EchoStar Corporation (SATS) Q4 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to EchoStar's Fourth Quarter and Year End Results Conference Call. At this time, all participants have been placed in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. [Operator Instructions] It is now pleasure to hand our program over to Deepak Dutt, Vice President of Investor Relations. Sir, the floor is yours.

Thank you 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; and Dean Manson, EVP and General Counsel. As you know, we invite media to participate in the 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 Dean for the Safe Harbor disclosure.

Thanks, Deepak, and hello everyone. All statements we make during this call other than statements of historical facts constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors, that could cause our actual results to be materially different from historical results and from any future results expressed or implied by such forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K 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, Dean. Good morning to everybody, thanks for joining our call. At the third quarter earnings call, we spent some time talking about the strategic initiatives that we're investing in to drive longer term growth, these included pursuing the global demand for broadband Internet access the development of work underway on our new set top box product line and in the OTT service, investing in the numerous satellites that are currently being built to provide capacity for growth in the home automation product as well as our few other initiatives. I am pleased to report that all these initiatives have been progressed as planned over the past quarter. Each of the division presidents will provide a bit more detail on these activities. Let me first turn it over to Pradman Kaul who will talk about Hughes. Pradman will be followed by Mr. Jackson on ETC and Mr. Johnson on ESS and then Dave Rayner will address the financial results, Pradman?

Thank you, Mike. First a few financial highlights, Q4 revenue was $347 million compared to 344 of Q4 of last year while EBITDA for Q4 2015 grew 12% over the previous year’s Q4 to $100 million, driven primarily by the consumer business. In the consumer business, we had gross adds of 94,000 and net adds of almost 9,000 which we're very pleased with given the continuing capacity constraints on Eco 17 Jupiter 1. ARPU increased in Q4 for both the wholesale and retail channels as it has in previous quarters and churn declined in the fourth quarter from the third quarter also in both our retail and wholesale channels. We ended the year with 1,035,000 subs compared to 977,000 subs at the end of 2014 which is an increase of 6%. With the 60% market share in the North American satellite consumer business, we continue to be clear market leaders. We are especially pleased with our order input in the fourth quarter. We received orders of $479 million from our enterprise customers an all time record. Key orders in the fourth quarter were from Sherwin-Williams, Sonic, Springleaf Financial Services, ConocoPhillips, Siasat and the Star Group and in all of 2015 we received orders of $856 million from the enterprise customers. We are especially excited about the orders from Star Group, a Mexico based service provider who has chosen Hughes and the award winning Jupiter system as the foundation for its soon to be launched, high speed satellite Internet service in Latin America. The contract calls for Hughes to supply a Jupiter gateway, high performance Ka-band terminals and a suite of managed services for operational and customer support. As part of this initiative Star Group has leased a significant portion of the Mexican capacity on EchoXIX scheduled for launch later this year, in order to expand its satellite service offerings in the country. Overall the combined value of the agreements is in excess of $200 million. Featuring a flexible and robust gateway architecture, enhanced IPoS air interface for bandwidth efficiency and high throughput terminals, the Jupiter system enables operators to achieve the highest possible capacity and efficiency for any satellite broadband implementation. Its foundation technology is the powerful Jupiter system on a chip, a custom designed VLSI processor employing a multi-core architecture and enabling more than 100 megabytes of throughput on every terminal in the Jupiter network. And now a few words on our aeronautical strategy, it has been progressing very well, we passed an important milestone with Global Eagle of over 700 commercial aircraft where our equipment is installed. In addition we provide access to broadband Internet service to these planes. A cornerstone of our aeronautical strategy is to expand our services to Ka-band once our EchoXIX comes into service early in the 2017. This will allow us to offer nationwide service through an expanded partner network. I would now like to highlight an important report issued by the FCC in December, titled Measuring Broadband America 2015. The FCC evaluated 16 satellite DSL cable and fiber ISPs covering over 80% of the U.S. residential marketplace and reported that the HughesNet Gen4 service exceeded an advertised download and upload speeds at higher rates than any other satellite or terrestrial broadband service provider. It went on to say that the HughesNet Gen4 download speeds were consistently more than thrice the advertised rates even during peak usages times. And that upload speeds were more than one and a half times the advertised speeds. In addition the report concluded that HughesNet was one of the top ISPs in limiting network packet loss, which is typically caused by network congestion. All of this is especially gratifying and validates the great work that the entire HughesNet team has been doing to ensure the highest level of customer satisfaction with this service. The construction of the EchoStar 19 satellite is proceeding well and is scheduled for launch at the end of the year. Once placed into service in Q1 2017, it will provide capacity for our domestic consumer business and enable us thus to increase the growth rate of our subscriber base. Our Brazilian consumer project using EUTELSAT satellite at the 65 West orbital slot is also proceeding very well. The satellite's launch is scheduled in a couple of weeks and all three gateways should be completed on schedule by April. We expect to commence service by the middle of this year. The retail distribution plan is in place and we have signed an agreement with a well known national distributor and its regional distributors and are in advanced contract negotiations with a large strategic sales agent. In parallel we are also negotiating the contract with a well known pay TV operator for wholesale distribution of our service. Our purchase of the Ka payload on the Telesat’s satellite scheduled for launch in 2018 and the 63 West orbital location will further enhance our capacity in Brazil and other parts of South America. Now a few words on the satellite market in general and the role we're playing. There are currently 25 active satellite operators who are invested or have planned to invest in HDS capacity representing approximately $15 billion in CapEx spending. As many of you know our ground network strategy has been to develop our Jupiter infrastructure to address this opportunity and this strategy has been paying solid dividends, examples of the significant orders that we've been awarded recently by Yahsat and the Star Group in Mexico. Also, system studies and development work for the exciting OneWeb project are currently underway providing growth opportunities in 2017 and beyond. So to summarize, I am very pleased with our performance in 2015 and our positioning for growth going forward, launch of the EchoXIX satellite, the strong enterprise backlog coming into 2016, the Brazilian broadband project and the OneWeb project among others will be the prime drivers of growth going forward. In addition, we're actively pursuing the development of the next generation of high throughput capacity satellites. We're also considering hosted payload opportunities in other parts of the world. Our decision to deploy next generation HTS’ hosted payloads et cetera will be dictated by the region market size and potential investment returns. But overall our strong balance sheet, market leadership and technology position gives us the luxury of making the appropriate decisions in providing global coverage. Let me now hand it over Mark

Thank you, Pradman. Revenue for ETC in Q4 was 325 million, down 46 million compared to the same quarter last year with EBITDA trending down as a result. Both revenue and EBITDA were impacted primarily as a result of lower sales to Dish Network. Last quarter, we added the 4K Joey to the Hopper family and said that we had more products on the roadmap. We've recently announced one of these products as the Hopper 3, which launched with the 4K Joey on January 30th. The Hopper 3 features 16 tuners and 4K content options and represents the next generation of our whole home DVR family. This set top box which won many awards at CES including a CES innovation award and a PC Magazine's Best of CES awards. We are leveraging these capabilities to deliver new features including the Sports Bar Mode, which is a multi-channel view that decodes 84 HD feeds and displays them simultaneously in up to 1080p resolution. We also continued to develop the Hopper software features providing Dish customers with easier access to content. They want to watch at more comprehensive user experience. This includes Netflix integration into the Hopper's universal search feature results, making it even easier for consumers to find content. We are also working on YouTube integration which will complement the existing suite of apps the Hopper offers to provide customers even more content options in the future. Both of these new software features will be rolling out in 2016. In addition, Sling Media, a leading provider of multi-screen smart TV solutions has played a large role in the development of the newest TV anywhere solution, the Hopper Go. Receiving recognition at CES as a Gadget Best of CES finalists this pocket-sized wireless storage device available later this year can store up to 100 hours of recorded content from the Hopper's DVR and create a secure and private Wi-Fi file that can play back different transferred shows on up to five mobile devices at once. As the OTT platform provider for DISH's Sling TV service, we continue developments to improve the online TV experience. Recent developments that will roll out in the first quarter of 2016 include a personalized my TV panel that highlights favorite content and customer recommendations, improved content browsing and search efficiencies along with user interface enhancements that can adapt to customers behaviour, time, location and device among other aptitudes. We also continue to explore new ways to leverage this technology for other business opportunities and over the year set top box category we continue to work on expanding content offerings on a Channel Master DVR+ product. Now the DVR+ is even more compelling with the integration of the SlingTV app giving customers the access to live and on-demand Internet TV content within the channel guide. We're also finalizing preparations for the launch of our SAGE by Hughes security and home automation project. SAGE will be available directly to consumers via the dedicated Web site in March followed by our retailer and distributor programs following this launch. We're confident that this unique innovation of this product will have an impact in the marketplace. We continue to look for ways to utilize our expertise in technology to develop leading edge innovative solutions that support our long term growth initiatives. We have additional products in the pipeline and look forward to discussing them with you in the future quarters ahead. I'll now turn things over to Anders.

Thanks Mark. ESS revenue for the fourth quarter was 116 million compared to 127 for the same quarter last year primarily caused by the termination of the EchoStar 1 and EchoStar 8 leases with DISH. Dave Rayner will to speak to these in more details shortly. As we've discussed on previous calls ESS continues to focus on fleet expansion initiatives with five EchoStar satellites scheduled to launch in the next 12 months, in addition to a satellite which we are managing for DISH Network. Pradman has already spoken about EchoStar XIX and the payload at 65 West, so let me address the remainder. Our S band satellite EchoStar XXI is scheduled to launch on a proton in the second quarter, enabling EchoStar Mobile to begin services across the European Union. To the best of our knowledge there are three missions scheduled on the ILS Khrunichev manifest prior to the EchoStar XXI launch. On the regulatory front for EchoStar Mobile we already have mobile satellite licenses for 27 of the 28 EU countries and are finalizing our last authorization. We are also currently seeking MSS authorizations for the Echo XXI satellite from additional countries which are not members of the European Union or a part of Echo XXI's footprint. As far as the complementary ground component part of our license while EU has given us broad approval and each country is working within its own regulatory framework to issue the CGC licenses. We have currently obtained these in eight of the 28 countries and will obtain additional authorizations going forward. As we stated last quarter the EchoStar XXIII DBS satellite is slated to launch on a SpaceX Falcon 9 in the late third quarter of this year. A flexible Ku BSS designed to fulfil multiple mission profiles, Echo XXIII will be deployed at our Brazilian slot at 45 degrees west. The EchoStar 105 hybrid Ku/Ka C band satellite is on schedule for a launch in the early fourth quarter of 2016. And it'll also be launching on a SpaceX Falcon 9. Under an agreement with SES, this satellite will replace AMC 15 at the 105 degree west orbital slot. We will be commercializing the Ku payload on this satellite, while SES will commercialize the Ka and C band payloads. We expect the additional capacity on this satellite to be available in early in 2017. 2016 will be a very demanding and exciting year for the ESS team, we're excited for the challenge and the opportunity that these additions to our fleet will afford us to continue to grow our satellite related business. I will now turn it over to Dave Rayner.

Thank you, Anders. EchoStar revenue for the fourth quarter of 2015 was $791 million compared to 844 million for the fourth quarter of 2014, with the decline primarily attributable to decrease in equipment sales to DISH Network within our EchoStar technology segment. On a sequential basis consolidated revenue increased 4% over the third quarter of 2015 with some recovery on the ETC DISH sales being the biggest contributor to that growth. EBITDA was $223 million for the fourth quarter compared to $230 million for the fourth quarter last year with Hughes’ consumer growth being offset by lower ETC contribution as well as a few other items I’ll address later when I discus the segments. Net income attributable to EchoStar common stock was 66.3 million compared to 54.8 million for the fourth quarter of 2014 and diluted earnings per share was $0.71 compared to $0.59 last year. The increase in net income was primarily due to lower depreciation and net interest expense offsetting the decreased EBITDA. Net income and earnings per share in Q4 were impacted by the reenactment of federal R&D credit while this did not impact the year-over-year comparison it does show up in the sequential results. For full year 2015, EchoStar revenue was 3.1 billion compared to 3.4 billion for 2014 with a declining ETC sales to DISH overwhelming the growth in other areas. EBITDA was 865 million compared to 903 million for 2014. Net income attributable to EchoStar common stock was 164 million compared to 165 million last year and diluted earnings per share for 2015 was $1.75 compared with $1.78 in 2014. Capital expenditures for the quarter were 223 million compared to 246 million for the same quarter last year the lower CapEx was due to lower satellite construction milestone payments this quarter. For the full year CapEx was 704 million, net of the 106 million launch contract refund in Q3 of 2015. I would expect 2016 spending to be below $800 million range with the satellites and the later ground infrastructure driving the bulk of the spend. Free cash flow which we define as EBITDA minus CapEx was a negative $626 million for Q4 2015 compared to a negative $16 million last year, the change being primarily due to the lower CapEx. For the full year free cash flow was 162 million compared to 223 million in 2014 with the lower EBITDA and higher CapEx in 2015 resulting in the change. Turning to the business segments, Hughes revenue for fourth quarter 2015 was 347 million up slightly from last year. Consumer related revenue was up about 9% driven by higher subscribers and ARPU but was largely an offset by the mobile satellite in international business units. As in previous quarters foreign currency trends again impacted our results this quarter by approximately $7 million. Hughes EBITDA in the fourth quarter was $100 million an increase of 12% from last year, primary contributor to the strong EBITDA growth was the change in mix towards consumer related services which have a relatively higher margin. For the full year Hughes revenue was 1.35 billion compared to 1.33 billion in 2014. The full year revenue trends are consistent with Q4 with consumer related revenue up by 8% offset by the international mobile sat businesses. Full year foreign currency impact was about $26 million on revenue. EBITDA in 2015 was 397 million for growth of 11% over 2014. EchoStar Technology revenue for the fourth quarter was 325 million compared to 371 million last year, the change being primarily due to lower DISH sales. As we indicated on our third quarter call, the equipment revenue from DISH did stabilize in Q4 as evidenced by the 18% sequential increase over Q3. ETC EBITDA for the fourth quarter 2015 was 26 million compared to 35 million last year, the reduction being primarily due to the lower revenue. For the full year 2015, ETC revenue was 1.3 billion compared to 1.6 billion last year and EBITDA was 107 million compared to 155 million in 2014, both revenue and EBITDA full year results were down primarily due to the lower sales to DISH Network. Turning to EchoStar satellite services ESS revenue was 116 million for the fourth quarter compared to 127 million last year, the decline caused by the termination of leases with DISH for EchoStar I and EchoStar VIII in the fourth quarter. As a reminder we had reciprocal leases with DISH for our EchoStar VIII satellite and their EchoStar XV satellite. The lease revenue and EBITDA on EchoStar VIII appears in the ESS segment while the expense and negative EBITDA for EchoStar XV is in our all other segment. At the consolidated level, there is minimal bottom line impact from these reciprocal leases. ESS EBITDA in the fourth quarter was 98 million compared to $111 million last year, the change being primarily due to the revenue declines and the leases from AMC-15 and 16 being treated as operating leases in 2015 versus capital leases in 2014. For the full year ESS revenue was $491 million, a slight decrease over 2014 with a full year of satellites acquired from DISH in the HRG transaction being reflected somewhat offset by lower revenue from EchoStar 8 and lower capacity available on AMC-15 and 16 as a result of the lease renewals. EBITDA was 413 million compared to 419 million for 2014 primarily driven by the change in AMC-15 and AMC-16 leases mentioned earlier. In the all other and eliminations segment where we recorded gains and losses on the sale of securities, eliminations for intersegment sales and other corporate transactions and initiatives EBITDA for the fourth quarter was negative 2.1 million compared to negative 5.8 million last year. With the aforementioned EchoStar 15 lease termination and improved equity in earnings of subsidiaries being partially offset by losses on investments this year and a non-recurring gain in 2014. For the full year 2015, EBITDA was negative 50.7 million compared to negative 28.5 million last year. This decline was primarily due to impairments of certain strategic investments in 2015, the premium paid on the partial redemption of our senior secured notes in 2015 and several non-recurring items in 2014. We continue to have a strong balance sheet and ended the quarter with approximately 1.5 billion of cash and marketable securities which is down approximately 150 million from the end of 2014 due primarily to our bond redemption and our investment in OneWeb. Let me now turn it back over to Mike Dugan.

Thank you, Dave. Now to clarify a point, I think that was a task that Dave put out to see if you guys are paying attention. Our free cash flow which we define as EBITDA minus, CapEx was a negative 627,000 not million, so you guys aren’t running for the exits, for Q4 2015 just to be corrected. So the other thing I wanted to start off with is to thank the management team, here we had a number of things that have complicated our performance in ’15, everything from change in launch vehicles to continuing to pursue all of the satellite launches and new product development in ECC and also some of the beams that we've had to close on 17. So the management teams continued to keep their heads down and work on all of our challenges and I wanted to publicly acknowledge that. We have five satellite launches this year, as we talked about 65 West and we're very excited about Echo 19 and 21, 23, 105. So all of that’s coming forward and we've maintained things on schedule so far, so let's hope the rest goes well. Along with that, we have put extensive work into the ground infrastructure for both 19 and all of the other satellites including the European satellite and we think we're very uniquely capable of executing on all of that. In the meantime, the operational aspects of creating new businesses around the globe including the launch of new direct-to-consumer products and ETC are significant efforts in of themselves. Our product development efforts across all our business units are very active, everything from OneWeb terminals and gateways to the SAGE home automation products and the enhancements for the current product line. Obviously as Mark said, the launch of the Hopper 3 product has been well received and we're happy with that. So 2016 is going to be a very busy year for all of us and sets the stage for a very exciting 2017 as all the assets and products, start producing results. It’s now time to turn this over for questions. Operator, could you please start the process.

Certainly. [Operator Instructions] Our first question comes from Andrew De Gasperi with Macquarie Capital.

Two quick questions, first, on the CGC approvals in Europe, you said that eight countries have so far approved, but that there are several others left. Can you give us maybe some update? Has there been more opposition in the last three months growing? In other words, has this trend been in the positive direction or negative as far as the regulatory regimes there, particularly with Inmarsat trying to get approval with Deutsche Telekom for in-flight on the adjacent spectrum?

Well with regards to the overall discussion I mean we've been spending quite a bit of time in Brussels working with the EU level folks in trying to create the framework around which harmonization would occur because there's a diversity amongst the member states as to the character of the CGC licenses. So, we've been trying to work towards a common standard which would then cause the creation of the European wide network to be that much easier. The licenses which we do have in hand for CGC are those at the end of the spectrum which are most flexible to exactly what we would want to do with the CGC authorization so that's why we pursued those licenses and received them. In many of the other member states where the licenses that the member state is willing to issue is not favourable to what we're doing, we've chosen not necessarily to pursue receipt of those licenses. As for as what Inmarsat and Deutsche Telekom are doing I mean obviously the network that they're rolling out has a very specific character and therefore the licenses that they're pursuing are a lot more defined consistent with the character of their network. Since our CGC aspirations are not as defined as theirs, I think we're seeking to have the upmost flexibility in the licenses we ultimately receive.

So just a quick follow-up on that -- so, you're essentially don't need all countries to approve the CGC in order to launch service to them, is that correct?

Well the MSS services we're ready to launch in but for one country that's a little late in the flow, we have all the authorizations necessary for the MSS service. It's the CGC service that we're seeking further clarification from the member states but we're not in a position to be rolling out a CGC service in the near term.

Understood. And on the set-top side, what are your thoughts on the FCC NPRM that was passed last week that would unlock the pay TV set-top market? Given that Hopper and Joey have such a high appeal, do you see a long-term opportunity in potentially marketing your product directly to consumers?

So, it's going to take a couple of months for all this to shake out and see what the rules are really going to be but in general yes it's going to offer a good opportunity for us because we're very innovative in the marketplace, we take a lot of risk and what we can do with content and I don't know that other companies would have the wherewithal to do some of that. So we'll certainly look at it as an opportunity I think there's a lot of business issues that would have to be overcome in the marketplace to really be successful for anybody.

Our next question comes from Andrew Spinola with Wells Fargo.

I wanted to start with a clarification. Anders, you made a comment about a satellite for DISH that you are managing. Is this a satellite that DISH is paying for and launching and will own? Or is this an EchoStar satellite?

It's Echo 18 and it's a satellite which we've been managing for DISH but DISH is a party that's in privity with the satellite manufacturer and the launch vehicle provider and we're managing the overall build as well as the launch and ultimately we will fly it as part of the services we provide to DISH, but yes, DISH is funding the entire campaign [Multiple Speakers].

Understood, I guess that leads into my second question which is, you gave guidance for 2016 CapEx, Dave. Just when I think about 2017, it doesn't seem like there's much out there right now, so I would expect a material step-down in 2017 CapEx, maybe back to something like 2013, where you were around $400 million, any commentary you could give around that?

Yes, Andrew I think you're right, I mean based on what we've got on the plate right now, certainly some of these projects are going to extend into 2017 a little bit, but I would expect 2017 to start backing down off of the $800 million kind of number we've been running at. Now with the caveat of course doesn't mean that we don't start new programs in the interim, but based on what we've got working right now I would expect the step down in 2017 CapEx.

Understood, question for Pradman. The recent announcement with Star Group is interesting from a strategic perspective. You're going into a number of countries in Latin America as a retail provider of broadband. And particularly with your DISH Mexico presence, I would've thought that Mexico -- and your capacity on Echo 19 -- that Mexico would've been a place where I would see EchoStar go and provide broadband service to the end customers. Why did you choose to lease the capacity to Star Group? Is there still an opportunity for you guys to go into Mexico? What's the thinking behind that decision?

Yes, it's a good question. We actually have leased a portion less than half of the Mexican capacity to the Star Group. It was a good opportunity to work with a good partner who was -- it's very similar to the deal we did with Xplornet in Canada where we sold some of our capacity and will offer wholesales services and -- but that doesn’t preclude us with the rest of the capacity that we have in Mexico of working with other partners or doing something else.

Is there a fixed amount of capacity in Mexico? Or can these beams be steered back and forth between Mexico and the U.S.?

It essentially fixed.

Essentially fixed, okay, and I wanted to ask a separate question. There were some news articles about a promotional offering of HBO Go in Mexico to DISH Mexico end customers, and I just thought it was a very interesting story, because it just didn't seem like a market that would necessarily make sense for a high-end product like HBO, and in conjunction with DISH Mexico which maybe doesn't fit that profile as well. And I'm also wondering to what extent was this provided using any of the SlingTV infrastructures that you've developed? And is this a harbinger of a possible bigger launch of Sling TV-type services in Mexico?

Well we think Sling TV is a great product and we think we are industry leading with that right now. However, the HBO thing you would really need to address to the HBO folks. We will not -- we are a partner, and a vendor and an investor of DISH Mexico but that specific thing we didn’t have much input to.

Understood, just one on…

No it's not being run by Sling TV.

Got it, okay, and a question for Anders, in December, you announced the S band in Europe was incorporated into 3 GPP. And in that press release you talked about Band Class 65 as well as the inclusion of the Band Class 1 that is widely used there. And I was just wondering if you could expand on the importance of that particular announcement? And also, I want to understand -- I'm not that familiar with Band Class 1 in Europe, and I was wondering if you could give us a sense of how widely that's currently used? And how important that might be to what you're going to do with CGC?

Well, that’s a pretty broad question, but I think the press release back in December announced that basically the Band Class 65, which had been adopted by 3GPP. It includes the two gigahertz bands that include the authorization that we have in EML for use in Europe. By adopting it, it's been in the roadmap for future device development and in essence, the ability for mobile devices to include the band in one of the embedded radios. So I think in a long term sense, it is part of what would ultimately be the full development of the band for terrestrial mobile use. The references to Band Class 1 is because a lot of the rules that were incorporated through Band 65 are similar to Band 1.

Do you know how many users are in Band 1 right now? Is it a heavily used band or it is?

It's one of the primary terrestrial mobile bands worldwide.

Understood, do you know what frequency that is?

No, off the top of my head no.

Okay. Last question for me, Anders, just can you possibly give us additional color on what those CGC countries that have approved your license are? Does it include any of the big five? Anything around how much the population those eight countries might cover?

I mean we can get in-depth in that offline if you would like, I mean as I said before the licenses which we have chosen to take include those that offers a most liberal interpretation of the license and therefore enveloped what our ultimate ambitions are I mean amongst them would be some of the most populated countries in Europe, but also in there are some of the lesser populated countries in Europe. So I think if you want to take it offline I am more than happy to do so.

[Operator Instructions] Our next question comes from Chris Quilty with Raymond James.

Anders, could you perhaps elaborate on what your ultimate ambitions are with those CGC licenses? We've kind of been given a shadow of what you're thinking about there, but have you developed that any further to the point that you can elaborate?

Well, I think our ultimate ambitions in Europe are not dissimilar to those objectives that have been pursued by our sister company over this network with regards to AWS 4. I mean while we certainly are standing up the MSS service our open ambitions are to realize the potential of the CGC rights and how that manifests itself would really unfold in the future. I don't think it's something that's in an immediate sense, but I certainly think as 5G emerges and the roadmap to 5G which was being actively discussed in Barcelona right now, we certainly would like to be part of that plan as it rolls out in Europe.

Got you, and for Pradman, on the Jupiter 2/Echo 19, I know you had a delay there in manufacturing, and it seems you're back on track. Was that purely manufacturing issues? Or have you in any way modified the payload from its original design?

We didn't modify the payload, it's still the original design, it is a combination of some slight delays in the manufacturing and obviously the launch vehicle dance that was occurring in the industry, a combination of those two events have caused this delay, but the delay was not very large.

Okay. And speaking of development, you know ViaSat's talking about a terabyte satellite -- a terabyte class satellite. Are you moving down the path of what Jupiter 3 might look like? And any comments on the technology approach?

Yes, obviously we're working very hard on that, on Jupiter 3 and we're talking to satellite manufacturing vendors of it and I think in the next few months we'll have some announcements hopefully to make on that, the technologies that we are -- we are looking at all different alternatives right now.

Okay, got you. And on the in-flight connectivity effort, are you working on anything on the technology front, either modem, antenna technology, or specific payloads that you want to bring to market? Or are you primarily working in a team relationship with SES on some of that approach on the capacity side?

Yes, the answer is absolutely yes, today as I mentioned in my talking points, we have over 700 planes of Global Eagle that are flying that equipment, and that we're offering, we're terminating their calls in our gateways and offering access to the Internet to these 700 plus planes. So that's the first generation equipment but we're now working on the next generation which will be consistent with our Echo 19 Jupiter 2 satellite because really the future is going to be Ka-band. The band which we need for this aeronautical opportunity is not available. I don't think Ku is going to be in the long-term the right answer. So as Echo 19 gets into service in early 2017, we will have our next generation of Ka-band technology and product and hopefully in 2017 we'll unveil those new products and new services in Ka-band.

So if the future is Ka-band, how do you get global with Ka?

Well, you have to have a combination of Ka and Ku but I'm talking primarily over the United States and this continent which will be heavily Ka because of the capacity and the cost per bit but there'll be Ka available in other regions of the world and we are developing a dual mode Ka, Ku antenna system so that as a plane flies from one region to the other it can access capacity on Ku when Ka is not available.

Got you, and just back to the consumer business, real quickly, I think it outperformed a little bit in the net adds for the fourth quarter, and the gross adds continue to look good. Would you expect to be able to maintain that type of level? Or do you see challenges ahead, just given the capacity constraints?

Yes, I think 2016 is going to be a challenge because every month we close another couple of beams, so as we go into 2016, we'll have less and less beams available and so the capacity will impact the gross adds and net adds as a result but I think it's only a very short term phenomena because in early 2017 we'll have this brand new satellite with a tonne of capacity available and we'll be able to restart the ramp of subscriber growth.

Our final question is a follow-up from Andrew Spinola from Wells Fargo.

Pradman, can I ask you about your comment that Arrow and North America is going to be probably Ka-band instead of Ku? What is fundamentally different about Ka-band than Ku-band that makes the cost per bit so different? Is it just simply the amount of spectrum? Or is it the structure of the satellites that are being designed in Ka versus Ku?

There are a whole bunch of trade-offs that go into that formula. But in a nutshell the size of the beam and in the Ka you get lot smaller beams and so you get much more frequency to use effect, which therefore means more bits per satellite and therefore lower cost per bit because a lot of the satellite costs are common and launch costs are common. So, net result of all these trade-offs is that you get lot more capacity at a lower cost per bit.

Understood, and now that you're developing your own Ka/Ku antenna, is this a market that Hughes EchoStar is going to go after from a retail perspective? Or is that something you're looking to sell to other resellers like Global Eagle?

Well we definitely have -- we will sell to other resellers and have a very good partnership with Global Eagle and we're talking to one or two other guys who are in the business. We haven't made a decision yet as to whether we will directly go in the retail basis ourselves but we're examining all alternatives. We have a little bit over a year to launch Echo XIX which I think is a really the long term strategy is to get the capacity and the cost down, so that we can offer either alternative.

Understood, and then just the numbers for Hughes -- this year you had a lot of FX pressure, as well as, I think, some difficult compares, because of some MSS business that went away. Assuming some of the comments you made previously on subscriber adds, maybe being a little bit less, but still growing, and the full-year impact of this year's subscriber adds -- do you think that the Hughes business can grow at a faster pace in 2016, just given that the FX and other issues are behind it?

Are you sure the FX was behind this?

Well, not entirely. But -- fair enough.

No it is -- 2016 is going to be a tough year, I expect we'll continue to grow but obviously at a slower pace than we have in the past, but again as I said it's a very short-term phenomena in 2017 we should restart the growth engine in a very healthy clip for the next few years.

Got it, just one last one for me, any comment on why the EST margin was a little bit lower this quarter, given the better revenue, and what I would assume is I guess potentially higher-margin shipments from Hopper 3?

You mean ETC?

Sorry, yes technologies right.

Yes, so I think primarily obviously you have got excellent margin percentage coming down. Mark is spending quite a bit of money on R&D and that’s going to contribute to the little bit lower EBITDA margin obviously other than just equipment overall contribution.

This concludes today's Q&A session. I’ll now turn it back over to Deepak for any closing or additional remarks.

No I think we are -- thank you everybody for participating in our call and good day for the rest of the time. Let’s close the call at this point. Thank you.