EchoStar Corporation (SATS) Q4 2010 Earnings Report, Transcript and Summary

Good afternoon. My name is Simon, and I will be your conference operator today. At this time, I would like to welcome everyone to the DISH Network Corporation Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] Mr. Kiser, you may begin your conference.

Thanks, Simon. Thanks for joining us. My name is Jason Kiser and I'm the Treasurer here at DISH Network. I'm joined today by Charlie Ergen, Chairman and CEO; Tom Cullen, Executive Vice President; Bernie Han, COO; Robert Olson, our CFO; Paul Orban, our Controller; and Stanton Dodge, our General Counsel. Before we open it up for Q&A, we do need to do our Safe Harbor disclosure. So for that, we will turn it over to Stanton.

Thank you, Jason, and good morning, everyone, and thank you for joining us. As you know, we invite media to participate in listen-only mode on the call and ask that you not identify participants [indiscernible] in your reports. We also do not allow audio taping and ask that you respect that. All statements we make during this call that are not statements of historical fact constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that 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, please refer to the front of our 10-K. All cautionary statements we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements. And with that out of the way, I'll turn it back over to Jason.

Thanks, Stanton. And Simon, we're going to go straight in the Q&A so you can open up the queue.

[Operator Instructions] And your first question comes from the line of Jeff Wlodarczak with Pivotal Research Group.

During the fourth quarter, did you all materially accelerate your conversion of your existing sub-based MPEG-4 boxes? And how much of an effect did it have on your potential new subscriber installation capacity? And then if you could also help quantify the effects of the Fox and MSG shutdowns on your subscribers that would be helpful.

This is Tom. Yes, we did accelerate MPEG-4 distribution during the quarter. We continue to see an uptick in both HD subscriber base and DVRs. It did not impact our capacity in terms of subs or installation capacity, however. And regarding the programming interruptions, clearly, those aren't easy on any of us. But given, I was willing to take the short-term impact because what we were being proposed in terms of both programming rates and digital rights were not something that we thought the consumer market nor our own economic models could support over the long run. So fortunately, we were able to reach a couple of agreements with major programming providers that give us more long-term certainty on both economics and digital rights.

If I can ask one follow up. Maybe just talk about more color about the gross add growth, if that wasn't the driver of the lower gross, if you could maybe spend some time talking about what the driver the gross was this quarter, lower than at least we expected?

Yes. Well, there's probably three things. One, the programming interruptions clearly are a factor, not only on churn but also gross add and new activations. And there is a residual effect to that as well, not only during the period when the interruption is occurring, but there is a lag effect associated with it. Secondly, I would say we continue to continue to operate in a challenging competitive and economic environment. We're not seeing -- while we believe maybe the housing issue has bottomed out, we're certainly not seeing a recovery there. And thirdly, frankly, I would say we still have executional issues internally in both sales and marketing, as well as retention.

Your next question comes from the line of Doug Mitchelson with Deutsche Bank.

Can you explain the sort of the rationale behind the price increase being larger in 2011 and then holding steady those pricing in 2012?

This is Bernie. We'd put a lot of thought into this. One of the things that, I think, was announced fairly recently is that we're going to be undergoing a billing conversion here at DISH over the next year and a half or so. And it's a pretty difficult process as it is when everything goes smoothly and everything goes right. And one of the things we're trying to accomplish in this window the next year and a half or so is to try to impact our customers less what we don't have impact. There's going to be other impact as a result of doing the conversion that are going to be inevitable. So that was a big part of what went into our thinking. And if we're going to not do an increase next year on some of our core packages doing a bigger increase this year made sense, particularly when you look at where our prices are compared to our competitors, we thought that we had a little bit more room, put in a bigger increase this year. And then at the same time, be able to not disrupt our customers much over the next year while we're going through our conversion.

And then when you think about -- you talked about the challenging operating environment, you've got certainly a lot of customers out there that are more economically challenged than normal, and now, you've got a bigger than normal price increase. So I imagine you're anticipating higher than normal churn-related price increase this year?

Yes, we've done a lot of preparation for this price increase. The price increase is happening right now as we speak. The first customer's getting the increase of bills that are due, I think, today. But versus lower increase, I think, you would expect a slightly higher churn. The message of being locked in for two years actually does mitigate back quite a bit when customers do call in ask about the larger-than-usual increase, I think, being able to tell them that we're frozen for two years has worked very well. And we've done a lot of preparation, a lot of training for this. So I think we're in good shape to handle whatever happens over the next month or so.

I know you don't give guidance, but if you can help us in the tax rate, it looks like it's 37.5% core but there was unusual items that brought it down in 2010. Is there any in 2011 we should be thinking about relative to your sort of normalized 37.5% tax rate?

This is Robert. I think you should think about around the 38% as sort of the steady-state rate. There were a lot of small one-time impacts to that. I think we've talked about some of them related to valuation allowances, state, credits, things like that. But steady-state more than 38%, 39% rate.

And then EchoStar XIV is showed at $72 million a year for obligations for the life of the lease, which seems awfully high relative to what you guys usually are paying for satellite. Is that one where more value is being transferred to SATS, or is it a bigger satellite? Or can you help me sort of understand the dollar amounts there?

It's just a more capable satellite more than anything else. So no, there's no value transfer there.

This is Charlie. It costs a lot more to build a satellite today and launch a satellite today than it did the first generations we built. So we've negotiated an internal rate of return that we've done, not only with EchoStar but with other companies that just follows the same pattern in terms of a rate that we're comfortable with. But satellite is probably 3x bigger than what we would launch six or seven years ago, and we're not paying 3x the rate. So there's some efficiency in the satellite.

Your next question comes from the line of James Ratcliffe with Barclays Capital.

First of all, in the wireless space now, with the 700 megahertz spectrum and DBSD and potentially TerreStar and the EchoStar outside, Charlie, can you talk about generally, how you view these assets as being stitched together? Or do you view the EchoStar, TerreStar and DISH DBSD deals as independent stand-alones, but one doesn't depend on the other? And secondly, if you could just talk about operationally, you could've been working on improving installation process, marketing process, retention process, where on those three, are we in the fifth inning, ninth inning? How far through the operational improvement are we?

First on spectrum, I mean, I think we look at spectrum independently and we've always been issuing spectrum. I mean, as you guys probably know, we probably been in every option that the SEC has been in the last 15, 10 years or whatever starting with DBS slot [ph] at 110, we typically lose. We typically can't outbid some of the big guys and doing that. But we've always looked at spectrum. Independently, it has value. As an example, 700 megahertz, AT&T just paid well over almost $2 billion for a similar spectrum that we don't have quite as much spectrum as Qualcomm had. But we think it has value just as an asset. We typically -- we'd rather buy it strategically because we think can add more value to it so we look at that. And DBSD is a satellite-related company. It has satellite operating in outer space today. And the business plan just takes longer to get going and that's why they're going to end up in bankruptcy. So for us, it's an opportunity. We just have supported the planned framework that will be in front of the judge next week, and we will wait to hear whether our plan is approved or somebody else's plan is approved. And then we look at it and say, again, if you can inspect them individually, it's important, obviously to the extent that spectrum can go together, which we think DBS from a video perspective goes with other spectrum for other reasons. That can be an additive and synergistic to that. But we'd look at it individually first and say, "Is there anything there for us first." So we look at DBSD kind of individually at this point as we did 700 megahertz.

And on the operating process and operating improvement, how far along are we on that?

This is Bernie. I'd say fifth inning might be a rough estimate. I'd say, we feel like there's as much room for improvement ahead of us as we've achieved so far to date. I think with the billing conversion that I talked about, we've made a lot of things, I think, simpler from a customer standpoint over the last year, year and a half. One of the challenges now with regard to the billing conversion is we want to push that simplification through to our back-end systems. So our billing system is kind of the core, the heart of how we run the company. But we have a lot of edge systems that function, interact with the billing system, and try to get those simplified so that our systems are more reliable and our tools work better for our agent, I think it's still a lot of benefit yet to be realized. And then recognize that our business isn't standing still. We're continuing to change as we try to sell devices like Sling Adapters or trying to add offerings like high TVFD [ph]. So part of operational improvement has been catching up on a number of years where we didn't focus on it as much as we probably should've. But a big part of operations is that we start implementing new things that are quite a bit different being ahead of it and try to make sure we don't introduce problems that we've had in the past.

Your next question comes from the line of Craig Moffett with Sanford Bernstein. Craig Moffett - Sanford C. Bernstein & Co., Inc.: First, you mentioned on the last call, you sort of hinted that after you account for programming subsidies, that there may not be a great return on attracting certain kinds of subs. I wonder if you could elaborate on that a little bit and talk about your view now and if that's changed at all? And then just one housekeeping question, as it relates to the TiVo litigation and that is how many set-top boxes do you have that are still of the model numbers that were originally found to be infringing?

First, I'll take the first one. Again, the way I analyze SAC, this is me personally, I'm probably the only person who does it this way. I look at and what I give our guys ability to do is based on this is to look at what the total cash SAC is and then what the programming discounts are or the other discounts we give to give to customers. So when we give away $200 of programming, I'd look at our SAC as being $1,000. And then you look at your ARPU and you look at all your churn, you look at all your numbers and say, "Is this an economical model?" When we first started in DBS, that was pretty -- you didn't really do the analysis because the customer was paying for his equipment so you didn't really have any SAC to begin with. So it was all profit. Now as you move closer to that economic analysis, you're not sure if some customers are actually economic for you. You have to think ahead a little bit here. But if you're going to get somebody two years of programming discounts and a two-year agreement, at the end of two years, they're just going to ask for more money. They're going to leave because they have three or four other choices to go to, not the least of which might be the Internet, or they're going to ask for more discounts. So you can't really run a model now where you say, "I get a customer with a $1000 SAC, but don't worry about it, two years from now, he's going to paying me $90 ARPU and for the next 10 years." Because that's not going to be realistic at the marketplace. So when you look at that, you say, "Where do I want to spend my money?" And what I spend my time on it, I want to spend money on something I'm going to get a return on. And so when you look at that, there's less of a customer pie probably for everybody in the industry but certainly for us to go after. It's got to be a little better credit score, got to be a little bit a customer that might be strategically a little bit positioned for your particular company to look at. And so that's why -- so we probably less aggressive than other people in the industry, particularly on discounting programming for any length of time because we're not sure that, that type of customer is going to be a long-term -- be the best long-term investment for us. I'm not saying that you can't make money in that customer. You probably can. But whether it would be the best long-term investment for us, no. Others have a high ARPU or lower churn that an economic analysis will be different for them. But it's not a given that as you go after every type of customer who would actually want your service today. So I think the dynamics are changing in our industry in that we have new competitors from the phone companies and we have new competitors from the Internet. And virtually, anybody can enter the Internet business to be competitive, not the least of which some of our programming partners in sales and a lot of piracies. So we've done a pretty good job of controlling piracy on our end. But the Internet piracy is off the charts free for people. Programmers put stuff on the Internet but they haven't really protected it or don't realize the extent of what piracy can be on the Internet. So we take all those things into consideration and say, we're fortunate we have a large critical mass of customers, a stable business for us, a stable customer base. That was awful lot of cash flow and we're able to hopefully, we're able to maneuver our company to what I see on the opposite side of that, which is less opportunity both in satellite and our current core business, and lots of other opportunities are out there. As far as -- do you have a quick follow-up on that question? Craig Moffett - Sanford C. Bernstein & Co., Inc.: Yes, reading between the lines then, is it your intent that you're more selective and does that explain some of the change in gross additions?

I'd say it two ways. One is, I don't run the details how we do it, but I'm not giving -- when somebody comes in and this is a company where -- if we were a bank and somebody was coming in and offer me subprime loans and they said, "We got to do subprime loans because the other guys are doing subprime loans." I'm going to say, "We're not going to do subprime loans and we'll pick the pieces up two or three years from now." So our guys have an economic number they can work with, and they're only allowed to go after economic customers. If they go after economic customers and I believe we could do a lot better than we're doing, I think there's a lot more economic customers that we could get than we're getting. But they're not -- they can't go out and match every programming offering and give away the store just to get a customer to please Wall Street. That doesn't make sense for us and realize we have a different set of economics than other people in the industry. So for other people, they are making their own rationalizations. For us, we look at it just as DISH Network. And so I'm disappointed that we're not getting customers. Are there a million gross adds a month, a quarter out there for us are economic? Yes, there are. We're not getting a million so we're not operating as efficiently as we should to go out and get those customers that would be economic for us. But that discipline is tough for our management team who's maybe two years ago didn't have a lot of discipline going after customers. And so when you put that discipline in place, it takes a long time for them to react to that and figure out new ways to go out and get customers that make sense for us. But it would be -- only because I look at it from a long-term perspective, I worry about what we're going to look like five years from now and not what we're going to look like five quarters from now. And when I look at how we look five years from now, we have to make some -- there's a lot of things that are going on. And we went through this -- this is a long-winded answer, but we went through this twice in our careers. One was when scrambling happened back in 1988 or whenever it was when we had to react to totally different marketplace because programming wasn't free. And then we had interactive DBS where in the big dish business, it took total fundamentally changed to a little dish business. And now our business is changing, not only the video is changing to more competition and different forms of video distribution, so we have to be ready to adapt to that. And sometimes, I'd rather be on the early end of trying to adapt to that than the back-end. Long-winded answer. TiVo, we haven't disclosed how many boxes that are affected by -- could be affected by TiVo. But obviously, I would just say, we have material risks obviously in the TiVo litigation. We're fortunate that we got en banc hearing for the full Court of Appeals. If you were a cardplayer, statistical player, the majority of en banc hearings will return lower courts either in whole or in part. But each case is different and there's no guarantee it will go one way or the other. But given what TiVo has told the District Court, what they've been told slightly different story to the Appeals Court and then a slightly different scenario of their story of their patent to the patent office during reexamination, we're confident that we don't violate their patent.

Your next question comes from the line of Stefan Anninger with Crédit Suisse. Stefan Anninger - Crédit Suisse AG: You mentioned in the Annual Report that you filed this morning that the economy competition and programming disputes have been the key drivers of churn. It would seem that lower attention spending might also be a driver of churn. I say that because your sub-related expense growth remains very, very low and imply that retention spending remains quite modest and that perhaps you're deliberately letting lower-end subs go. Can you discuss your retention spending strategy as you look forward and how you're approaching that? And is it fair for us to expect elevated churn as you let some subs go? And then on a related note, can you discuss your recent price increase, which seems to be the stiffest at the lower end of your packages and how we should think about that? And why you might have approached it that way?

This is Bernie. First of all, with respect to retention spend. I think over last few years, we've been trying to meter how much we're spending on retention spend to see if we're at the right point. I think a couple of years ago, we thought we might have been a little bit higher than we ought to be last year. We've turned the dial back a little bit in the beginning of the year and we probably in hindsight went a little bit too far. I think Tom alluded to the fact that in the fourth quarter, our retention spend increased a little bit and part of that is seasonal. The fourth quarter is usually a big time of the year for people upgrading to HD and whatnot. But I think based on learning from the last few years, I think somewhere in between what was done the last few years is probably where we think is the right spot. With respect to the price increase, part of the reason for that being -- it's a bigger percentage obviously on the lower price packages. We did a straight $5 price increase across our core packages, AT120, AT200 and AT250. And yes, there is a bigger percentage increase on the lower price packages. It felt like we had a little bit more room there from a percentage standpoint and to make things simple, we just went with $5 across-the-board.

And Stefan, this is Tom. I'd also comment that as Charlie alluded, we are not discounting promotionally to the degree others in the industry are. But when you get through the promotional period and you look at list pricing, we still have a fairly large gap between us and the other players. And so we felt we had that room to make the move now and give customers the certainty for the next two years.

AT120 also, forgot to say, a year ago, we didn't touch AT120 pricing at all. And we had previously moved up AT200 and AT250 pricing a year ago. So when you look at it over a couple year period, actually, we weren't targeting the lower end at all. Stefan Anninger - Crédit Suisse AG: I guess, I understand that strategy. But does the sticker shock effect sort of concern you as -- I mean, I understand that you aren't anticipating or subs shouldn't anticipate price increases for the next two years beyond that. But can sticker shock be a factor here as you think about churn in 2Q, especially?

This is Charlie. We think it is a risk -- there is a risk in the strategy of what we're doing. But there are strategic reasons why we're doing it the way we're doing it. I'd say a couple of things. One is, the first quarter is seasonally a lower churn quarter typically. So I don't know that you see the effect -- all the effects in the first quarter if you're going to see an effect because in the middle of winter people aren't necessarily going to change their system because price went up. So I have to really have to wait and see for a couple of quarters to maybe even three quarters to really factor in. Obviously, next year, we should have an advantage. And we've also done some things for the customers who we really want to retain, we've done things proactively. So I haven't personally gotten a lot of noise on it from customers, and that's the only peripheral evidence I can give you. It's still pretty early since the bills just start. The customers have known about it -- all of our customers know about -- they haven't received their bills, but they do not start coming in until today. So obviously, if you think at the lower end, the price increase can't be a super positive. But we've known it wasn't going to be positive so we've done a lot of things proactively that I think are going to help. And again, we're very competitive. It's not -- I mean, we're still 20% -- our customers are paying 20% less than they pay our competitor. So there's still room for us. So we just don't know, we just don't know. But anecdotally, I talk to customers all the time and I'm not getting a lot of flack.

Your next question comes from the line of Marci Ryvicker with Wells Fargo.

Charlie, I just wanted to go back to your comments on the spectrum and make sure that I'm understanding your comments correctly. Is it fair to say that you look at spectrum as a valuable investment? Or would your plans, if you get it all, include any sort of wireless network build out? And then secondly, at what point do you get more aggressive by going after subs? Because it sounds like competition is not likely to change, the economy is still slow to recover. So is it fair to say you probably will not be pursuing subs for a while?

I'll take the second part first. I don't think it's fair to say we wouldn't pursuing subs. I think there are things that we have advantages in, in pursuing subs that we haven't taken full advantage of. I would say that we haven't done the hard -- if I was critically criticizing myself, we haven't done the hard work of going out and saying, "Okay, maybe we're not trying to get everybody. We're not trying to get all 110 million homes. Where do we have advantages and where we really like to focus." And it's been a bit of a struggle to get us focused on those areas. But we should be very aggressive in those areas because those are very profitable customers for us when you run the economic analysis. And I think it's -- so often times, management sits back and kind of throws stuff up and hopes that that's going to get lots of subs, but you're getting the weighted average of subs instead of going after subs you should go after with a more of a LIFO approach instead of a shotgun approach. And I think we have to get better at doing a LIFO approach because there are many, many, many subs. Again, are there a million gross add a quarter that are profitable for us? Yes, there are. We have to change and be willing to do the hard work to go get them. So to the extent that our management teams can do that, then we'd be aggressive in those areas. I would be less aggressive -- we all have been less aggressive in just a general market, you know, throw something up, hope somebody calls up and changes to us. On the spectrum, it's I guess, again, we think spectrum has value. Not all spectrum has the same value, but we think spectrum has values. And then if you can do something with it strategically, it can have more value or less value if invest the wrong way. Or if you can accumulate spectrum that kind of fits like it fits together, then you can create some more value. And we primarily played in the Ku and Ka DBS spectrum but we have some 700 megahertz spectrum and now, we've made an offer for some S-band spectrum. There's not a grand strategy at this point other than we've been an investor in the company for a long time. We've lost money in our investment. We're trying to get the company moving in the right direction. They have a management team, they have a satellite. They just need some capital. It's going to take capital. They need some capital to improve the business. And it's in an area that we know pretty well so we think it makes a lot of sense for us to do it. It may make sense for others to do that. There's no guarantee that our plan will be accepted by the judge.

Your next question comes from the line of Jason Bazinet with Citi.

I just have two questions. One, I noticed the allowance for doubtful accounts number hit about $30 million I think in the fourth quarter, which is up about 2.5 fold, even though your gross accounts receivable hasn't moved lot. So I was just wondering why, what is sort of behind the larger provision there if you're all anticipating higher churn? And then my second question is, and this may be bigger picture, I'm looking at the lack of equity shrink at DISH, the decision to spin out SATS, some of these websites the Street is looking at like dishworldiptv.com and your wireless investments, and now you sort of swirl all that together and it almost suggest that you maybe don't see a lot of durability to the cash flow to the base DISH business because you see a lot more Pay-TV providers selling traditional Pay-TV packages over the Internet five years from now. And you're sort of going to try to be an early adopter and sort of shape that and be bigger in it, but do you think that's a reasonable hypothesis in terms of why we're seeing all these sort of moves or lack of moves on the part of DISH?

Jason, this is Robert. There's nothing dramatic about the change in allowance for doubtful accounts. We analyze that every month. And just based on the data that we saw, we thought it was appropriate to think of that allowance. Some of that is related to the higher churn that we saw in the back half of the year, given more data on that account. But I don't see going forward any dramatic changes in that account.

This is Charlie. On your second part of your question, I wouldn't frame it the way you said it. I think there's a lot of durability in our cash flow. And I think we've positioned ourselves really well, we're doing the right things to make sure that -- including how we move forward to make sure that we have a very solid, steady cash flow. Having said that, for us in terms of DISH subscribers, that's a mature business for everybody. I mean the whole industry is -- net new subscribers is probably I don't know what it was this quarter, last quarter is actually negative. But it's probably mature. I doubt you're going to see a lot of losses, I doubt you'll see a lot of gains industry wide. So it's a pretty mature industry from a video perspective. Your programming costs are going up, you can only raise your prices so much. In that environment, I think you can layer on investments that utilize your core cash flow and you layer on some things that increase it and I know that people in the industry are talking about advertising, there's still -- as the technology for low-cost advertising gives -- the catch is the DBS industry able to do what the cable industry has been able to do from an advertising perspective but certainly over the top video, there's certainly broadband there's certainly other things that -- there's other ways to get cash flow out of the existing customer relationships you have and existing pieces you have. But you just have to be careful about -- all I can tell you is the way people -- people come here, come in and present something to me, "Let's go do this." And I run the economic analysis and we lose $300 on every subscriber we got if we did that. We get plenty of subscribers but we lose $300 long-term on every subscriber. I'm just not interested in doing that. Okay. They're going to have to come in and show me a plan where they make $300 on a subscriber. I'm a long-term shareholder I'm just trying to make rational long term strategic decisions that increase the value of our company and we have a great core base, we have great programming partners, there's lots of things going on that we think we're really good at. There's a lot of pieces of business that we have advantages in and we just need to make sure we move where we have advantages. We don't waste money where we don't have an advantage and then we continue to work with our programming partners and other partners that we have in this industry to move our business forward. We know a lot about -- we're pretty confident now. I probably spent the last three years trying to understand where I think things are going to go, I'm pretty comfortable now. I'm on this calls a few years ago, so I didn't know -- I don't think anybody knows where these things are going. I think I know where this thing is going now. Only knowledge that I can give you, if you were in the phone business and wireless came along and you kept on putting in a twisted pair of lines, that was still a good business for another 10 years, 15 years, but at some point that wasn't a very good business. So I'd rather be on the leading edge of that than the back end of it.

Your next question comes from the line of Bryan Kraft with Evercore Partners.

Bernie, you talked about the billing system conversion being disruptive to customers, I just want to understand a little better, how it will be disruptive and why? And then also just to follow-up, I mean looking at what you've done, Charlie, I mean the Hughes acquisition on the SAT side, the Liberty Bell acquisition within DISH, the Spectrum acquisitions, how did these all fit together in terms of connectivity? It seems like you're focused on connectivity on the one side and then it also sounds like you're focused on planning to offer an Internet-only video product on the application side. Is that right? And if that's the case, have you been securing the rights to that as you've been signing new programming contracts?

This is Bernie. I'll take the first piece. The way it's disruptive when you go through a billing conversion one of the things -- a billing conversion is a pretty hard thing to do. I think the analogy used is the equivalent of a heart transplant that you're doing. And to make that easier, one of the things we tried to do is conform our customer base, make the customer base a little bit more consistent. And we've actually been doing this over the last year already. So some of this impact has already been felt. But yes, over many, many years, you have customers who come in under various different rules, various different programming packages, different packaging rules, et cetera. And if you wanted to move all the permutations over to the new billing system, it'd be extremely difficult and extremely risky. So what we've been doing over the last year is changing some of our customer base through our legacy packages, legacy rules and legacy fees and conforming them. So those are when you do see those changes, it doesn't impact customers' bills, it doesn't impact what they see, et cetera. So those are the things that we can avoid if we want to make the convergence successful and as unrisky as possible. Some of the things we can't control like the price increases we decided to purchase the way we always have.

This is Charlie. I don't anticipate -- given what we've done operationally to prepare, I don't anticipate any major customer disruption from a billing conversion but we certainly are being very conservative about how we do it. We certainly wanted to minimize -- all the changes we can control, we've done. And now, it's just the blocking and tackling of the billing conversion and we're pretty confident that, that's not going to be a disruption. Based on what we've done and if there's a pain in billing conversion, we've probably taken 90% of it already --

Bryan this is Tom Cullen. Let me take the second part of your question. You touched on a number of things. One, yes, we are driving connectivity pretty aggressively specifically broadband connectivity in most cases. As we do introduce new products that enhance linear television, we are also introducing and just recently launched VOD services that are accessible over the IP pipe. So you're packaging linear channels for movies with the rights to on-demand access to thousands of titles for no additional charge. So connectivity is important on many fronts, including advertising and set-top box help and customer notifications. But from a feature functionality standpoint, it's also important. As far as Liberty Bell goes, it's a very small CLEC that operates today only in a couple of states. We see there's an opportunity to test our ability to bundle wholesale broadband and voice as per the CLEC contract. With DISH Video services, I think we all know that standalone CLECs have always been challenged from a customer acquisition standpoint on the residential side. But if you can dovetail that offering with our existing media spend and marketing efforts for the video product, we think there's an opportunity there. So very small operation today, it wasn't a large acquisition as you know, but it's something that we're going to be moving forward with in certain test markets in the next several months. As for Internet-only services, I think you're probably referring, as one of the previous questions, surfaced the DISH world product. This is in our International business, we often have Internet-delivered programming rights and that was a business that we looked at opportunistically because, frankly, many of those that target customers in those foreign language groups are often in MBUs. And so there's an easier way of providing service certainly without the install or address those customers where sometimes you couldn't complete successfully a satellite install. And regarding programming contract renewals, yes, we are pushing for expanded digital rights. And in most -- not every programmer has made that decision but we're comfortable that we'll have parity at least with the other players in the industry as we move forward.

Do you envision, though, I understand the International is a little different but do you think at some point, you're going to have a video product that essentially resembles your current satellite TV product but is delivered solely over the Internet?

I think that in large part is due to the position that the largest programmers take in regard to streaming rights.

And what position are they taking? I mean as you asked for it in somewhat of a different form? I mean you're still talking about a bundle of channels, I think, that's akin to a Pay-TV product?

As Charlie's mentioned, the world's changing around us and clearly, our agreements with programmers are confidential. But I think you and I can see plenty of evidence every day of programmers pursuing new forms of delivery and we want to be assured of equal footing as those developments occur.

This is Charlie. My gut feel is that some programmers will grant some over-the-top Internet rights and probably undermine their core business. I think Starz probably is a good example where they sold some over-the-top rights fairly expensively and we know that, that's hurt our Premium business for them, far more than they're getting paid for it. So I think people will experiment with that and some people will make some mistakes and some people will do a great job of doing it right. But I mean, I can give you anecdotal evidence, I know people who's subscribed to ESPN 360 and unhooked their cable or satellite. So ESPN makes a little bit of money on 360 but loses money on Disney and other things that would, as part of their core stuff. So does that makes sense or makes some sense. Let me tell you contracts, until you see an industry where Pay-TV actually goes down, right, number of subscribers. So I think it just kind of a wait-and-see attitude but it's going to play around. I think there'll be some people makes some mistakes and some people will experiment correctly and eventually, as an industry we'll figure it out. The hope is that you don't take too much money out of the ecosystem while you're figuring it out. You don't do something long term that you never put the genie back in the bottle like the music industry did. So we actually prepared that kind of soup to nuts that people make a lot of mistakes and what would that do to our business and how would we do really well in that environment. And I like that kind of -- I like change. I like those things and I think as a company, we're prepared for change.

Your next question comes from the line of Tuna Amobi with Standard & Poor's. Tuna Amobi - S&P Equity Research: So the first question that I have, I wanted to circle back on this programming subsidies topic. So just kind of maybe another level of granularity in terms of the dynamics between premium and non-premium channels in terms of how that affects the economics for you guys. Some of the premium networks, as you know, have alluded to an increase in the number of promotional subscribers. So I wanted to get a sense, what percent of your promotional, what percent of your promotion is actually related to premium versus non-premium and how those economics affect you between those two kinds of channels?

This is Charlie. I'm not sure I understand. And you can jump in here, Tom. We don't do a lot with promotional programming on premiums. I think the industry in general, may give one offer, another for three months free, and there's a lot of logic to that because it's usually a negative option, which means the customer continues on with the programming after the free programming. And you'll get a customer you otherwise wouldn't have gotten. That's a little different than giving away two years of discounts on your core package. I never, this is just me, I'm probably the only guy that thinks this, but I don't like to give away my core business. I give away anything peripheral but I don't give away my core business. So when you give away your basic package programming, that to me is not the most logical thing, but then we're not doing very well in the marketplace vis-à-vis some competitors so maybe I'm stupid. Premium is not as core, right. And you get customers you otherwise might not get, when you run the economic model on premiums, it's a little bit different than a basic package. And so I don't think there's anything too dramatic going on in the Premium business that's not rational other than premium providers providing their content over the net through other forms, where customers now continue to maintain cable or satellite as a subscription but cancel their premium subscription to go get it from a Netflix, Redbox instead of paying $15 per premium from somebody else, and they get enough premium product that they're pretty happy. So a lot of money went out of the ecosystem when that happens. So I think we've seen a general downturn in an industry in terms of premiums subscriptions via cable and satellite. And I think that's primarily caused by alternative sources of that premium content at less price and more ala carte. Tuna Amobi - S&P Equity Research: Just to understand you, Charlie, when HBO, for example, kind of says that they're -- when they do a lot of promotions and as you alluded to, subscribers are migrating into some of these over-the-top services. I know you've explained that's not part of your core product but I'm just trying to understand how much of a hit do you take when an existing subscriber, for example, gets those kinds of promotions from, say, HBO or is that something that's not relevant based on what you're seeing right now?

That's not relevant because he doesn't switch from DISH to somebody else to get -- if he's an HBO subscriber from DISH, HBO is supportive of us. Everything they do it actually helps us. HBO hasn't put their product on the Internet per se, unless you already are a subscriber. So in my opinion, HBO is going at it at a much more rational way than maybe some others. So HBO is probably the one end of the thing that looks like they're doing it to protect their base. Where they get hurt is if the customer, because of the economy the customer just can't afford $15 a month for HBO. They may go to a Netflix for $8 or they may go to Redbox or they may not watch movies. And HBO can only control that by how they make it easier for customers, which they're starting to do now with HBO to Go, (sic) [HBO Go] make it convenient for customers to get their product everywhere and also great programming. I mean obviously, they have original series and things and that's a big driver of their business as well but I don't know, I hope I answered your question exactly, you might want to...

I have a couple additional comments. This is Tom. One, what premiums are offered during different promotional cycles is often tied to where you are in your contractual cycle with the individual premium providers, first of all. Secondly, when you look at our promotion right now that we have in market, we are promoting Starz. And then we're also using the new platinum product that I referred to earlier, where Platinum is a package of linear movie channels as well as we've contracted for the rights, the broadband delivered rights to the libraries of both Epix and Starz and so we're positioning a movie service to drive connectivity as well. Obviously, historically, premiums were viewed as movies, but now there's a higher element of original programming, so it's not quite a parallel to movies. But for this particular promotion, we've got Showtime alone as well as our Platinum product. Tuna Amobi - S&P Equity Research: First of all, if you can give us a sense of how much advertising, it seems with earlier numbers I would presume that's growing at a relatively healthy pace while perhaps still relatively small. And along those lines, what's your long-term perspective on local and addressable advertising, when do you think that can begin to gain some traction? And separately several years ago, Charlie, I remember you guys made a decision to forgo in-orbit in insurance for your satellites and while that seemed like a pretty gutsy move at the time, it's looking awfully clever today. Do you feel that, that's still the right decision? And how do you -- what are the steps you've taken to mitigate any potential losses there?

Tuna, this is Tom. I'll take the first couple. First of all, regarding advertising, the spend in the fourth quarter was a bit unusual because of the programming interruptions that we've discussed earlier. Those interruptions, I think, were not only unusually deep but the duration of them were longer than you would normally see. So the advertising effectiveness in the quarter drove somewhat of an artificial inflation of both churn and SAC and there were negative headwinds around that. Second question regarding advertising, yes, we are on a path to have addressable and local advertising and the product is -- I reviewed it just the other day it's looking pretty good. I think we're getting close to being able to Beta test that. And I would forecast that we'd probably be in market, certainly, later this year. I couldn't be more precise in terms of late third quarter or early fourth.

This is Robert. We call out advertising expense in our financial statements and it was roughly $100 million in the fourth quarter. [indiscernible] average on revenue? Tuna Amobi - S&P Equity Research: Actually advertising revenues.

The revenue, we don't call out but it's been growing double digits throughout 2010.

There's some upside. This is Bernie. You have to be careful about when you go to localize advertising in a satellite environment, you're coming off a hard drive typically to do it. So we don't want to mess with the customer experience. We can do it technically today but it has to be seamless to the customer. So it's not, for us, it's not quite ready yet. I think we shouldn't release it because I think it affects the customer in a negative way. But in-orbit insurance, again, it's just math. We typically, we look, we've taken insurance from time to time. For us it's just math and obviously, to the extent that you can have critical mass, which we kind of do now with 14 or 15 satellites. Then normally, an insurance company is making a profit or they wouldn't be in the business. And normally, in-orbit insurance you have some known defects on your satellites typically and they always exempt them from the insurance. You can't really insure what you what to insure sometimes. So it just hasn't made sense in general for us to do it and the best way to have in-orbit insurance. And the third thing is insurance doesn't ensure your customer base. So it just ensures the satellite. So the real way to take insurance is have additional capacity in outer space and have backup satellites that's ready to go as you can in case you got an issue. And I think we've got another couple of satellites going up one this year and one next year. So we continue to -- from time to time, we'll start to -- we'll have to build replacement satellites that give us that insurance.

Vijay Jayant with Citadel Securities.

This is Kunal for BJ. I have a couple of quick questions. One is you spoke about DBSD requiring additional capital. How much additional capital do they need? And in that regard do the retrans deals that may be coming up this year, any big ones that we should be aware of?

I'll let Tom take the second part, this is Charlie. On DBSD, I think to grow that business they'll need more capital but it would be; A, premature for me to talk about what I think that is and that will really be up to their management team to talk about it. Then if we were in an ownership position, certainly we'll talk about it but that is not an asset that, in my opinion, can be utilized without investing more capital.

And this is Tom. Regarding retrans, in general, yes, obviously, we don't disclose when an individual agreements are expiring. From a general programming standpoint, 2011 will be lighter in terms of renewals and expirations than either 2010 or 2009. That being said, with retrans there are always deals in cycle. I mean retransmission consent deals are constantly under renewals. So yes, we do have some coming up this year and we'll deal with those in due course.

Did you have any closing remarks before we close?

We'll be back in May, I guess.

We appreciate your participation and interest. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.