New subs don’t spell profit for EchoStar

Subscriber acquisition costs grow fast

NEW YORK — Second-ranked satcaster EchoStar Communications racked up a hefty number of new subscribers along with a $43 million net loss in the first three months of 2004, reversing a $58 million profit in the same period last year.

While much of that red ink is attributable to a $78 million charge associated with early redemption of bonds, that didn’t entirely account for the slide.

Top-line growth looked robust enough, with revenues up 16% over the year-earlier quarter to $1.58 billion, driven by the addition of 360,000 new subs during the quarter, but subscriber acquisition costs grew even faster, up 26% to $604 per gross sub. At the same time, average revenue per sub grew only $1 over 2003 to $51.76.

EchoStar’s total customer base now stands at 9.785 million, but it’s growing at a slower rate than that of News Corp.-owned rival DirecTV, which picked up 460,000 new subs over the same three-month period.

Investors were clearly spooked by the rising cost of acquiring subscribers at Dish and the implication that competing with cable and DirecTV may be taking its toll on the service, sending the company’s shares down 6% to $32.25.

EchoStar chairman-CEO Charlie Ergen nevertheless insisted there was strong momentum in the satellite market. “There is no question we’re primarily getting our customers from cable,” he said on Thursday.

Company noted that it had gained a sizable number of new subs via its new partnership with telco SBC communications, which is bundling the Dish service along with its phone and data services in certain markets.