EchoStar Corporation (SATS) Q3 2015 Earnings Report, Transcript and Summary

Good morning. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce Mr. Deepak Dutt, Vice President, Investor Relations, go ahead sir.

Thank you, Karen and good day everybody. Welcome to our call. I’m joined today by Mike Dugan, our CEO; Dave Rayner, CFO; Pradman Kaul, President of Hughes; Mark Jackson, President of EchoStar Technologies; Anders Johnson, President of EchoStar Satellite Services; Ken Carroll, EVP of Corporate and Business Development; Dean Manson, EVP and General Counsel; and Joe Turitz, Associate General Counsel. As you know, we invite media to participate in 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 recording, which we ask that you respect. Let me now turn this over to Joe for the Safe Harbor disclosure. Joe?

Thanks, Deepak, and hello everyone. All statements we make during this call other than statements of historical fact constitutes forward-looking statements that involve known and unknown risks, uncertainties and other factors, that could cause our actual results to be materially different from historical results and from any future results expressed or implied by such forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K and our quarterly report on Form 10-Q filed in connection with our earnings. All cautionary statements we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place any undue reliance on forward-looking statements. We assume no responsibility for updating any forward-looking statements. I’ll now turn the call over to Mike Dugan.

Thank you, Joe. Good morning and welcome everyone to our third quarter Q3 earnings call. Before we get to our discussion about this quarter’s results, I want to spend a short time talking about the changing landscape of our industry and our exiting role in new developments. It was obvious that that people in the world today want to have broadband access to the internet for information, entertainment and commerce. Today very less people are on the unserved side of the digital device. We believe over the next 10 to 15 years many of them will require this capability. Wireless and fiber infrastructure should be an important part of this transition, so as a company we believe that other substance like GEO High Throughput Satellites, LEO networks of OneWeb balloons and high-altitude platforms with the acronym HAPS and GPS will have their own critical level. EchoStar is well positioned with these technologies, global presence, relationship, highly scaled and experienced personnel, and expensive track record could be an important player in all of these developing markets. With HDS satellites like Spaceway, EchoStar 17 known as Jupiter 1 and EchoStar 19 we have a major division in North America today. Next year, we will launch a consumer service in Brazil and we continue to work on other Geo HDS [indiscernible]. Our investment in OneWeb gives us a unique capability in both equipment and global service revenue using OneWeb’s LEO network. We continue to work in other related areas to improve our participation and all of these incredibly exciting areas of the marketplace. Once the transflow capability for these access networks did close, we believe there will be significant potential for new applications and services. Our extensive video expertise recently enabled DISH Network to introduce its state-of-the-art OTT service in the United States called Sling TV. It would be natural for us to leverage this experience and technology platform in other areas of the world. There are many other exciting services to developing. My management team will expand on how the business will seek to participate in these growth opportunities within each business segment. But let me first turn it over to Mark Jackson who will talk about ETC. Mark will then be followed by Anders, Pradman and then Dave Rayner who will address the Q3 financial results.

Thanks, Mike. First a few comments related to Mike’s opening remarks and some of our strategic initiatives. We continue to support DISH with their growing OTT service again cost then can be, which is our platform infrastructure and patented adapted right technology. As Mike pointed out earlier, we are exploring opportunities to utilize our proven OTT platform worldwide. On the security and home automation side, we are developing a integrated home automation product line in total ecosystem that we are very excited about because of SAGE. And we are also pleased that we won the CSI award for best smart home product in September this year at IBC. This award is among the most prestigious and intelligent technology awards in the industry recognizing and rewarding integration and excellent improved distribution services. We are continuing product development work and marketing plan to support our upcoming launch of SAGE. We see positive trends in multiple areas of SAGE’s roadmap that can be a long term growth driver for EchoStar. On the set-top box side of the business, we continued developing new product offerings that will enable DISH to maintain a competitive edge in the marketplace. More specifically, we are finalizing preparations for the 4K Joey of cutting edge Ultra HD set top box that will soon be released to the Hopper Whole-Home system along with many other new products for DISH. In mid-July, we refreshed our award winning Sling product line with the announcement of the Slingbox into MSRP of $199. The M2 offers the same TV anywhere capability with the added benefit of the unlimited free mobile app downloads. The Slingbox M2 allows consumers to get all of the revised cable or satellite TV channels and recorded shows on their phone, tablet or laptop with superior HD video quality through the internet or cellular network. Additionally, the Slingbox M2 can be used with the most popular media streamers on the marketplace with our consumers can extent their TV experience to a large flat panel TV in the home or anywhere in the world. We are always looking for new and innovative way to deliver the vast experience and new products to our customers whether through technology or the chemical value that we provide we think that we’ll get there and hopefully get business back on track. I’ll now hand things over to Anders.

Thank you, Mark. We are continuing to advance the fleet expansion initiatives that we’ve mentioned on previous calls. EchoStar 21 for EchoStar Mobile, our European Union S-band venture, the EchoStar 23 multi-mission DBF satellite, and the EchoStar 105 commercial Ku band satellite and to work closely with our Hughes colleagues on EchoStar 19 and EUTELSAT 65 West payload. EchoStar 21 is now scheduled to launch on ILS Proton-M Breeze M vehicle in second quarter of 2016, slightly delayed following the May 2015 full time launch failure. All infrastructure necessary to support operation of the satellite over the EU remains on track to support compliance with our license obligations in 2016. The development by the Hughes mobile sat team with ground infrastructure including the gateway and earth stations as well as the terminal components of the network are also progressing well. We continue to be in contact with potential customers of the service in advance of the 2016 launch. We also continue to work with the EU and the member states to more clearly define and harmonize the regulations relating to the operation of the satellite and its companion terrestrially delivered services in order to offer a more robust product offering to the EU marketplace. We’ve been in close communications with SpaceX regarding their return to flight and continue to have a high level of confidence in their ability to maintain the 2016 manifest. The EchoStar 23 SpaceX is scheduled for launch on the Falcon 9 in the late third quarter or early fourth quarter of 2016 and the EchoStar 105 satellite is going for a launch in even the late fourth quarter 2016 or early first quarter 2017. Construction of both of those satellites will be on track to support the launch window. Pradman will be commenting on EchoStar 19 and 65 West. Finally, ESS sales activity increased through the quarter with new sales to U.S. government service, Boeing, and Panasonic Aviation and renewals with services with both ViaSat, as well as Boeing. I will now turn it over to Pradman.

Thank you, Anders. First, I’ll expand on our role in some of the strategic initiatives that Mike talked about. We are investing the OneWeb venture, which is the mere constellation of approximately 800 satellites growing to 1,600 in the second generation. What makes this such a compelling global broadband service is the availability of high user speeds, low latency and competitive pricing. Hughes will be the sole supplier of gateways to the ventures, and as expected there will be up to 50 gateways worldwide. We will also supply over one-third of the user terminals for this project. We also have the right of first refusal to lease capacity from OneWeb and provide broadband services in North America, Europe, Brazil, and India, where we have a longstanding presence already. OneWeb has continued its fund raising and plans to start service in 2019. And we have started work on defining the system architecture and continue to be excited to be part of this venture. Let me highlight our performance on key consumer metrics in the third quarter. We had 107 gross adds in the quarter, with the retail contributing 68% of these gross adds. As in the previous quarter this is a strong metric and a clear indicator of continuing demand for our service. We had net adds of 11,000 in the third quarter also. The make-up of our net adds continues the pattern from previous quarters. In Q3, Gen4 net adds were up by 25,000, offset by a reduction of 14,000 legacy subs. This is in line with our strategy of increasing the subscriber base on our Gen4 platform, while reducing our legacy base. Despite the fact that many of our beams are at maximum capacity, we’re continuing to have gross adds over 100,000 subs per quarter. This is a tribute to the quality of our service and the efforts of our sales marketing teams. We ended the quarter with 125,000 retail, wholesale and SME subs, Churn remains higher than we would like to see and we continue our efforts to improve it. We are investing in Echo XIX, Jupiter 2, our new HTS satellite, which would provide additional capacity to our North American consumer business and also to parts of Central America and Canada that are now part of the Echo XVII, Jupiter 1 foot print. Satellite construction is continuing and work on the ground infrastructure is progressing as planned. The current estimated launch date of the satellite is the fourth quarter of next year. We’re also investing the EchoStar 65 West satellite to provide capacity for our broadband consumer business in Brazil. It will enable service to up to 300,000 subs. The estimated launch date of the satellite is the end of the first quarter of 2016, and satellite construction as well as selection of distribution partners while the service are proceeding well. As we have said in the past, our strategy is to leverage our leadership and technology and market share in North America to other parts of the world. Brazil is the first example of the execution of the strategy. Last month, we also announced an important agreement with Global Eagle Entertainment. We will develop a full suite of aeronautical mobility features for our award winning Jupiter Ground Infrastructure that will enable service providers to offer industry leading throughput and spectral efficiency in the fast growing aeronautical broadband market. It will have the capability to deliver aeronautical services on Ku-band and will be fully compatible with wide beam Ku-band and spot beam Ka-band satellite capacity. Thus allowing mobility service providers to stay connected with high speed internet access virtually anywhere. We believe this is an important development which opens the path to our participating more actively in the fast growing aeronautical broadband opportunity. So to wrap-up, as Mike mentioned earlier we’re uniquely positioned to take advantage of the growth in the global broadband access networks and services. This includes technologies like geo high throughput satellites and Leo satellite systems and services. Our investments have focused on these items and the returns will start being realized in the next 2 years to 5 years. Our presence in over 100 countries and our local knowledge and experience will be very helpful in realizing these. I’ll now hand the call over to Dave Rayner.

Thank you Pradman. EchoStar revenue this quarter was $761 million, compared to $896 million in the third quarter of 2014, with the decline primarily attributable once again to decline in equipment sales to DISH Network within the EchoStar Technology segment. EBITDA was $217 million for the third quarter, compared to $248 million in the third quarter last year, primarily, due to the decline in ET sales, the impact of the conversion of the AMC 15 and AMC 16 leases from capital to operating, and a $10 million one-time pick-up last year resulted the change in accounting for our DISH Mexico investment. EBITDA margin for the quarter was 28.5%, a 0.8% expansion from last and without the lease change in one-time item mentioned earlier, the increase would have been 2.6 percentage points driven by higher margin revenue mix. Net Income attributable to EchoStar common stock was $30.1 million, compared to $64.1 million in the third quarter of 2014 and diluted earnings per share were $0.32 compared to $0.69 last year. A significant part of this drop was because of our tax provision in 2015 being higher compared to last year, due to current period losses from equity earnings and investments that do not provide tax benefits, as well as lower R&D credits resulting from the Federal R&D credit not yet being extended for 2015. In addition, the Q3 2014 cash provision included a large benefit from a revised calculation of the 2013 and 2014 R&D credits, which was recorded in Q3 last year. Our capital expenditures for the quarter were $123 million, compared to $165 million in the same quarter last year. This includes the impact of a $106 million refund of previous payments upon cancellation of a large contract. As a result, some of our large cost would be pushed into 2016. With this refund and the resulting delays in cost, I expect net CapEx to be in the $700 million to $750 million range for the full-year, with well over half of that amount being spent on five satellites we have under construction along with related ground infrastructure. Free cash flow, which we define as EBITDA minus CapEx, was $93 million in Q3, compared to $83 million in the same quarter last year. Turning to business segments; EchoStar Technologies revenue in the third quarter was $295 million, compared to $427 million last year, primarily due to the lower DISH sales. As Mark mentioned, ETC has a number of products and enhancements in the pipeline that we expect will stabilize our equipment sales to DISH. ETC EBITDA in the third quarter of 2015 was $26 million, compared to $38 million last year; the reduction being due to the lower revenue. Hughes revenue in the third quarter 2015 was $340 million, up slightly from last year. Consumer service revenue was up about 12%, driven by higher subscribers in ARPU that was largely offset by weaker results in other areas specifically international and mobile sat. International was significantly impacted by weaker foreign currencies. As a reminder, while the majority of our international equipment sales are conducted in U.S. currency, most of our foreign service revenue is conducted in local currency. As a result, we saw an approximate $8 million impact on the constant currency basis compared to last year. Hughes EBITDA in the third quarter was $102 million, an increase from $95 million last year, reflecting a 1.9 percentage point increase in margin. The primary contributor to the strong EBITDA growth was a higher mix of consumer service revenue, relative to equipment and international service somewhat offset by increased R&D spending and a $3 million litigation related charge. EchoStar satellite service revenue was $124 million in the third quarter, compared to $128 million last year. The small decline being the results of leasing fewer transponders on AMC-15 at the time of renewal late last year. ESS EBITDA in Q3 was $104 million, compared to $112 million last year, primarily due to the AMC-15, 16 leases being treated as operating leases this year versus capital lease in 2014, as well as the lower revenue. In the all other and elimination segment, where we record gains and losses on sale of securities, eliminations for inter-segment sales and other corporate transactions, EBITDA in the third quarter was a negative $15 million, compared to $3 million last year. The change was primarily due to one-time item in Q3 last year, as well as loss associated with our equity investments and investment portfolio in the current quarter. We continue to have a strong balance sheet in the end of quarter with approximately $1.6 million I’m sorry $1.6 billion of cash and marketable securities. I will now turn it back over to Mike

Thank you Dave, for correcting our cash flows. To conclude I believe we continue to develop the technologies and make the strategic investments to be a very key player in the evolving broadband, and video marketplace. It’s now time for questions. Operator would you please start the process.

[Operator Instructions] Your first question will comes from Andrew Spinola.

Thank you. I wanted to ask the question about the EUTELSAT 65 West A satellite I guess EUTELSAT is accelerating the launch of that by a couple of quarters. And then potentially pay more to Ariane to launch that by itself. And given how slow you’ve been or cautiously you’ve been proceeding in Brazil. Are you pleased with this satellite is launching early, or and are you contributing the cost to launch it earlier by any chance?

I think it’s really not – it’s not really earlier right, but we’re trying to stay in schedule and things.

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

Yes, let me just correct something and we’re going to launch by the end of Q2 and will be in service on July 1, which is always been our plans from day one as Mike, pointed out and we’re just sticking to our original schedule. The second question we’re launching just purely a broadband service. The DTH the U.S. service in Brazil is going on a separate track. And so this is going to be purely a broadband service very similar to the Hughes net service that we’re offering in the United States.

Understood. In terms of the set top box business markets. How – what’s the outlook for Q4 or are we approaching the point where we’re going to be moving to the next product cycle in that business. And as a sort of related question you had very nice margins in that segment this quarter, it sounds like you’re still investing in SAGE and now OTT as well. What’s driving the better margin do you see any benefits from some of the sling royalty initiatives that you would sort of put in place last year?

Well, to answer your questions basically we’d see a factory starting in Q1 and the set top box business. And we’re hoping that this would be very successful of that. In regards to say to our – we’re continuing to put a lot of effort in that we hope that that would be a good driver for us going forward. And we think we just got a very attractive Massdrop there as consumer I hope they like. In regards to the margin structure I think what we work really hard on is to control our cost more than anything else that help keep our margins inline and get our EBITDA where it needs to be over all.

Got it. And then just one last question from me. Pradman, can you maybe give us an update on the enterprise of VSAT business particularly outside the U.S. and how it’s performing in this environment. And how it might be getting impacted by currency?

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

Great. Thank you.

Okay.

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

No it’s Raymond James operator.

I apologize.

Just made a change for us.

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

Yes, Chris the conversion, which has really changed our accounting, because of some various options other parties had that actually happened in the third quarter of last year. And we had a pickup in our equity in earnings last year, because of that was the one-time pickup last year, but I mentioned in my comments. Overall the venture is going very well that they’re in very strong growth curve obviously that growth creates certain issues I think anytime you go on the kind of growth curve they’re going on market is scrambling to get them boxes in time those kind of things. But I think the business is going very well and our near-term intend is to continue to operate it and grow value within that venture.

Okay shifting gears EU and the S-band effort. Can you talk about how many of those EU entities you’ve now secured the sort of licensing requirements that you need in order to launch the effort?

Always there’s a license at the EU levels and that license it all depends on member states issuing licenses consistent with EU level license. At this point we hold 26 of the 28 member state licenses for the operation of the MSS system and the CGC rights or separate. And those are in my comments I stated that right now our focus is on harmonization, because there’s quite a dispersion amongst the various member states as to what the CGC rights entitle us through. And where we’re driving towards a standard format LSD to be able to offer EU wide system as opposed to individual systems within each member state.

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

We have been developing some initial devices as well as looking on – looking closer down the road as the adaptation on the other NSS services that already exists and had a put those in products that would be attractive in European Union marketplace. But we’ll be launching the service I believe in late third quarter or early fourth quarter next year where a Hughes has been developing and adapting the technology naturally creating the products and then we’ll utilize our sales and distribution capability within the EU now, which is considerable to distribute those products to third-party. So we’ll then service end users.

Got you for Anders on the I think you have a couple of satellites that are running off or at least there’s a November contractual in dates sort of should we be – what kind of revenues should we be modeling fall off or do you think there will be renewals on those satellites and then I have a second part question?

Okay. Well, I mean there’s Echo1, which is our oldest satellite we’ll be having it’s 20th birthday at the end of December, which is quite extraordinary given it’s 11 year design life. But that indeed will reach the end of its term with DISH Network I believe sometime this month. And DISH has notified us their intent not to renew it. As far as the redeployment of that asset, we are looking at a couple of opportunities limits, but they are more on the structure and development side than on the commercial deployment side. We didn’t have high revenue expectations for many redeployment.

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

Yes, Chris. This is Dave. So in the case of 23 – 23 has new capacity that we bring to bear and I would expect the entire satellite to be incremental revenue over what we currently have in play. EchoStar 105 is a replacement for AMC-15. There will be a significant increase and the amount of capacity that we have on that satellite, probably close to doubling the amount of capacity. And that’s not quite doubling, but a significant increase. And so whatever you’ve got in AMC-15, you can take up accordingly. The other satellites that we got obviously 21, as Anders mentioned earlier going into the EU and that will be a development program for EchoStar Mobile. And then obviously the EchoStar 19 and 65 West satellites, both of them will have incremental consumer broadband capacity.

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

So, we have a lot of different plans. I think it’s little too earl y to talk about them all. But direct-to-home and then going into big box and other distribution channels is certainly our roadmap. We’ll be giving more details on that as the product goes up.

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

Yes. The ARPUs were up a little bit. I think what drives that is two aspects. One, the mix of people thinking higher-end plans versus lower-end plans, which obviously contributes to the ARPU. And secondly, we offered these some special services as add-ons and people have been taking on more of those than we had in the past. So all of that resulted in the ARPU increasing in the third quarter.

Perfect. Thank you.

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

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

That’s probably a reasonable assumption.

Okay. And any sort of – I know it’s tough, because it’s outside of your control. But in terms of the harmonization efforts, is that – if you had to guess it as a 17, 18, 19, how long do you think it could take if things go according to plan?

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

Okay.

So our efforts – our products and services that we are concentrating right now and you are not satisfactory, or you are not quite as defined as the other licensees. You are a little further down the road, but they have a much narrower focuses to what they are trying to do. But they might in effect do a lot of the heavy lifting on the regulatory side that could cause us to have a breakthrough sometime next year and once it occurs, it will probably occur very quickly.

And if that – once the harmonization is there, is that when you will more public about what it is planning to do, or where it’s probably you’re going to wait until you’re lunched before we know what it is?

So, right now it’s all about execution in 2016. So [indiscernible] are complex ground network interacting properly the satellite and then the launch in the initial product into the marketplace, which will satisfy nearly our last few meeting milestones need to be licensed. Once we have that firmly in a compliant position, I think, then we will focus our efforts on what the opportunity is to more fully develop the PUC side of the equation.

Okay. Thank you

[Operator Instructions] Your next question will come from Andrew DeGasperi of Macquarie Capital.

Thanks for taking my question. First, I noticed that your residential broadband you continue to outperform. I was wondering if you’ve seen any change in the competitive landscape in the last three months? And secondly, you mentioned also that you think churn is all too high and you are taking efforts to reduce that. I was wondering if you can maybe give us a little more color on that? Thanks.

Well, the answer to your first question is, no. I don’t think we’ve seen anything changing in the market in the last three months. The market is pretty much performing as I mentioned in my remarks, we continue to have gross ads all of the 100,000 subs this quarter just like we have in the last six quarters. So the market has been pretty, pretty consistent and predictable. In terms of churn, we – I think we understand pretty clearly by the churn went up a little bit in this quarter. And there are a few small elements, none of them being a dominant element. But I think we’ve identified the reasons why and we put in fixes in our operating processes and that we hope we’ll start seeing the churn come down to a more manageable level in the quarters ahead.

Great. Thank you.

Your next question will come from the line of Tim Quillin from Stephens Incorporated.

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

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

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

Yes. Let me clarify what the current deal is and Anders can comment on what he may be wanting to do with the Eco 8. Eco 8 and Eco 15 are back to back leases with DISH. And as you may recall, we account for those in different segments. so the EchoStar 8 has revenue included in the ESS segments. The EchoStar 15 is an expense that we’ll report in – essentially, it’s in our corporate development or business development group. And so that’s in the all other segments. So the two miles miles offset each other, but in different segments. And so, yes, that – we expect that to go away here in this month essentially. And I’ll turn it back over to Anders.

Yes, we’ve been since Eco 15 right now is the process of being returned to DISH. And as Dave mentioned that should occur by the end of the month. We’ve been – as soon as that occurs, DISH in essence will return Eco 8 to West. We’ve been looking at a number of deployment opportunities for Eco 8. But because of its age, in order to exploit those opportunities, we may let the satellite going to decline in an effort to prolong its life. But in doing so precludes certain revenue-generating opportunities where the typical requirement is where a station get satellite. So we’re looking at opportunities for Eco 8 for 2016 from a revenue generation standpoint, I wouldn’t be particularly aggressive as far as what we have been able to do with the asset especially if we allow it go and find.

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

Well, we’re continuing to perform the required construction of maintaining the license and launching a service, but other than that on a consumer.

Okay. On Sling TV and I think there is some trail of breadcrumbs in the 10-Q in terms of what kind of revenue you are generation for providing services for Sling TV, but if maybe could you quantify the revenue that you are generating there? And then what’s the pipeline like, Mark, in terms of new customers and what is the typical prospect in terms of the size and location of those providers?

So Sling TV as a DISH product, but they are selling on the infrastructure side. We’ve got [indiscernible] to sell what we developed from an infrastructure standpoint and other parts the world. So that’s a relatively new endeavor for us. And we think it’s got some life. So we got to get out of the marketplace and see for sure.

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

I’m not going to comment on beyond what are already in the Q.

Okay. okay, and then on the churn in Houston right now, I guess, my calculation that’s – it’s above 3% right now? And I think that you have a handle on why it’s in our way, but what’s the – what are the steps to get that down to what you will consider on manageable level and what is the manageable level of churn for the business?

We obviously don’t put out numbers. But I’m giving you the gross and net ads, you can obviously calculate the percentage churn and that’s where you get your number. And we’ve identified three or four elements that contributed to some of the increase in churn as I mentioned earlier and hopefully we’ll fix them and we’ll start seeing the improvement in the months ahead. It’s obviously very difficult to predict how fast those improvements would occur. So I won’t like to put other number there. But I think it’s going to be better next quarter than it is this quarter.

And then lastly and I understand you probably don’t want to say too much right now, but in terms of the CGC rights on the Spectrum in Europe it does look like our Inverse SAT[ph] and Deutsche Telekom or pursuing some use of the Spectrum for in-flight Wi-Fi is that one potential use case and you’re looking at other potential use cases, but how do you think of the potential use cases on the CGC. Thank you.

Well I think the CGC depending upon how the harmonization result itself to the band it’s quite suited terrestrial mobile deployment been immediately adjacent to band that are currently in use in Europe. I think the standardization bodies that are ongoing mainly CGPP in investing bands into a long-term roadmap for development. We’ll define what the potential uses and therefore what the dimensions of the future developments might be. So Inverse SAT has announced publicly in collaboration with Deutsche Telekom and that’s 100 with one potential application through the use of this thing and ours we are starting the MSS sector, we’re going to be utilizing the frequencies for various products there, but what the future holds in any comments really would be speculative.

Got it, thank you very much.

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

Hi guys, can you hear me.

Yes.

Yes.

Great. I have one question, during the prepared remarks you talked about the set-top box business stabilizing, can you elaborate, just based on my math that sales of DISH were down 48% year-over-year, can you elaborate on what you mean by stabilizing, do you mean stabilizing at the current run rate, or do you mean stabilizing on a year-to-date basis just and I understand there are some variability regarding DISH’s success in the market place, but maybe you could just help us understand the percentage of decline associated with an inventory draw down versus what they sell for churn related, just a little more color on how you’re thinking about that revenue line and then what you’re investing behind it. Thank you.

And as Mark said, he has got a number of products and enhancements in the pipeline right now. We expect to start delivering those, some of them here towards the end of the quarter into first quarter and we are limited in what we are going to say about those products given that they are DISH proprietary products and it is their responsibility to lever that to the marketplace, but by stabilize we mean that we expect the drops that we have been having sequentially over the last quarters to sort of flatten out a little bit. As I had said in the past repeatedly, I do not expect that we will ever return to historic levels in terms of DISH equipment sales to where they were a year ago or two years ago and so we will find a new sort of balanced points in terms of the volume of sales to DISH and that is the volume in terms of dollars not necessarily quantity because as we roll out different pieces of equipment, the price points are different, so you are going to have unit sales and you are going to have price points that are going to be different depending on the product mix, but we expect the revenue coming from DISH equipment sales to stabilize and by stabilize I mean flatten out a little bit. It is not going to return to historic levels.

All right, but there is a big gap between historical levels of $300 million and $157 million, so are you saying that $157 million is a good run rate going forward, are you saying that it is somewhere in between where we were and where we are?

I think that’s where, the success that DISH has will be a principle driver behind that and what their marketing plans are on the new equipment. So that’s a little bit hard to forecast over the longer term, yet we certainly got visibility on the very short term based on the orders that we have in hand right now and so that is why we are comfortable saying that we are, it is going to stabilize here in the near term, but I’m not going to get into a position of forecasting or it is going to long term.

Yeah, we don’t have any visibility of DISH besides upgrade the segment as our market to better technology or they are filing higher success levels or broadband connected product and they have to replace older product. We just don’t have that visibility. We know the transition from the products they have been selling for new customers to the new product that there is some positive news on that as soon as we get to the transition. But that’s about all we have visibility.

Okay. Thank you.

[Operator Instructions] And there are no further questions.

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