incredibly exciting areas of the marketplace. Once the transport capabilities for these access networks is in place, we believe there will be significant potential for new applications and services.

Our extensive video expertise recently enabled DISH Network to introduce a state-of-the-art OTT service in the United States called Sling TV. It would be a natural for us to leverage this experience in technology platform in other areas of the world. There are many other exciting services to develop and offer. My Management team will expand on how their businesses will seek to participate in these growth opportunities within each business segment.

But let me first turn it over to Mark Jackson who will talk about ETC. Mark will then be followed by Anders, Pradman, and then Dave Rayner, who will address the Q3 financial results.

Thanks, Mike.

First, a few comments related to Mike's opening remarks and some of our strategic initiatives. We continue to support DISH with our growing OTT service, again called Sling TV, which uses our platform infrastructure and patented adapted bit rate technology. As Mike pointed out earlier, we are exploring the opportunities to utilize our proven OTT platform worldwide. On the security and home automation side, we are developing a integrated home automation product line and total ecosystem that we are very excited about. We call it SAGE. We are also pleased that we won the CSI award for best smart home product in September this year at IBC. This award is among the most prestigious in competitive technology awards in the industry, recognizing and rewarding innovation and excellence in TV distribution and services. We are continuing product development work and marketing plans to support our upcoming launch of SAGE. We see positive trends in multiple areas of SAGE's road map that can be a long-term growth driver for EchoStar.

On the set-top box side of the business, we continued developing new product offerings that will enable DISH to maintain a competitive edge in the marketplace. More specifically, we are finalizing preparations for the 4k Joey, a cutting edge ultra-HD set-top box that will soon be released to the Hopper whole home system, along with many other new products for DISH. In mid-July, we refreshed our award-winning Sling product line, with the announcement of the Slingbox M2 at a MSRP of $199. The M2 offers the same TV-anywhere capability, with the added benefit of unlimited free mobile app downloads. Slingbox M2 allows consumers to get all of their live cable or satellite TV channels and recorded shows on their phone, tablet, or laptop at superior HD video quality through the Internet or cellular network. Additionally, their Slingbox M2, can be used with the most popular media streamers on the marketplace, so that consumers can extend their TV experience to a large flat-panel TV in the home or anywhere in the world.

We are always looking for new and innovative ways to deliver the best experience and new products to our customers. Whether it's the technology or the technical value that we provide, we think that we'll get there and hopefully get our business back on track.

I will now hand things over to Anders.

Thanks, Mark.

We're continuing to advance the fleet expansion initiatives that we've mentioned on previous calls. EchoStar 21 for EchoStar mobile, our European union S band venture, the EchoStar 23 multi-mission DBS satellite, and the EchoStar 105 commercial KU band satellite, and to work closely with our Hughes colleagues on EchoStar19 and the Eutelsat 65 West Ka payload. EchoStar 21 is now slated for launch on an ILS Proton M Breeze M Vehicle in the second quarter of 2016, slightly delayed following the May 2015 Proton launch failure. All infrastructure necessary to support operation of the satellite over the EU remains on track to support compliance with our license obligations in 2016.

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

We've been in close communications with SpaceX regarding their return to flight, and continue to have a high level of confidence in their ability to maintain the 2016 manifest. The EchoStar 23 spacecraft is slated for launch on a Falcon 9 in the late third quarter or early fourth quarter of 2016. And the EchoStar 105 satellite is on target for launch in either the late fourth quarter 2016 or early first quarter 2017. Construction of both those satellites remain on track to support these launch windows. Pradman will be commenting on EchoStar 19 and 65 West.

Finally, ESS sales activity increased over the third quarter, with new sales to SES Government Services, Boeing, and Panasonic Aviation, and renewals with services for both ViaSat as well as Boeing.

I will now turn it over to Pradman.

Thank you, Anders.

First I will expand on our role in some of the strategic initiatives that Mike talked about. We are investing in the OneWeb venture, which is the 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 they'll be up to 50 gateways worldwide. We will also supply over 1/3 of the user terminals for this project.

We also have a right of first refusal to lease capacity from OneWeb and provide broadband services in North America, Europe, Brazil, and India, where we have a long-standing presence already. OneWeb has continued its fundraising and plans to start service in 2019. And we have started work on defining the system market venture and continue to be excited to be part of this venture.

Let me highlight our performance on key consumer metrics in the third quarter. We had 107,000 gross adds in the quarter, with retail contributing 68% of these gross adds. As in the previous quarters, this is a strong metric and a clear indicator of continuing demand for our service. We had net adds of 11,000 in the third quarter also. The makeup of our net adds continues the pattern from previous quarters. In Q3, Gen4 net adds were up by 25,000, offset by a reduction of 14,000 legacy subs. This is in line with our strategy of increasing the subscriber base on our Gen4 platform, while reducing our legacy base.

Despite the fact that many of our beams are at maximum capacity, we are continuing to have gross adds of over 100,000 subs per quarter. This is a tribute to the quality of our service and the efforts of our sales marketing teams. We ended the quarter with 1.025 million retail, wholesale, and SME subs. Churn remains higher than we would like to see and we continue our efforts to improve it.

We are investing in Echo 19, Jupiter 2, our new HDS satellite, which will provide additional capacity to our North American consumer business and also to parts of Central America and Canada that were not part of the Echo 17, Jupiter 1, footprint. Satellite construction is continuing and work on the ground infrastructure is progressing as planned. The current estimated launch date of the satellite is the fourth quarter of next year.

We are also investing in the Eutelsat 65 West satellite to provide capacity for our broadband consumer business in Brazil. It'll enable service to up to 300,000 subs. The estimated launch date of the satellite is the end of the first quarter of 2016 and satellite construction as well as selection of distribution partners for the service are proceeding well. As we have said in the past, our strategy is to leverage our leadership and technology and market share in North America to other parts of the world. Brazil is the first example of the execution of this strategy.

Last month we also announced an important agreement with Global Eagle Entertainment. We will develop a full suite of aeronautical mobility features for our award-winning Jupiter ground infrastructure that will enable service providers to offer industry-leading throughput and spectral efficiency in the fast-growing aeronautical broadband market. It will have the capability to deliver aeronautical services on Ku band and will be fully compatible with wide-beam Ku band and spot beam Ka band satellite capacity. That's allowing mobility service providers to stay connected with high-speed internet access virtually anywhere. We believe this an important development which opens the path to our participating more actively in the fast-growing aeronautical broadband opportunities.

So to wrap up, as Mike mentioned earlier, we are uniquely positioned to take advantage of the growth in the global broadband access networks and services. This includes technologies like GEO high throughput satellite and LEO satellite systems and services. Our investments have focused on these items and the returns will start being realized in the next 2 to 5 years. Our presence in over 100 countries and our local knowledge and experience will be very helpful in realizing these.

I will now hand the call over to Dave Rayner.

Thank you, Pradman.

EchoStar revenue this quarter was $761 million compared to $896 million in the third quarter of 2014, with the decline primarily attributable once again to a decline in equipment sales to DISH Network within EchoStar's technology segment.

EBITDA was $217 million for the third quarter, compared to $248 million in the third quarter last year, primarily due to the decline in ET sales, the impact of the conversion of the AMC 15 and AMC 16 leases from capital to operating, and a $10 million one-time pickup last year result of a change in accounting for our DISH Mexico investment. EBITDA margin for the quarter was 28.5%, a 0.8% expansion from last year. And without the lease change one-time item mentioned earlier, the increase would have been 2.6 percentage points driven by a higher-margin revenue mix.

Net income attributable to EchoStar common stock was $30.1 million compared to $64.1 million in the third quarter of 2014 and diluted earnings per share were $0.32 compared to $0.69 last year. A significant part of this drop was because of our tax provision in 2015 being higher compared to last year, due to current period losses from equity earnings and investments that do not provide tax benefits, as well as lower R&D credits, resulting from the federal R&D credit not yet being extended for 2015. In addition, the Q3 2014 tax revision included a large benefit from a revised calculation of the 2013 and 2014 R&D credits, which was recorded in Q3 last year.

Our capital expenditures for the quarter were $123 million compared to $165 million in the same quarter last year. This includes the impact of $106 million refund of previous payments on cancellation of a launch contract. As a result, some of our launch costs will be pushed into 2016. With this refund and the resulting delays and costs, I expect net CapEx to be in the $700 million to $750 million range for the full year, with well over half of that amount being spent on the five satellites we have under construction, along with related ground infrastructure. Free cash flow, which we define as EBITDA minus CapEx, was $93 million Q3 compared to $83 million in the same quarter last year.

Turning to the business segments, EchoStar technology revenue in third quarter was $295 million compared to $427 million last year, primarily due to the lower DISH sales. As Mark mentioned, ETC has a number of products and enhancements in the pipeline that we expect will stabilize our equipment sales to DISH. ETC EBITDA in the third quarter of 2015 was $26 million compared to $38 million last year, the reduction being due to the lower revenue.

Hughes revenue in third quarter 2015 was $340 million, up slightly from last year. Consumer service revenue was up about 12%, driven by higher subscribers in ARPU, but was largely offset by weaker results in other areas, specifically international and mobile sat. International was significantly impacted by weaker foreign currencies. As a reminder, while the majority of our international equipment sales are conducted in US currency, most of our foreign service revenue is conducted in local currency. As result, we saw an approximate $8 million impact on a constant currency basis compared to last year.

Hughes EBITDA in the third quarter was $102 million an increase from $95 million last year, reflecting a 1.9 percentage point increase in margin. Primary contributor to the strong EBITDA growth was a higher mix of consumer service revenue relative to equipment international services, somewhat offset by increased R&D spending and a $3 million litigation-related charge.

EchoStar Satellite Service revenue was $124 million in the third quarter compared to $128 million last year, the small decline being the results of leasing fewer transponders on AMC 15 at the time of the renewal late last year. ESS EBITDA in Q3 was $104 million compared to $112 million last year, primarily due to the AMC 15/16 leases being treated as an operating lease versus a capital lease in 2014, as well as the lower revenue.

In the all other and elimination segment, where we record gains and losses on the sales, securities, eliminations for inter-segment sales, and other corporate transactions, EBITDA in the third quarter was a negative $15 million compared to $3 million last year. The change was primarily due to one-time item in Q3 last year as well as losses associated with our equity investments and investment portfolio in the current quarter.

We continue to have a strong balance sheet and ended the quarter with approximately $1.6 billion of cash and marketable securities. Let me now turn it back over to Mike.

Thank you, Dave, for correcting our cash flow.

To conclude, I believe we continue to develop the technologies and make the strategic investment to be a very key player in the evolving broadband and video marketplaces.

It's now time for questions. Operator, would you please start the process?

(Operator Instructions)

Your first question will come from Andrew Spinola.

Thank you. I want asked the question about the Eutelsat 65 West A satellite. I guess Eutelsat is accelerating the launch of that by a couple of quarters and potentially paying more to Ariane to launch that by itself.

And given how cautiously you have been proceeding in Brazil, are you pleased that the satellite is launching earlier and are you contributing to the cost to launch it earlier by any chance?

(Multiple speakers) it's not really earlier, right? They're trying to stay on schedule, I think.

Right.

Okay. So I guess the bigger question really is, when that satellite -- I guess it thought it would be operator later in the year. It's going to be operational it sounds like Q2, are you going to be ready to launch the broadband service at that point and do you plan to launch broadband and video at the same time or are they separate considerations?

Yes, let me disconnect something Andrew, we are going to launch by the end of Q2. And we'll be in service on July 1, which has always been our plans from day one, as Mike pointed out, and we're just sticking to our original schedule.

On the second question, we are launching just purely a broadband service. The DPH video service in Brazil is going on a separate track. And so, this is going to be purely a broadband service very similar to the Hughes net service that we are offering in the United States.

Understood. In terms of the set-top box business, Mark, is there -- what's the outlook for Q4? Are we approaching the point where we're going to be moving to the next product cycle in that business and as a sort of related question, you had very nice margins in that segment this quarter. Sounds like you're still investing in SAGE and the OTT as well. What's driving the better margins? Are you seeing any benefit from some of the Sling royalty initiatives that you had sort of put in place last year?

Well, to answer all your questions, basically we'll see a product refresh starting in Q1 and the set-top box business and we're hoping that this will be very successful with that. In regards to SAGE, we're continuing to put a lot of effort in that.

We hope that that will be a good driver for us going forward. And we think we just got a very attractive mousetrap there that consumers will hopefully buy. And in regards to the margin structure, I think we worked really hard on is to control our cost more than anything else, to help keep our margins in line and get our EBITDA where it needs to be overall.

Got it. And then just one last question for me, Pradman, can you maybe give us an update on the Enterprise VSAT business, particularly outside the US? And how it's performing in this environment and how it might be getting impacted by currency?

Yes, the Enterprise businesses is doing well internationally, but as Dave mentioned in his remarks, the currency is costing us roughly in Q3 about $8 million in revenue. So it definitely is impacting our business, but in terms of win losses and market presence as a market share, we are holding our own and doing well.

Great. Thank you.

Your next question will come from the line of Chris Quilty of Wells Fargo.

It's Raymond James, operator.

I do apologize.

Chris may have changed firms (laughter).

I'm still here, sitting in Florida. So question for you, it looks like from the 10Q, you guys got a conversion on the DISH Mexico where you now own 49%. Can you talk about both how that venture is going and what kind of a longer term plan you might have there for that effort?

Yes, Chris, I mean the conversion which is really just a change of accounting because of some various options that other parties had. That have actually happened in the third quarter of last year. And we had a pickup in our equity and earnings last year because of that. That was the one-time pickup last year that I mentioned in my comments.

Overall, the venture is going very well. Yes, they are on a fairly strong growth curve. Obviously, that growth creates certain issues. Any time you go on the kind of growth curve they're going on, market is scrambling to get them boxes in time, those kind of things. But I think the business is going very well and our near-term intent is to continue to operate it and grow value with a net venture.

Okay. Shifting gears, EU and the S band effort, can you talk about how many of those EU entities you've now secured, the sort of licensing requirements that you need in order to launch the effort?

Well there's a license at the EU level and that license itself depends on member states issuing licenses consistent with the EU level license. At this point, we hold 26 of the 28 member state licenses for the operation of the MSF system and the CGC rights are separate.

And those are, in my comments, I stated that right now our focus is on harmonization because there's quite a dispersion amongst the various member states as to what the CGC rights entitle us to. And we're driving towards a standard format so as to be able to offer a EU-wide system as opposed to individual systems within each member state.

And is there going to be some kind of an effort at the Hughes level around device development in order to serve the type of applications that the satellite that can offer?

We have been developing some initial devices as well as looking further down the road as the adaptation of other MSS services that already exist and how to put those in products that would be attractive to European Union marketplace.

But we will be launching the service probably in the late third quarter, early fourth quarter next year where Hughes has been developing and adapting the technologies and actually creating the product. And then we will utilize our sales and distribution capability within the EU now, which is considerable, to distribute those products to third parties who will then service end users.

Got you. For Anders, on the, I think you have a couple of satellites that are running off, or at least there's a November contractual end date for those. What kind of revenue should be modeling to fall off or do think that there will be renewals on those satellites? And then I have a second-part question.

Okay. Well, I mean, there's Echo 1, which is our oldest satellite, who will be having its 20th birthday at the end of December, which is quite extraordinary given its 11 year design life. But, that indeed will reach the end of its term with DISH Network, I believe sometime this month. And DISH has notified us of their intent not to renew it. As far as the redeployment of that asset, we're looking at a couple of opportunities with it but they're more on structure and development side than on the commercial deployment side. So I would not have high revenue expectations from any redeployment.

Okay. And a lot of new capacity coming online next year. Can you give us a sense of what kind of order or magnitude incremental revenues we should see because obviously, some of those are replacement satellites?

Yes, Chris. This is Dave. So in the case of 23, you know 23 has new capacity that we bring to bear and I would expect that entire satellite to be incremental revenue over what we currently have in play. EchoStar 105 is a replacement for AMC 15.

There will be a significant increase in the amount of capacity that we have on that satellite. You know, probably in, close to doubling the amount of capacity, not quite doubling, but a significant increase.

And so whatever you've got in AMC 15, you can take up accordingly. The other satellites that we've got, obviously 21, as Anders mentioned earlier, going into the EU and that will be a development program for EchoStar mobile. And then obviously, the EchoStar 19 and the 65 West satellites, both of them will have incremental consumer broadband capacity.

Got you. And just a clarification on the SAGE business, is that entirely a EchoStar direct sales effort or how is that going to be marketed through channel partners and directly? Can you give a little details?

Well I have a lot of different plans. I think it's a little too early to talk about them all, but Direct is certainly one of them and then going into [Big Box} and other distribution channels is certainly on our road map. And we'll be giving more details on that as a product rolls out.

Okay. And final for Pradman, I think you said that the ARPUs were up in the quarter on a consumer side. Can you give us an idea of what's driving the increase?

Yes, the ARPUs were up a little bit. I think what drives this is two aspects. One, the mix of people thinking higher-end plans versus lower-end plans which obviously, contributes to the ARPU.

And secondly, we offer some special services as add-ons and people have been taking on more of those than we had in the past so all of that resulted in the ARPU increasing in the third quarter.

Perfect. Thank you.

And your next question comes from the line of Jason Bazinet of Citi.

I just had a question on Echo 21 and the harmonization efforts you talked about. Is it still reasonable to assume that whatever revenue left there is sort of small until we get the harmonization resolved in Europe?

That's probably a reasonable assumption.

Okay. And any sort of -- I know it's tough because it's outside your control, but in terms of the harmonization efforts, if you had to guess, is that a 2017? 2018? 2019? How long do you think it could take if things go according to plan?

Well, a lot of it has to do with the politics of Europe and the other S band licensee has recently announced some commercial relationships with some significant EU-based companies, the effect of which might be quite helpful in driving some of the EU member states that are key to the overall harmonization plan towards a very favorable decision to us.

So our efforts, our products and services that we're contemplating right now in the MSF sector are not quite as defined as the other licensees. They are little further down the road, but they have a much narrower focus as to what they're trying to do.

But they might in effect do a lot of the heavy lifting on the regulatory side that could cause us to have a breakthrough sometime next year. And once it occurs, it will probably occur very quickly.

And at that, once the harmonization is there, is that when you'll be more public about what it is you plan to do or it's probably, you're going to wait until you're launched before we know what it is?

Well, right now it's all about execution in 2016. So we've got to get the satellite up, we've got to get our very complex ground network interacting properly with the satellite and then we will launch some initial products into the marketplace, which will satisfy really our last remaining milestones vis-a-vis the license.

Once we have that firmly in a compliant position, I think then we'll refocus our efforts on what the opportunity is to more fully develop the CGC side of the equation.

Okay. Thank you.

(Operator Instructions)

Your next question will come from Andrew De Gasperi of Macquarie Capital.

Thanks for taking my question. First I noticed that your residential broadband, you continue to outperform. I was wondering if you've seen any change in the competitive landscape in the last three months?

And secondly, you mentioned also that you think the churn is a little too high and that you are taking efforts to reduce debt. I was wondering if you could maybe give us a little more color on that. Thanks.

The answer to your first question is no, I don't think we've seen anything changing in the market in the last three months. The market's pretty much performing, as I mentioned my remarks, we continue to have gross adds over 100,000 subs this quarter just like we had in the last six quarters.

So the market's been pretty consistent and predictable. In terms of churn, I think we understand pretty clearly why the churn went up a little bit in this quarter. And there are a few small elements, none of them being a dominant element.

But I think we've identified the reasons why and we've put in fixes in our operating processes that we hope we'll start seeing the churn come down to a more manageable level in the quarters ahead.

Great. Thank you.

Your next question comes from the line of Tim Quillin from Stevens Incorporated.

Good morning. I just want to follow up on EchoStar 1. Can you give us a sense of what the revenue impact might be from the non-renewal of the lease?

I'm not comfortable giving that kind of specific guidance. I'm sorry.

Okay. And then, EchoStar 8, I think also is the agreement with DISH is going to expire. I think there's also a related lease that you have on EchoStar 15, but if you could just kind of go over what is going to happen with that deal as well.

Yes, let me clarify what the current deal is, then Anders can comment on what he may be wanting to do with Echo 8. Echo 8 and Echo 15 are back-to-back leases with DISH. And as you may recall, we account for those in different segments.

So the EchoStar 8 has revenue included in the ESS segments. The EchoStar 15 is an expense that we record in, essentially it's in our corporate development, or our business development group. And so that's in the all other segment.

So the two amounts offset each other, but in different segments. And so yes, we expect that to go away here this month, essentially. And I'll turn it back over to Anders then.

Yes, we've been, since Echo 15 right now is in the process of being returned to DISH and as Dave mentioned, that should occur by the end of the month. We've been, and as soon as that occurs, DISH, in essence, will return Echo 8 to us.

We had been looking at a number of deployment opportunities for Echo 8, but because of its age, in order to exploit those opportunities, we may let the satellite go inclined in an effort to prolong its life, but in doing so precludes certain revenue generating opportunities were the typical requirement is for a station-kept satellite.

So we're looking at opportunities for Echo 8 for 2016, but from a revenue generation standpoint, I wouldn't be particularly aggressive as far as what we'll be able to do with the asset, especially if we allow it to go incline.

Right. Okay, thank you. And then, on Brazil, is there any update in terms of direct to home service. Is there anything that you can discuss in greater detail right now?

Well, we're continuing to perform the required construction for maintaining the license and launching of service, but other than that we're not going to say much.

Okay. On Sling TV, and I think there's some trail of breadcrumbs in the 10-Q in terms of what kind of revenue you're generating for providing services for Sling TV, but maybe if you could quantify the revenue that you're generating there.

And then what's the pipeline like, Mark, in terms of new customers and what is the typical prospect, in terms of the size and location of those providers?

So Sling TV is a DISH product that they're off selling. On the infrastructure side, we've got a sales team off beating the bush to sell what we've developed from an infrastructure standpoint in other parts of the world.

So that's a relatively new anchor for us and we think it's got some legs, so we got to get out in the marketplace and see for sure.

Okay. Would you be able to provide some kind of estimate of what the revenue is from Sling TV support services?

I'm not going to comment on it beyond what's already in the queue.

Okay. Okay. And then on the churn and Hughes net right now, I guess my calculations suggest that it's above 3% right now. And I think that you have a handle on why it's that way, but what are the steps to get that down to what you would consider a manageable level? And what is the manageable level of churn for the business?

Well, we obviously don't put out numbers, but by giving you the gross and net add, you can obviously calculate the percentage churn and that's where you get your number. And we have identified three or four elements that contributed to some of the increase in churn as I mentioned earlier.

And hopefully we have fixed them and we'll start seeing the improvement in the months ahead. It's obviously, very difficult to predict how fast those improvements will occur. So I would like to put out a number there, but I think it's going to be better next quarter than it is this quarter.

Okay. Okay. And then lastly, I understand you probably don't want to say too much right now, but in terms of the CGC rights on the spectrum in Europe, I mean, it does look like in Merced and in Deutsche Telekom are pursuing some use of the spectrum for in-flight Wi-Fi, is that one potential use case and you're looking at other potential use cases? But how do you think of the potential use cases on the CGC?

I think the CGC depending upon how the harmonization resolves itself to the band is quite suited for terrestrial mobile deployment, being immediately adjacent to the bands that are currently in use in Europe.

I think the standardization bodies that are ongoing, mainly 3GTP, in inducting the bands into a long-term road map for development will define what the potential uses and therefore what the dimensions of the future development might be.

So, what Inmarsat has announced publicly in collaboration with Deutsche Telekom and with [Tonda] is one potential application for the use of this band. Ours, we're starting in the MSF vector, we're going to be utilizing the frequencies for various products there. But what the future holds, any comments would really be speculative.

Got it. Thank you very much.

Your next question will come from the line of Michael Bressler of Kensico Capital.

Hi, guys. Can you hear me?

Yes.

Great. Okay, I have one question. During the prepared remarks, you talked about the set-top box business stabilizing. Just based on my math, that sales to DISH were down 48% year over year.

Can you elaborate on what you mean by stabilizing? Do you mean stabilizing at the current run rate? Or do you mean stabilizing on a year-to-date basis?

And I understand there's some variability regarding DISH's success in the marketplace, but maybe you could just help us understand the percentage of decline associated with an inventory drawdown, versus what they sell for churn related, just a little more color on how you're thinking about that revenue line and then what you're investing behind it. Thank you.

Yes, and as Mark said, he's got a number of products and enhancements in the pipeline right now. We expect to start delivering those, some of them here, towards the end of this quarter into first quarter.

And we're limited in what we're going to say about those products, given that they're DISH proprietary products and it's their responsibility to deliver that to the marketplace. But by stabilize, we mean that we expect the drops that we've been having sequentially over the last several quarters to sort of flatten out a little bit.

As I have said in the past repeatedly, I do not expect that we will ever return to historic levels in terms of DISH equipment sales to where they were a year ago or two years ago.

And so, we will find a new sort of balance point in terms of the volume of sales to DISH and that's the volume in terms of dollars, not necessarily quantity because, as we rollout different pieces of equipment, you know the price points are different so you're going to have unit sales, and you're going to have price points that are going to be different depending on the product mix.

But we expect the revenue coming from DISH equipment sales to stabilize, and by stabilize I mean flatten out a little bit. It's not going to return to historic levels.

Well, right. But there's a big gap between historical levels of $300 million and $157 million. So are you saying that $157 million is a good run rate going forward? Or are you saying that it's somewhere in between where we were and where we are?

I think that's where the success that DISH has will be a principal driver behind that and what their marketing plans are on the new equipment. So that's a little bit hard to forecast over the longer term.

You know, we certainly got visibility on the very short term based on the orders that we have in hand right now. And so that's why we're comfortable saying that it's going to stabilize here in the near term. But I'm not going to get into a position of forecasting where it's going to be long-term.

We don't have any visibility if they decide to upgrade a segment of their market to a better technology or they find higher success levels with broadband connective product and they have to replace older product. We just don't have that visibility.

We know the transition from the product they've been selling for new customers to the new product that's selling that there's some positive views on that; assumes we get through the transition, but that's about all we have visibility.

Okay thank you.

(Operator Instructions)

And there are no further questions.

Yes, if there are no further questions, which is what it looks like. I just want to thank everybody for taking the time today and wish you all a good day. We'll close the call now.

This concludes today's conference call. All participants may now disconnect.