EchoStar Corporation (SATS) Q1 2008 Earnings Report, Transcript and Summary

Good afternoon. My name is Tracy. I will be your conference operator. I would like to welcome everyone to the EchoStar Corporation Quarter One 2008 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. (Operator Instructions). Thank you. Mr. Kiser, you may begin your conference.

Thanks Tracy. Hi my name is Jason Kiser, I am joined today by Charlie Ergen, our Chairman and CEO, Carl Vogel, our Vice Chairman, Bernie Han, our CFO, and Stanton Dodge, our General Counsel. We are going to go straightly for Q&A but do we need to do our Safe Harbor disclosures. For that, I will turn it over to Stanton.

Thanks Kaiser, good morning everyone thanks for joining us. We invite media to participate in a listen-only mode on the call and ask that you do not identify participants or their firms in your reports. We also do not allow audio taping and we ask that you respect that. All statements we make during this call that are not statements of historical fact constitute forward-looking statements which involve known and unknown risks, uncertainties and other factors that could cause our actual results to materially different from historical results or from any future results expressed or implied by such forward-looking statements. For list of those factors please the Form No. 10Q. 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 that we make. We assume no responsibility for updating any of those forward-looking statements. With that out of the way, I will turn it back over to Jason.

Thanks Stan. Tracy I think we go straight questions.

(Operator Instructions) Your first question comes from the line of Kit Spring.

Hi this is (Nitin John) for Kit I have got several questions for you. I will start with the FSS business and JM Vista. Can you give the some idea of what the performance criteria that JM Vista is not satisfying? What you think the chances of new ram does and whether or not it could be something that could be redeployed in North America?

I will go in specific about it, but specification, I think I would say can be fixed again in again in satellite using time and money you can fix any thing. So the specification can be fixed, the satellite has we think, whether we will continue to build that satellite as this remain to be same. There are the uses for the satellite and other potential uses it has the advantage of kind of a two year head start and the construction process and a lot of in the S-Band range and there is obviously a lot around work going in S-Band today. So, I think that -- I don't know how you exactly bend on to earth, but we will – we are okay with where we are with the satellite we think the most likely scenario is that it ultimate will be probably use for its intended purpose but it – but we think we have options that bet not is used. And then we have obviously a worst case scenario where we cant find, where we cant change – get the performance that we need, we cant find another customer, cant reuse it which case we might have a write down.

There are timeframe that you would have to redeploy it or fund another use for it in order to avoid the 100 million there?

No, I mean, I think the history of – I am trying to think – the history of satellite has been max range of the last 20 years or probably umbers of times this has been situation similar to this. And every time the satellite has been redeployed someway, I mean, there are pretty limits and resource that they take a long time to build and it typically uses around the world where people and so, I mean, when it comes to mind, recently it was, I think there was satellite that was build from Chinese, where the government wouldn’t let the way we export it. And ultimately that – I think it was maybe two years later that satellite was ultimately redeployed over and was sold and redeployed over India. I think it's fully leased up, or the majority of it is leased up. The general history is the satellites that get redeployed get redeployed. Sometimes there's a cost to reconfigure them. Many times people make more money redeploying the satellite than they did for the original customer. And sometimes satellites have issues when they're being built. Those get fixed, and everything goes smoothly. I can't -- I guess Ico had right, the or Boeing, may be that and that's in litigation, so I'm not sure how that turns out. Maybe there's been times when satellites have been written down, but for the most part it's a pretty good asset they have.

On the rest of the FSS business, it looks like you added a small cost to that side of business. Is there any color you're willing to give us on that? And again is there any time frame, any hurdles that you have to jump there in order to avoid the write-down on the satellites?

I guess I would say that -- I guess in general, we have the business has a lot of capacity, so it's got up side in terms of growth and EBITDA and so forth but the market is relatively soft for the kind of capacity that SATS has. What's unique about SATS, it's more of a value added provider in that it can do set-top boxes up linking has a fiber network that it can provide most cities in the United States, knows encryption, subscriber management, has the ability to do installation and service at a local level. So there's a lot of synergy and things that can be done there, but obviously it just got spun off. We've got to build the sales force. The lead time in selling capacity is typically about a year. And so, I guess my expectation would be that we'll continue to grow that business. How fast, you know, a lot depends on how well we do in terms of executing and to some degree how firm or soft the market is.

And your expectation on adding customers to the FSS business would be 4 months out or something like that

No, I'd say it a different way. I think every month there continues to be customers that potentially need capacity but there's also competitors out there that have capacity. So we're all fighting for the same mouth to feed. What's unique about SAT is sequentially we can do things that other people can't do. So there's a little bit of a value add. We're looking for the customer that would be more attracted to us that might want more than just the commodity of satellite spectrum. And so, I think it's kind of a slow build, right, and we just build that into a business over time. But it doesn't -- you don't snap your fingers and it happens overnight. But it doesn't necessarily take a year to get customers, either. You know, just the lead time is for most customers is a year because of the planning process, the budget, they start talking, they normally have capacity already, and it's rolling off – those deals are rolling off, so you know, that's -- pretty standard formula about how it works. Usually you can close a third of business that you're talking to. And so we started from pretty much from scratch.

And how much longer do you think Echo 3 and Echo 4 are going to last?

I don't know what the disclosures on those are.

I think that was fully depreciated.

But really – depreciated from the……..

Fully depreciated.

Yeah, when we get them – usually fully depreciated, because we think that there is not a long life in them and therefore it is – and it is mainly not fully depreciated.

Yeah, 3 is not?

And I think they are adding new anomalies……

Yeah, they really going to need new anomalies on each one of those. So…..

So, they are just going to -- lost this one?

They last as long as they last, and I think we would put in place -- we think we have plans in place for replacements there.

Of the 61.8 million of CapEx, what was the satellite on that?

The CapEx on this quarter, bigger piece of it --

Did we disclose that?

Yeah so the 10-K, just did Echo 3 had two years of life left. Is that fair, Paul?

Yeah

Did we disclose echo 4

It's fully depreciated.

Two years of life left for depreciation.

I was just thinking more about years left of service, like how much you expected them to be up?

Yeah we normally try to depreciation, the deprecation and what we think the length of services is closed.

Okay I understand that.

And on your year-over-year CapEx last year being around 50 million, this year 60 million. The mix this year is a little heavier towards in this quarter and a little heavier towards uplink equipment versus satellite?

Okay. Set box business, there is a fairly meaningful increase in the revenue there; it says in the Q you added international customer or customers. Any color you can give us on that and geographically where that came from?

If you're referring to the equipment sales other, I believe that is still the same when we were part of EchoStar Communications Corporations we already had third party customers and I believe the revenue that we generated this quarter is also same base of customers. It’s just a larger part of revenue that of those customers.

I see not a new customer just expanded sales.

That is correct.

Okay. I am going go to the receivables from DISH. I was listening to the DISH call. So I know roughly what's going on there. Is a good run rate to look at that roughly two-thirds of revenue to DISH?

Two-thirds of a quarter of revenue?

Two-thirds of the quarter revenue?

Yeah I think that’s that case, right. Again we have three-quarters of receivables here and the payment from DISH were not made as of three months March 31. And if they are going forward as we believe that will be (audio cut) by a third.

And on the payables to DISH? I know most of that’s for equipment that DISH paid for you guys.

Correct.

So most of that will go to zero?

Right. It won't go to zero because we still pay DISH for services, professional services that they provide for IT.

Right.

Finance HR, but the bulk of it will go away with time.

The equipment that they pay for a settlement.

Right that’s a temporal phenomenon.

Okay I am done thank you very much.

Your next question comes from the line of James Ratcliffe.

Good afternoon again. Two questions related to AMC-14 if I could. First of all, I understand you have the right to capacity on a replacement for AMC-14. Are you obliged to take that capacity or is it your option. And second the Linux side agreement. Is it sequential to timing or was that reached as a result of the AMC-14 failure? Thank you.

I don't believe we have the rights AMC-14 replacement capacity and therefore we are not obligated to do that. And in fact at least from an EchoStar perspective we at this point haven't decided to replace that capacity. We had insurance for our portion but I think with capitalized interest the one thing you should be aware of I guess about $13 million loss to SATS with loss of satellites and that’s primarily capitalized interest and a little bit of the insurance premium. The lease from Nimic 5 was a bit of a coincidence I would say, those two were kind of going down parallel paths and they weren't related. The loss of AMC-14 wasn't related to the lease of Nimic 5.

Great thank you.

Our next question comes from the line of Richard Mac.

Hi it’s Richard (Inaudible) from North Partners. Can you talk a little bit about the increase in the FFS revenues from DISH, it looks like they are up something like to 108 million for the quarter up from maybe 90 million in Q4. Do you see these revenues increasing as DISH rolls out HD this year?

I think the answer to that no. You are comparing to the fourth quarter?

Right.

Yeah I think the answer is no. I think that DISH has leased the capacity they’re going to lease. And they have got their HD stuff covered.

Okay and then I have two follow ups. You noted in the Q that AMC-16 experienced an anomaly and isn't longer capable to operating at full capacity. Can you tell us how large a reduction capacity there is on the satellite or are you talking one or two transponders or is it more significant than that?

Yeah today it was not amount of capacities and the way its good news because that satellite is completely leased out. So it reduces our obligation since we are leasing that from a third party. But it is not a significant reduction yet, having said that, there has been in the industry. So normally we sell our -- sales a great or you loses and its gone across different platforms, different satellite l manufactures, and its not totally predictable, but it tends to be a slow degradation. So it probably, if it held the form would probably reduce some of the obligations long term, but today it’s not material.

Are you using AMC-16 currently?

Yes.

Okay.

But not to its full capacity.

Not to its full capacity

Normally they have more effect on customers today and wont.

Great

And we are back up with AMC-15. So it didn’t have an effect on customers, but its ultimately long term in theory will reduce some of the capacity we have and some of our obligation.

Okay. When Echostar 15 goes up what is he capacity that's being used on AMC-16 be moved away?

No

No.

No.

Okay.

But it depends on events.

Okay and then you talk about the $503 million of strategic and financial debt and equity invests at public companies. Can you give us more details on these investments? And what companies they are?

No. It’s just very strategic. I would say at this ways, that SATS has got, our Echostar would have got three unique businesses, its got the set top box in design business. Second one is satellite, in terms of leasing capacity to others and satellites in general with both d in expertise, we know a fair amount of satellite we have good relationship with the launch for buyers and the satellite manufactures around world. And the third part is international side of our business, looking for opportunities to take some of the expertise that we have around the world. So strategically, you can imagine that we are in one or more of those buckets. Alright in terms of strategic it were we might wont invests, but in terms of specifics, we are not ready to talk about that until we’ve get something broader going on.

Okay. And then just—

We could sell out of those and those investments are things we could get move in and out, and they are pretty massive and they maybe do some interesting things, but may not happen, but if they do happen, obviously, you guys to be personnel.

Great. Also flush out that account payable, I don’t want to delever the issue. But of the $280 million of accounts payable at DISH network, let’s say next quarter we’re going to see roughly $280 million increase in the inventory of SATS and $280 million decrease in the cash of SATS. And then how could we role that inventory we used as this components are build and finished goods and then sold to DISH. So the right way of thinking bout it?

It shouldn’t have any impact on inventory whatsoever.

Okay.

Again this is simply the fact that DISH for the period of certain purchase order that exists on the financial system for dish continues to make purchases from vendors, that going forward and I think we are already at the point where its largely on it non entirely gone. So as of today for example, SATS t paying for these boxes directly from the manufactures and there is no additional ventures and it was just DISH in the middle for this period of time because of the legacy of having these kiosk setup prior to the sling.

But is SATS going to basically purchase the inventory that DISH bought in Q1?

SATS takes very little inventory risk.

Great.

No, but they look at the PO.

Well, I mean, the PO basically offsets inventory right, the acquisition of inventory I assume?

$80 million of that payable that went down.

That $200 million more cash in Echostar or that a receivable?

The receivable we drop by the same amount are very similar amount.

The receivable at Echo, at DISH would drop by that amount and the payables would drop by that amount, but in order to make the payable that amount you are showing out cash at SATS and you are getting something in return I assume you are getting inventory.

Right, DISH volume is right now on behalf of SATS, but SATS is turning right around and selling it to DISH.

Right.

And in the end it will net out. Its..

So there won’t be a cash impact on SATS?

Correct.

Is that correct as this $280 million payable is reduced to say 80 million, there won’t be a cash impact?

Again I would look at the two in net, the two in net there is a $200 million net receivable right now, and the two in net, I would say will get reduce next quarter to the extent this pays on the net 60 turns, that’s suppose to payout.

So they have reduced no cash impact?

Right.

Is the reduction and receivables available?

The net being reduced we will have a cash impact to the good for SATS and to the bad for DISH. The net of the two being reduced. Right, the net payable to DISH is the net receivable to SATS and net receivable being reduced which we expect it would be if the payment are made before the end of the quarter that reduction should be a positive cash to SATS and a negative cash to DISH.

And it configures about the third of the payable? …

The net of the, right…

Third of the sales?

Right. So I think the answer s that you could expect the SATS cash would go up and DISH cash would be down, and if you were to ballpark is about third of the sales to – of the quarter sales to DISH.

To DISH okay. Also of that 475 million are they’re about?

Right.

Got it. Okay, thank you.

And next question comes from the line of Daniel Simmons.

Hi, I am just looking at the equipment sales of, and obviously I think we mentioned that call this quarter, I was just wondering how much of that was due to self traditional you know, set-top boxes to PAY TV and how much of that – if there is anything how much of that was meeting that why you put sling boxes, how much of that is -- free to add threshold boxes as well. IS there any indication there?

Right, sling is a very small percentage of the overall revenues at this point. So most of the increase as we talked about earlier is same customers that we have had on a historical basis just the higher revenue month or quarter at this time.

Okay.

The set top boxes is getting a little more sophisticated obviously, we are producing a bit more impact product, very little impact. I mean, we stood some impact to your product but less – the digital product is not out for another month.

Okay.

So there is no revenue in there from that.

Okay. Just looking on it, as sales go down, so revenue should be down to my guessing, and revenue to DISH is down slightly as well. So I just want to – and there has been an increase today, telephonic and power STAT, at least by telephonic (Inaudible) and power STAT?

Well they are also our customers, but they are not as material as, obviously, DISH is the main customers for us would be number two, but there are other customers around the world that do deploy product.

With respect to its first view, as noted in our Q, Vogel you’re right we mentioned in the quarter we were down a little bit in volume, there was a greater mix of advance receivers which offset the reduction in volume.

Okay, got it. Thanks. Most of my question is answered.

You know, I am actually just because everybody is asking kind of consumer question, obviously we hope that SATS, when the set top box business can build that business around the world with other customers, obviously DISH is our biggest customers today, they got big projects going on for DISH, but they certainly have technology that should be attractive to cable companies or phone companies, our other direct to home people around the world if they get into the value added stuff I don’t know that SATS is particularly competitive with a foreign input of just basic box, but if you want to add features, if you want to add a sling feature or DDR feature or an HD features or features that might improve your cost from a customer services basis or ability to get data on for advertisers and things like that. Obliviously SATS has some advantage and that again is a bit of business that takes a bit a time build because you got to go in and get sales people talking to customers about what they would like to have and showing them what you can do and then you got in some cases actually engineer a product specifically for a company who might want that particular product. And obviously the cable business is a bit different than the direct to home business for example. Some foreign customers might have a different modulation scheme or different standard, different power supply, different encryption and so forth. So it takes a little bit of time there, but again its core asset is world class digital set box design. And that’s hard to duplicate and the very few companies have that we kind of blessed its there in SATS today.

Okay thanks.

Your next question comes from the line of Tim (Lass).

Hi thanks for taking my question. I just wanted to get a sense of – I think you mentioned earlier that you saw some softness in the FSS business in the first quarter. Did I hear that correctly? And if so, could you be more specific, I know Intel, SATS in North America was roughly stable?

Yeah, I would say that in North America that there probably is certainly adequate supply of capacity for people out there. I wouldn't say it’s a huge oversupply and I certainly wouldn't say it's tight. But there is more capacity that will go into the market place over the next couple of years and there certainly are customers that roll off from time to time and so its not – In Intel SATS there some balance that’s probably not an accurate description. But in balance in a slower economy can be soft.

Got it.

One satellite problem in our space and it could be tight tomorrow, but today I would say in balance it’s probably an adequate description, but it’s a soft economy.

Got it. And you see that in a broader picture, do you see consolidation continuing in North America?

It’s hardly to say, because there is you know lots, there is a fair amount of discrepancy between the companies and the debt levels and capital structures. So I think it’s hard to tell.

Got it. And with the CMBStar satellite I don't know if you have this level of detail, but do you know what size reflector would it had and how spot beams?

Well we know that, yes we know it. Its got – its got a – its an S-band satellite its got large reflectors, It's not too disownerrous than some of the other S-bands designs that you have seen around.

Is that apples-to-apples, when you say S-Band, is that apples to apples with the same frequencies for the S-band players like Echo and TerraStar.

The frequencies are a little bit different but obviously S-band do absorb same range. And you may have to modify them if you want to get to a specific range. So some of the frequencies are – I mean S-band is a little bit different in all parts of the world. And if you want to use it for a different customer, it’s possible that you would have to do some redesign of the tubes and you mat have to retune them, but you’re not starting from scratch probably, and you certainly not start from scratch on the reflect on which is usually the long pole in the tent or the bus. So -- this satellite is relatively adaptable lets put it that way.

Got it. And then a follow up on set box business. You mentioned your core IP and set top design and technology. Can you talk about -- are there encryption standards around the world particularly NDS is that sort of barrier for you or How do see your encryption proliferate and where the opportunities. Is that where we should be following where that standard goes. Is that the path that you would look to follow in term of selling in set top boxes?

Obviously SATS knows more about the nogra system probably than any other and they certainly apply the experts on that particular system. But that doesn't prevent SATS from putting a different standard in the box if the customer wants it. In some cases you have to license it, some cases the customer already has a license, and in some cases you have to license that technology though and time frame to do that would be longer. So there easiest path to grow the business as anybody who wants the nogra vision conditional access system. But if somebody wanted data or different one the certainly have the ability to do it.

Got it. Alright thank you.

Your next question comes from the line of Paul Orlin.

Hi gentlemen. I was just wondering if you could comment on you’re the plans for the sling media technology right now and what the commercial ramifications of that are?

I would say it’s a core technology for portability and mobility of video. Just was I think with DVR is a core technology for timing shifting right. And really sling place shifting so. The key is how would you develop that technology in a way that would be easy for consumers and something that people would want to more robustly deploy. And again if you just look at it from a logical point of view it really is a technology for travelers and probably college students who are looking at computer screens as opposed to TV sets. And so anybody who's got broad band connection at their video sources is a potential customer. So I think there is a lot of development for technologies that can be more widely deployed. It also has some social networking potential in terms the ability once you have your video sources you can obviously people can share a video. So it has some social networking capabilities as well. And I think the key for sling today from a strategic point is for that management team to go out and get it more widely deployed. So that people who use it love it. It’s a hard product to explain kind of DVR was hard to explain initially. It kind of reminds me a lot of that. It kind of reminds me in the days when we were doing a DVR a DISH player and Tivo was out there and a company called replay was out there and it took awhile for people to jump on the bandwagon but once they did it rapidly evolved out there. It is a core fundamental building block that I think people are going to want in their video experience because they are going to want to be able to take their video with them. And it’s obliviously lot of things we can do in terms of software in terms of the sharing experiencing. There is a lot of things we can do in terms integrating the chipset in to chip sets to go into any body set box whether it be a cable company or satellite company or phone company. There are other products they can do I mean you have seen Apple to do some things with Apple TV than certainly sling has the capability doing similar kind of things. So it is a building block for the future and its going to take a little bit of time to integrate it but that is a focus.

Is there a significant revenue base in that right now out of selling the sling boxes, or is it pretty much you acquired the technology with and try to figure out the best way to monetize it?

I would not say that sling is material significant today as part of SATS in terms of revenue. But I think it’s significant in terms of strategy.

When do you think we might get a clear picture on how you are going to deploy that or what's your sense of where you are on how to proceed on that?

I think bit of it is a little bit of timing with the market place right. You got to get enough product out, I would say it’s a product you have to demonstrate to people so they understand how it works. And once you do that then you are able to get – you have to get critical mass to the product out there so that enough people will know about it and heard about it know how it works, enough people to show how to install it. And that takes a little bit of time and I have seen with DVR I have seen with like a Blackberry where word of mouth is what sold that product until they got some critical mass and then it began company's and adverting that sold that product. And I think we are still kind of in that start up phase with sling because you really got show it to people. When you show it to people they want to buy it and we need to do a better job showing it where are the cable companies on that, or even just DISH in terms of using that to transport their pictures?

Well, I think there's a lot of discussions going on with DISH. The cable companies I think are interested, but certainly I think they're also concerned that there's some -- that the common ownership between DISH and SATS is something that they may not want to support, right. So they would probably be less -- they would probably be more hesitant to deploy the technology. They run the risk, if they do that, of the technology being deployed in a competitive way that they can't address. So I can only tell you my personal experience. When I'm work at DISH, the I hope the cable companies never, ever deploy sling, right, because it would be a great competitive advantage for DISH. When I work at SAT, when I go over there, we would bargain in good faith with any cable company and give them exactly the same terms and conditions we would give DISH Network, if they want to deploy it, right. So -- but my experience has been that normally companies get emotional about decisions, and so he they don't always make the long-term choices, but we'll be prepared to do well with sling technology regardless. And obviously from an international perspective there's up side because there's not a DISH/SATS issue there. I'd say the same thing about DirecTV. They'd probably say, gee, we're not jumping up and down to deploy the technology, right, because of the DISH common ownership. On the other happened, if they wanted to deploy it, we would be happy to talk to them about it, and they would certainly get a fair deal. I mean, we buy programming from our competitors, so it's not an issue for -- it's not an issue for most management teams, but emotion does come into play, I think.

Thank you.

Your next question comes from the line of Steve Farley.

Hi guys this is actually Adrian Mailer. A few questions. First, would the new DISH satellites be put into SATst and if not why wouldn't they be?

Some satellite of DISH will decide to manufacture self them and in some cases SATS will probably do the satellite, and DISH may or may not be a customer of some of that capacity. And it's just really -- the reasons would be lot of reasons but one is DISh is looking for best deal they possibly could get, depends on where they want to deploy their capital, orbital slots may be different, so in a case where DISH owns an or which is bittal slot they're more likely to. In a case where they don't own the orbital slot they're more likely to I don't say a third party, including SATS, so there could be a variety of reasons of why. The echo 15, the replacement satellite for AMC 14 sat was building AMC 14 and DISH is building the replacement, because it's going to go to a DISH slot. And that was the best economics for DISH, given what SATS was willing to bid that satellite at.

Okay, thanks

I mean, there's interesting discussions and negotiations that go on there.

And that may change over time. As Charlie point out, the vast majority of capital that's deployed by DISH for satellites is in the orbital slots that effectively are at from about 110 to the west. And those are satellites, and those are orbital slots. It dove tails with our credit agreements. We may or may not rebuild those inside a DISH but at the present time that's kind of where we're headed.

Okay, great. With regard to sling, with my limited technical understanding of the technology, I was curious to hear your thoughts on -- my understanding of sling was that it was a good mobile video application that perhaps as people gravitate towards Blackberries and these mobile devices and 4 G Internet comes out. That would allow to you attack that segment. Can you explain to me how having spectrum with the combination of sling helps and how it does so, and if ultimately the business for or sling is to charge a couple bucks a month or something per subscriber, how you see the charging working?

Well -- There's a number of models and of how it could work, but certainly sling can work in a mobile technology. It can work; they develop software for blackberry that can work on anything with mobile windows. So it can work on a palm or other devices. It can work on your computer and when you plug into it -- when you have a Wi-Fi, hot spot or you plug into it a broadband connection. It probably can work on any number of other potential things that have a high-speed connection. I mean really what it does, it takes your video and converts it to video IP, and it puts in on a broadband and anywhere you have a high-speed connection you can watch your TV from your home. You watch exactly the same TV. That's really what does it. There is an interesting concept when you look at adding 700 megahertz kind of to it, because that send megahertz would broadcast this probably broadcast the same channel to everybody. So that would probably what we have to call to broadcast same as uni-cast which means you gave your own personal signal. And for those two the conjunctions make for an interesting potential play. But again, all I can tell you, I think we have lot of the building blocks in place. You got to put those building blocks into a strategy. You have to need partners, you need other people that share the vision where you wanted to go, and you also we have to surround that business plan to make money. And so we've spent a fair amount of time over last three years putting the building blocks in place. Now you have to go out and execute and find out which partnerships work, which partnerships don't work, where people are interested, where people aren't interested, then surround that with a way to make money. My experience has been, even if you have building blocks and if you have willing partners you don't always after plan that makes money. So those probably, you know, a number of things that we had a lot of things in place that we can ultimately and pursue because we couldn't make any money at it. Broadband via satellite was one of them. Gaze can remember we invested in star band and wild blue and we ultimately decided to write those things off because we couldn't figure out how we would make money even though we had willing partners and technology and building blocks. So we've made some mistakes along the way. It remains to be seen whether 700 megahertz or sling or anything that our satellite or anything that we're doing we can piece together to make money at but we think the odds are in our favor.

Okay, great.

We don't -- I hate to say this as management. We don't always have all the answers at any given time.

Okay.

But what we do have is a lot of confidence that we can be adaptable to what's going on in the marketplace and come up with ways that, over time, can make money.

Okay. And finally, are you --do you guys have any plans, to in the analog to digital converter boxes, are there any plans to, I don't know, with the DVR functionality are you guys planning to sell pay per view or put an Internet plug into in the are there any plans to make money beyond just the hardware sales?

That's a good question that we do have -- we really have three products. We had the basic government approved digital transition box that's keep on and that will basically just takes your digital signal, converts it to your analog TV set. We have a second product which is a which come out early this fall which would be basically a built-in digital VCR in that box, so it's a DVR so it takes your local signals and gives you all the DVR functionality. It's not keep on compatible, so the customer's have to pay for it. But it essential is a digital DVR and converter box all in one and to it allows customer's to just want to. In some cities there is a lot of programming being broadcast by the local broadcaster, and a lot of customers are going to want to record that. And we give you ability to watch and record -- watch one show, record a different show, use your DVR, and we think that even some of those 13 million homes how haven’t aren't paying for TV will be -- have VCR's, so they'll be interested to upgrade to digital. If you want more than that we have satellite receivers for people. And again, some people may decide it's time to go ahead and go into the pay TV at this point. So we have three different products. The digital transition is unclear whether that's -- it's only an opportunity. It's unclear how that transition will take place and whether there's any money in it. But we have products positioned for that, for that digital transition. I don't think we're going to know until February, you know. And is the government really going to stay to that time schedule and so forth. But we have very good products in the digital transition world. We have a little bit of experience because we were involved in the U.K. distribution of digital transition. And, you know, there is a business there, and we know that some customers will go to pay TV, in which case they'll go to cable or it satellite. Some customers may want a box with a DVR. We'll be ready regardless.

Okay, thank you guys very much.

Your next question comes from the line of Chris Summer.

Hey guys, I was wondering if you could comment on how many satellites that you've committed to purchase or are under construction currently?

I think we can, but I think that today we do not have any -- we have one lesion with the Nimic 5 satellite in the footnotes that will you see and that's the only commitment we have as of today is that fair? Oh, and CMB star. Those are the two that we have. CMB star we're building, and Nimic we're leasing. So those are the two commitments we have and we're looking at any other number of other deals around the world but those are the two we have.

Got it. And then going back to the satellite market, the FSS markets in North America, you guys expect capacity to tighten up as standard definition television transitions to high-definition television?

I would say that the opportunity out there for all the FSS providers is high-definition television takes more capacity so that's a good thing. On the negative thing is, Hughes has been using a fair amount of capacity for two-way broadband, and as they've transitioned to their own satellites, in the K-band spectrum, they need less of that, so that puts them some capacity marketplace. We'll have to see how those things transition. Having said that, at SATS, if you just want HD capacity, we'll be competitive with people, but we can offer so much more. How due get that HD signal to the up link? We already have fiber connectivity to 175 cities. If you want a set-top box to receive that HD signal, we build those. If you want encryption, we know how to do to the secure your signal. So we have other things we can bring to the party, and for us, we hope that we're going to be a little bit different company, a little bit more of a value add than just a traditional commodity seller.

Got it. On your income statement you had a separate line item for G&A related to DISH. Does that include one-time items, or would quarterly be about $6.5 million to DISH?

That's a pretty steady run rate. For now, at least, during the transition period we are paying DISH for them helping out with legal, HR Finance, IT services.

And that's running at north of 25 million a year?

Right around that point, right. That first quarter number is indicative right now. Over time we may choose to perform some of those services ourselves and not rely on DISH for that.

I'd say it a little different way. As we can perform those tasks, and it makes sense for us to perform those tasks, we'll do it. Having said that, we're not going to do it cheaper than we're doing it today. We have real economies of scale sharing it with DISH today, so the costs won't go away. Just means that we can do it in some cases we think we have enough things to do things to do, which we're doing them ours as we build expertise and as we have the people to do it.

Okay. And then the lease income you guys would get from the parent corporation -- from, rather, DISH, where would that flow through in the income statement? You have revenue item?

It’s in the FSS digital broadcast operation of other services than DISH Network.

Okay. And then you guys mentioned in your footnotes that there was a one-time revenue benefit recognized in the quarter.

Yeah, in the FSS, in other services, other, you saw an increase year-over-year of 12 million. Embedded in there was up one time revenue benefits that we saw that will only well and see this one quarter. And we also mentioned elsewhere and take you that the leasing of spectrum to Terrastar on the some of that going on. So I think the increase when you looked at the overview it’s roughly one third, one third, one third between the one time item the leasing spectrum to Torstar and then true increases in FSS business.

Got it. Thank you.

And I think we have to come to one more question and then this is point of reference. I will not be in conference call in August due to pre arrange vacation with my family. So don’t be surprise when I am not there. And we will take the last question.

Okay your last question comes from the line of Adam Ritzer.

Hi guys I just had one question that wasn’t answer. Can you give us any more detail on the bell express view deal, I noticed that term more changed from the lower pricing per box, but now you have a monthly service fee. Can you give us any color ion that?

Yes. I don’t specially wanted to get –they comparatively build the product, the price we sell to them as very much a market kind of given prices at lower margins then we historically would have. On the other hand, we do a lot of things for bell express what other companies wouldn’t do. So we do a lot of things, it could be something like given the ability to monitor there box and I don’t understand their signal strength is in there box, set-up box, well that take the engineering resources for us to develop that. So we kind of just in the package deal where we do a fair amount services for them, and to our privacy efforts things in set-up box help perhaps ability to get data for advertising et cetera, et cetera, et cetera, very similar things that we do for DISH network, and we take those economies and scale and we just keep kind of a maintenance fees, service fees from bell express you did those things on a monthly basis.

Okay. Can you also give us any color on the margins on the set up box business? It looks like between that 15% I assume that somewhat of transfer pricing that you talk about I mean your initial prospective on the last call, but is there any upside that overtime how do you see that developing?

I would say that the way we preferred make that margins on set-up box, its pretty competitive field out there, and obviously when you build customers like Dish they can extract a lot from us, and I think its up to us to continue develop value added product services thing like Slings and things perhaps you can make to be a little bit better margin on if we can develop things that have value add. But it’s a very comparative world out there and we have to be efficiently enough to work complete on pretty low margins.

So is that 15% set over the, I think there is two year deal with DISH and if you – I would assume any outside business that you add on is going to be at higher margins?

I guess I would like to say we would like to be able to do that. Ands having said that we expect that DISH will got other vendors and get bits and would probably extract their pound of flush from us, on other hand we can do things for them that other people can’t do. So I am sure that would be an active negotiation overtime, but obviously the relationship there is good an we do have lot of things for them that other people can do to pay, but they came down to a simple set up box, they didn’t have lot of value add to it, you know, well that’s the business that make sense for us and it kind of remains to be same.

Great. Okay thank you very much.

Alright. Again we will see you – well I won’t, as everybody else will see you in August and we appreciate – is this our first call? It’s our introductory call. Our second one. First we had real numbers and I think the business will come as we go through the number we will see – I think what we are trying to become a little bit more evident overtime. So thanks.

This does conclude today's conference call. You may new disconnect.