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Edited Transcript of SATS earnings conference call or presentation 24-Feb-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 EchoStar Corp Earnings Call

ENGLEWOOD Feb 25, 2017 (Thomson StreetEvents) -- Edited Transcript of EchoStar Corp earnings conference call or presentation Friday, February 24, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deepak Dutt

EchoStar Corporation - VP, IR

* Mike Dugan

EchoStar Corporation - CEO

* Dean Manson

EchoStar Corporation - EVP & General Counsel

* Anders Johnson

EchoStar Corporation - Chief Strategy Officer & President - EchoStar Satellite Services

* Pradman Kaul

EchoStar Corporation - President of Hughes Network Systems

* Dave Rayner

EchoStar Corporation - CFO

* Vivek Khemka

EchoStar Corporation - President - EchoStar Technologies

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Conference Call Participants

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* Ric Prentiss

Raymond James - Analyst

* Andrew DeGasperi

Macquarie - Analyst

* Jason Bazinet

Citi - Analyst

* Chris Quilty

Quilty Analytics - Analyst

* Andrew Spinola

Wells Fargo Securities - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Brandi and I'll be your conference operator today. At this time, I would like to welcome everyone to EchoStar Fourth Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the conference over to Mr. Deepak Dutt, Vice President of Investor Relations. You may begin your conference.

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Deepak Dutt, EchoStar Corporation - VP, IR [2]

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Thank you, Brandi, and good day everybody. Welcome to our earnings call for the fourth quarter and full year of 2016. I'm joined today by Mike Dugan, our CEO; Dave Rayner, COO and CFO; Pradman Kaul, President of Hughes; Anders Johnson, Chief Strategy Officer and President of EchoStar Satellite Services; Vivek Khemka, President of EchoStar Technologies; and Dean Manson, Executive Vice President and General Counsel.

As usual, we invite media to participate in a listen-only mode on the call and ask that you not identify participants on the phones in your reports. We also do not allow audio recording, which we ask that you respect.

Let me now turn this over to Dean for the Safe Harbor disclosure.

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Dean Manson, EchoStar Corporation - EVP & General Counsel [3]

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Thanks, Deepak, and hello everyone. All statements we make during this call, other than statements of historical fact, 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 those 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 the 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 report and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

I'll now turn the call over to Mike Dugan.

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Mike Dugan, EchoStar Corporation - CEO [4]

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Thanks a lot Dean. Good morning everyone and welcome. We appreciate you joining us on the call. 2016 was a good year for EchoStar overall. To name a few of the significant accomplishments: EchoStar 19 or Jupiter 2 was launched successfully and it's going to provide capacity to resume growth in Hughes consumer business in North America; we launched our HughesNet consumer service in Brazil; construction was completed on three additional satellites for which we are now waiting launches; and we made good progress on various other initiatives. In addition, we announced an important share exchange transaction with DISH Network in January of this year.

Our segment President's will share with you details of other highlights of their specific businesses. So, let me start off by handing this over to Anders, who will talk about ESS and some of the satellite progress. He'll then be followed by Pradman Kaul on Hughes; and finally Vivek Khem. Vivek will join us on ETCs progress and this will be the last time we talk about ETC as it morphs into DTC on the DISH side.

Dave Rayner will follow them with the financial overview of the entire Company, and then we'll get into questions-and-answers. So, Anders, take it away.

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Anders Johnson, EchoStar Corporation - Chief Strategy Officer & President - EchoStar Satellite Services [5]

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Thank you, Mike. ESS's fourth quarter revenue was $102 million compared to $116 million for the fourth quarter of last year. EBITDA in the fourth quarter of 2016 was $84 million compared to $98 million last year. As Mike mentioned, the highlight of the quarter was the successful launch of EchoStar 19 on December 18. It has completed In-Orbit testing and was handed over to us by SSL on February 2. Partly in parallel with SSL's In-Orbit testing, we commenced integrating our gateways with the satellite. To-date, we have activated all of the user beams and all of the gateways and alpha testing will begin on February 25 and beta testing is scheduled for early March.

All systems are working well and Hughes is on track to commence service by the end of this quarter. Echo 21, our S-band satellite to provide MSS services through EchoStar mobile in the European Union was days away from its scheduled December 28 launch on the Proton launch vehicle from Baikonur, when the vehicle was effectively grounded by the Russian government. An investigation triggered by the failure of a different Russian launch vehicle back in early December uncovered manufacturing and quality-control issues with one of the subcontractors common to both systems. We are currently working with ILS and its parent Khrunichev in developing a recovery plan which should get us launched sometime later this year.

At this point, we have had the opportunity to explain all these events in detail to most of the European regulators to whom EMLs licenses are answerable and are comfortable that they will continue to support us as we await the final launch of this satellite, and ultimately, the launch of our services across the European Union.

EchoStar 23, our flexible KUBSS satellite designed to fulfill multiple mission profiles, after a few additional delays associated with how SpaceX's manifest policy functions, is now scheduled for launch in mid-March on SpaceX's Falcon 9 launch vehicle off Pad 39A at Kennedy Space Center. EchoStar 23 will initially be deployed at the 45 degree West orbital position over Brazil.

Our third satellite, EchoStar 105, is also slated to launch on the Falcon 9 in either the second quarter or third quarter of 2017. This hybrid KU, KA and C-band satellite will replace AMC-15 at the 105 degree West orbital slot.

I'll now turn it over to Pradman.

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [6]

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Thank you. Anders. First, a few financial highlights; Q4 2016 revenue for the Hughes segment was $371 million, a 7% growth over the same quarter last year. And Hughes EBITDA for Q4 was $110 million, a 10% growth over Q4 of last year. The fourth quarter of 2016 represents the 12th consecutive quarter of year-to-year revenue growth and the 13th consecutive quarter of year-to-year EBITDA growth.

In our consumer business, we ended Q4 with 1,036,000 subs compared to 1,018,000 subs at the end of Q3 and 1,035,000 subs at the end of Q4 last year. As you know, Echo 17 continues to be at capacity in many beams that's constraining growth in the North American subscriber base.

As Anders mentioned, IOT and ground system testing of Echo 19 and the Jupiter 2 infrastructure are proceeding very well and we are on track to commence service on Echo 19 by the end of this quarter. In conjunction with our new Jupiter 2 system and infrastructure, Echo 19 will provide capacity of approximately 220 gigabits per second, a significant increase over the capacity of Echo 17.

Eco 19 will be used primarily for our consumer business in the US as well as Canada, Mexico and a few countries in Central America to help resume the growth of our subscriber base. The new Jupiter 2 system and Echo 19 will allow us to offer a range of enhanced services which will be marketed to residential and business users as HughesNet Gen5. The new plans will all offer 25 megabits download speeds and data allowances will start from 10 gigabytes per month and range as high as 250 gigabytes per month for some business clients.

Pricing will start at $49.99 for an entry-level 10-gigabyte plan. We're introducing new features such as soft caps that will allow users to continue service at a lower speed and priority after their allowance is exceeded. That will help our customers get the most out of their service. And compared to the Gen 4 services, they'll now enjoy a significantly enhanced experience if that usage goes beyond their monthly data allowance.

We will also be adding new features to our recently launched HughesNet mobile app which will give customers more visibility and control of their data from a convenient personal device. All new customers will also receive a built-in dual-band high performance Wi-Fi Router and existing businesses will have the option to upgrade to the new plans.

The new plans will also be phased-in for customers on Echo 17. We are proud to announce that HughesNet Gen5 will be the first ubiquitous coast-to-coast Internet service that meets the FCC 25/3 broadband standards. While on the subject of the FCC, I would like to draw your attention to the FCC report Measuring Broadband America 2016 issued on December 1, 2016, which ranked HughesNet as the leader in exceeding advertised download and upload speeds for the second year in a row.

The report evaluated 16 Satellite, DSL, cable, and fiber Internet service providers. Showing our commitment to providing high quality service, HughesNet also ranks first among the satellite ISPs in nine out of 10 performance categories, including delivering advertised speeds, consistency of speed and web browsing performance.

HughesNet continues to be the market leader in providing satellite based Internet access. We're also very excited with the success we've had thus far with our HughesNet business and are looking forward to the additional subscribers and corresponding future revenues that we'll generate. Our target market continually to be those that are unserved by cable and fiber and the new HughesNet Gen5 will be a strong and viable alternative for approximately 9 million households across the US that are limited today through unreliable slow speed DSLs.

We commenced HughesNet service in Brazil in July using our hosted payloads on EUTELSAT 65 West and are very pleased with the progress and we had an outstanding ramp up to the subscriber additions in December and this trend appears to be continuing in 2017. We now have approximately 500 dealers and sales agents selling our service in Brazil. We are especially pleased that our plans of replicating the successful network business [step] systems, customer care infrastructure and strategies in North America have played out very well in Brazil.

Updating you now on our aeronautical business, our equipment is in service now on over 750 aircrafts and we continue to expand our systems both domestically and internationally. We are particularly pleased to report that we are on track to launch our next-generation Jupiter Aero System as well as services on Echo 19 in the third quarter of 2017, and we look forward to announcing our first customers in the very near future.

Additionally, we have already delivered pre-production version of our next generation high speed Jupiter Aero terminal capable of exceeding 200 megabit per second per plane per initial partner testing and advanced integration into their systems. It should be noted that while Echo 19 will be a tremendous asset for the North American aero market, the new Jupiter Aero terminal is fully compatible with both KU and other KA band satellites, and thus will enable our clients and partners to offer aero services throughout the world.

As part of this global service strategy, we are also bringing to market an advanced new dual-band KUKA Aeroantenna that will give service operators superior capability to serve airline that have routes that span multiple satellite footprints. Continuing our strategy for expanding broadband services internationally, our hosted KA payload on the Telesat T19V satellite is scheduled for launch in the second quarter of 2018.

This payload will further enhance our presence in Brazil and allow us to expand broadband services to other parts of South America. Our enterprise business continues to do well both domestically and abroad. Key enterprise orders in Q4 were from General Atomics, Xplornet, Walgreens, Body Shop, Coles, IGT, [BP retailers], Murphy Oil and OneWeb.

Key international orders were from [Abhimata] in Indonesia, Broadband for Africa, Cemig in Brazil, Bank of India, Airbus and (inaudible). We ended the fourth quarter with $1.5 billion of enterprise backlog, an increase of 6% over the backlog at the same time last year. Our work on the large development contract with OneWeb is now in full swing. We continue to be excited about the potential of LEO satellites in our various markets.

To summarize, I'm very pleased with our performance in Q4 and we are looking forward to strong growth going forward. Let me now hand it over to Vivek.

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Vivek Khemka, EchoStar Corporation - President - EchoStar Technologies [7]

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Thank you, Pradman, and good morning everyone. ETC revenue in the fourth quarter of 2016 was $266 million compared to the $325 million in the fourth quarter of 2015. EBITDA was $32 million compared to $26 million in the fourth quarter of 2015. 2016 was a very busy year for EchoStar Technologies in terms of our product launches in support of the Hopper product line and our continued innovations. Hopper Go debuted in 2016 and let you to securely transfer up to 100 hours of recorded TV shows and movies from a Hopper 3 or Hopper 2 DVR for offline viewing.

This revolutionary solution creates its own wireless Cloud to support up to five devices via DISH Anywhere and users can watch their shows with no Internet connection required. Similarly, the new voice remote that was announced, a simple to use yet incredibly accurate remote; it features a voice search, a touchpad and a backlight. These two solutions are well received in 2016 by the DISH customer base.

As was recently announced, DISH Networks and EchoStar executed an agreement that will transfer certain EchoStar Technologies businesses, assets and operations to DISH in exchange for DISH's 80% economic interest in the Hughes Retail Group. Dave will talk more about this transaction.

As such, this is my final earnings call with EchoStar and I would like to express my appreciation to the rest of the executive team for their support during the short time I've been here and look forward to the future success of both companies.

Thank you. And I will now hand it over to Dave Rayner.

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Dave Rayner, EchoStar Corporation - CFO [8]

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Thank you Vivek. Before I get to our financial performance, let me recap the highlights of the transaction we announced on January 31. We will be exchanging our equity interest in our EchoStar Technologies businesses and certain other assets for DISH's interest in the tracking stock, which represents 80% of the economic interest in the Hughes Retail Group. While there can be no assurance, we expect to close the transaction at the end of this month.

As a result of this transaction, we will be able to realize the full economic value of the high growth retail consumer broadband business while divesting the less strategic set-top box businesses. It will result in a much cleaner and dedicated focus on our core satellite services and broadband businesses. Finally, the transaction simplifies EchoStar's capital and ownership structure and provides us with an improved platform to pursue strategic opportunities.

Now to our financial results for Q4, EchoStar revenue for the fourth quarter of 2016 was $740 million compared to $791 million in the fourth quarter of 2015. EchoStar Technologies was lower by $59 million due to lower equipment sales to DISH and others, somewhat offset by increased service fees to DISH. EchoStar Satellite Service revenue was lower by $15 million due to the termination of two satellite leases in Q4 of 2015. These decreases were partially offset by an increased $24 million in the Hughes revenue from higher equipment sales as well as improved consumer revenue.

EBITDA for the entire Company was $229 million for the fourth quarter compared to $223 million in the fourth quarter of last year. Hughes increased by $10 million driven by higher margins on increased domestic sales. ESS EBITDA declined by $15 million on the lower revenue and ETC increased $6 million as a result of the increased service revenue as well as a reduction in development cost associated with our now discontinued home automation product.

Net income attributable to EchoStar common stock was $38.2 million in the fourth quarter of 2016, compared to $66.3 million in the fourth quarter of 2015, and diluted earnings per share were $0.40 compared to $0.71 last year. The decrease in net income was primarily due to higher interest expense from the debt issuances in July of 2016, and a higher effective tax rate, offsetting the higher EBITDA.

Capital expenditures for the quarter were $189 million compared to $223 million for the same quarter last year, primarily due to decreased satellites expenditures. Free cash flow which we define as EBITDA minus CapEx was $40 million for the fourth quarter compared to a negative $6,000 last year, the change primarily due to the lower CapEx this year. Continue to have a strong balance sheet and ended the quarter with approximately $3.1 billion of cash and marketable securities.

As you know, we do not provide forward-looking guidance, but I wanted to highlight a couple of things for consideration in your modeling. The first is obviously the elimination of the ETC segment after February, assuming we close, as expected. ETC represented $90 million of EBITDA in 2016. This was after the application of approximately $47 million of corporate overhead. While much but not all this overhead will be eliminated over time, it will have a negative impact on relative EBITDA for the immediate future.

Second, with the additional broadband capacity availed by the Hughes from Echo 19 starting in the second quarter, while we expect consumer revenue growth to accelerate, EBITDA will lag somewhat due to the increased subscriber acquisition cost. I would expect that these short-term impacts will be more than offset in the long term as a result of the higher growth -- revenue growth and margins in the remaining businesses post the transaction.

Finally, we expect CapEx to be in the $350 million to $400 million range in 2017, which includes the impact of amounts delayed from last year due to the launch delays. This does not include any CapEx for new satellite programs we may pursue.

Let me turn it back to Mike now, thank you.

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Mike Dugan, EchoStar Corporation - CEO [9]

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Thank you, Dave. In closing, first, I have to recognize all the hard work Dave and the team put in to get to the point where we're very close to closing this transaction with DISH and so lot of late nights, and I appreciate it. Second, it has been a real pleasure working with Vivek and his support in running ETC over the last six months. I wish him and ETC very well going forward. I do have to admit that I am saddened by the transfer of the ETC business to DISH in some ways, given that it's a business that I have devoted a significant part of my EchoStar career in creating and developing.

However, I'm very excited by the opportunities presented by a more focused and cleaner EchoStar business structure and I also believe that integrating ETC within the DISH community will give them broader opportunity to participate in all of the exciting things DISH is up to. EchoStar is in an industry that is going through and will continue to go through significant shifts driven by technology and customer needs. We believe that our satellite assets, engineering expertise and balance sheet, we are in a unique position to take advantage of all the changes that are happening pretty much worldwide.

Let me now turn it back over to the operator and we'll start our question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Ric Prentiss, Raymond James.

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Ric Prentiss, Raymond James - Analyst [2]

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Yes, good morning. I wanted to focus on the Hughes side, the growth business. Appreciates the color on addressing what you think the market is in the US, the 9 million households. As you think of the Brazil operations which ramps nicely in the quarter, how would you think about that addressable market which you might be attacking?

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Mike Dugan, EchoStar Corporation - CEO [3]

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Pradman you want to take that question?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [4]

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Yes, the market is probably in the range -- same kind of range, in the 5 million to 10 million households. Our experience currently is limited, we've just started, and the satellite capacity that we have there is significantly lower than what we have in the corners of United States. So, we have a capacity of 300,000 subscribers on 65 West and we'll have some more when we launch T-18. So we're very comfortable, we'll fill those up in the next three years or so. And the market is much, much larger than that.

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Ric Prentiss, Raymond James - Analyst [5]

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Great. And then on launch schedule, the EchoStar 21, looking like (technical difficulty). Yes, so just looking at the launch schedule for the three satellites that you've constructed, so EchoStar 21 later this year. How long should those future satellites, EchoStar 21, EchoStar 23 and the 105 take from the time they're launched to being in service, just trying to update our model for the timing schedule.

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [6]

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EchoStar 21 is an S-band satellite that actually is controlled by a ground-based beamformers. So the commissioning of that asset will take longer than a typical satellite asset just requiring in-orbit testing. But generally speaking, the in-orbit testing of a satellite is about six weeks, once the satellite gets on station. So, right now, we do not have a launch date for Echo 21. We're working very closely with Khrunichev and ILS in making sure we fully understand the strategy as to when we will be launching that satellite to assure mission success. But we expect that to occur sometime later this year.

Echo 23, at this point, we have a somewhat firm launch date with SpaceX, we're awaiting confirmation from the Air Force of a range assignment. We're pretty confident that we will be launching in the middle of March. And Echo 105, we await notification from SpaceX as to how their launch map [and policy] will work, but we expect that it will occur sometime this summer.

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Anders Johnson, EchoStar Corporation - Chief Strategy Officer & President - EchoStar Satellite Services [7]

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Yes. Just to be clear, none of the satellites we have in the queue are going to rely on electronic orbit raising which tends to extend the amount of time after launch to get on station, so that's good news as well.

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Ric Prentiss, Raymond James - Analyst [8]

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Okay. And then, one quick one, DISH mentioned that they're going to probably not renew EchoStar 12. Can you give us a range of what that revenue might be? And then, DISH also mentioned that they were going to extend the Echo 7, so that was good to see. Just want you to kind of frame what Echo 12 might means as far revenue impact?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [9]

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Yes. We don't talk about the specific revenue coming off of each satellite. As we get closer to those renewals or the potential non-renewals, we'll try and give you an indication at that point in time.

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Operator [10]

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Andrew DeGasperi, Macquarie.

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Andrew DeGasperi, Macquarie - Analyst [11]

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Great. Good morning. First, congrats on the launch and the testing of Echo 19. I guess, I first wanted to ask you, as far as the Gen5 plans are concerned and how should we think about your existing subscriber based on Jupiter 1, how you're going to manage that transition?

And then secondly, can you maybe tell us how the SAC is going to work, I mean when someone upgrades, let's say from your Echo 17 to Echo 19 service, I mean Gen4 to Gen5, is the SAC impact similar or is that less than what you would consider a new customer?

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Mike Dugan, EchoStar Corporation - CEO [12]

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Well I'll let Pradman chime in here, but first of all, the challenge we have is more on infield, what we would know as the infield and the [space wide] satellite. So we're really focused heavily on making sure those guys get the better plan. As I think Pradman pointed out, Jupiter 1 customers are generally very happy with the service that we're providing over and above what they're asking for and we definitely have a great plan there. I don't know whether [Paul] or Pradman want to speak more to the SAC issues, obviously we're not going to talk on specific on that.

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [13]

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Right, I think Mike you're right, it's a complex question. There is a whole set of good subscribers in different situation, some in the [interim] some not in the interim, some on all the plan and we are working out methods of upgrading and selecting subs to be upgraded. We have designed the modems to be backward compatible in many cases, so whether a subscriber is on Jupiter 1 or Jupiter 2, he can use the same equipment which means that the SAC is significantly reduced for them. And so, we're sorting through all those issues and have plans to handle that very carefully.

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Andrew DeGasperi, Macquarie - Analyst [14]

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Yes. And then, just a follow-up on the -- as far as DISH Net resuming marketing nationwide of the Gen5 plan, I'm assuming that will likely happen when you launch services at the end of the month, March. Can you maybe tell us, as far as -- maybe remind us historically what was the wholesale/retail mix whenever you launch -- when you launched Jupiter 1?

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Anders Johnson, EchoStar Corporation - Chief Strategy Officer & President - EchoStar Satellite Services [15]

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First of all, we don't publicly announce a lot of those specific numbers. The deal for -- we believe DISH network will continue to support DISH Net type service off of Jupiter 2 and with Jupiter 2 technology, but that deal is not finalized yet, and we're still under negotiation. But we will be launching the retail services, as we said, by the end of the quarter. We expect them to be in line-up with that, but we don't have anything further to discuss at this time.

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Andrew DeGasperi, Macquarie - Analyst [16]

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Got it. And last question from me, I mean, obviously you had been explaining to the EU about the delay in Echo 21. I'm just curious, how has that received generally and maybe, can you also update us on the CGC approvals in that region?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [17]

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Well, at this point, we've met with the EU level body that's responsible for oversight of EML, which is called -- an organization called CoCoM in Brussels, and many of the member states were in attendance, and we had a discussion of what our situation is and outlook going forward and all of our efforts to date. And they are generally sympathetic to our situation, and we believe will support us on a going forward basis in working with our launch service provider in establishing a path forward and ultimately launching the satellites and commissioning the network. So at this point, we think we have the necessary support to endeavor fourth year in 2017.

As far as CGC, we continue to discuss both with the European Commission, as well as the member states, what we refer to as the harmonization of the CGC regulations, because each member state generally has a different interpretation or its own interpretation of exactly what our license permits and doesn't permit.

So that's a conversation that we continue to have, but many of the CGC licenses that we currently have in hand or are available to us at such time that we seek to get them, gives us the flexibility that we are looking forward to having when we ultimately finalize our plans to how we develop those networks and how we're going to deploy utilizing those licenses.

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Operator [18]

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Jason Bazinet, Citi.

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Jason Bazinet, Citi - Analyst [19]

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Thanks. I just had a question about Echo 19. As I think about ways you could use that 220 gigabits a second of capacity, there's at least five buckets that I can think of. And if you could just directionally sort of -- that one is most important to, that's least important; I think it would be helpful. But the buckets are; one, the capacity is pointed towards an area where you already have fallow capacity on Echo 17, so it can be used.

Bucket two, migrating off of SPACEWAY as that satellite comes to its end. Bucket three is going after new subs. Bucket four is going after new markets like the airline market you talked about. And then the last bucket is just trying to get more ARPU off of your existing subs with these higher data caps. As you think about that capacity of those five, which one is most important and which is the least important?

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Mike Dugan, EchoStar Corporation - CEO [20]

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Well I mean, first of all, there is very little fallow capacity on 17, so it's pretty darn full and we were very careful, the Hughes guys were extremely careful with the beam design and the coverage design on 19 where we knew that we weren't going to say have a beam that's totally full, we don't provide a lot of additional capacity off of 19. 19 is really heavily focused in the full beam areas of the East Coast and certainly well prepared to fill in the infield and get as many customers in the rural areas in the infield upgraded with great plans and great performance.

So I'd say our two focuses are the infield and new customers from a consumer standpoint, for sure. And then, I think that first bucket is irrelevant and then the rest of -- the other two buckets I think that you pointed out are certainly -- we're going after all buckets, but we really want to service our current customers within the infield and go after new customers as quickly as possible and the guys are set up to attack all of those buckets.

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Operator [21]

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Chris Quilty, Quilty Analytics.

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Chris Quilty, Quilty Analytics - Analyst [22]

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Thanks, unless I did incorrect math, it looks like you actually added subscribers in the quarter which was a bit unexpected. Can you give us a sense of what were the factors enabling you to add subs in the quarter, was it more of improvement in gross adds, decrease in churn or any kind of a different marketing strategy?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [23]

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Should I take that Mike?

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Mike Dugan, EchoStar Corporation - CEO [24]

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Yes, go ahead Pradman.

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [25]

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Well, there are two elements to it, one we kicked off the Brazilian service, so we got new subs in Brazil which helped the subscriber count. And secondly, in North America, we created some extra space in some of the heavily populated beams, so that our retail subscriber adds were better than we expected, a combination of these two elements accounted for the increase in subs.

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Chris Quilty, Quilty Analytics - Analyst [26]

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And so, I guess for Dave, do you guys intend, on a go-forward basis, to eventually give us a breakout of what's happening domestic versus international with the sub count?

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Dave Rayner, EchoStar Corporation - CFO [27]

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I think we will evaluate that Chris. Brazil, as Pradman indicated, did contribute to Q4 growth, but still, in total, it is a relatively small number compared to the US subscriber count. I think as we continue to expand in Brazil, and then next year in other markets, with the launch of the satellite going to 63 West. And it becomes a more meaningful part of the total. I think we will evaluate it going forward.

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Chris Quilty, Quilty Analytics - Analyst [28]

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Okay. And Pradman, have you seen any changes worth noting in either the gross adds, the ARPU trend, or churn?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [29]

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No, I don't think so. Things have been pretty consistent with what we've been seeing for the last couple of years.

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Chris Quilty, Quilty Analytics - Analyst [30]

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Okay.

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Mike Dugan, EchoStar Corporation - CEO [31]

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The only input (inaudible) is, things have been very positive last quarter. So, it's hard to argue with the results.

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Chris Quilty, Quilty Analytics - Analyst [32]

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Got you, and big question here, I think this is the first time that you guys have laid out your HughesNet 5 plans, and when I contrast them against that what ViaSat has talked about, doing 50, 75, 100 megabits per second of data caps. Is it possible to compete, on a direct basis, if in fact they do rollout plans that are that generous?

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Mike Dugan, EchoStar Corporation - CEO [33]

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I think if we went back in history, you'd look at ViaSat's comments about what they were going to do with ViaSat 1 versus Jupiter 1. And as Pradman pointed out, the proof is in the pudding. We've been rated very well. We do the right things for the customers. The Jupiter 2 system is certainly prepared to do whatever is required in the consumer marketplace going forward, but the guys have done a great job so far and I think the preparation right now for the -- I think the plan structures correct and let's just see how it goes but -- Pradman, I don't know what you are going to say, but I'm not worried about some of their announcements.

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [34]

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No, we are not, and the thing that drove our Gen5 plan, so for example, the 25 megabits down and 3 megabits back is, that is the definition by the FCC for broadband. They have sort of set that mark. So we're meeting that mark. If tomorrow, competition requires us to go more than 25, Jupiter 2 can do it and we're just trying to meet the regulatory requirements, and the market requirements, and we'll see how it works out.

But at this stage, we have consistently maintained about 60% market share in the US consumer market and we hope to continue to have that leadership position in the market.

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Chris Quilty, Quilty Analytics - Analyst [35]

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Got you and --

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [36]

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But your core question was, did we compete in that market? And the answer is absolutely yes.

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Chris Quilty, Quilty Analytics - Analyst [37]

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Okay, also just focusing on the Hughes business, you mentioned some good growth in the consumer. Can you give us a sense, I mean, do the Enterprise business overall grow in 2016, and what kind of growth?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [38]

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Yes, I think -- it's a signal-digit growth but it did grow and we are very pleased with that. We are seeing some encouraging signs in some specific markets and internationally, some countries are struggling because of the strong dollar. So it's a balance between, we are very diverse. We are doing business not only in the United States in the enterprise world but all across the world. So in some markets we're seeing good growth, in other markets we're seeing -- because of external environmental factors, we're seeing the downturn. But all in all when you put it altogether we are seeing a single-digit growth.

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Chris Quilty, Quilty Analytics - Analyst [39]

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Okay, and final question, you mentioned that you hope to have an aviation customer to announce soon. Should we assume that, that is done in partnership with the deal or you guys getting into the direct sales business?

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Mike Dugan, EchoStar Corporation - CEO [40]

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We're not ready to make an announcement yet right now, but hopefully we will have a new customer very soon. And soon as we sign it and [.bi] is across the field, we will let you guys know.

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Operator [41]

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Andrew Spinola, Wells Fargo.

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Andrew Spinola, Wells Fargo Securities - Analyst [42]

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Could you possibly share if you were able to meet or exceed your initial sub guidance for Brazil of 25,000 subs in H2 2016?

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Dave Rayner, EchoStar Corporation - CFO [43]

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We came up just slightly short of that, we got off to a little bit of a slow start intentionally and a little bit cautiously but ramped quite nicely linear. So we ended up just slightly short on that.

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Andrew Spinola, Wells Fargo Securities - Analyst [44]

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Great, Pradman, any progress on TV distribution or direct-to-home TV distribution partner in Brazil?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [45]

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We are in serious discussions with one potential partner. But at the same time we're not unhappy that we've done it because our returns on the retail distribution channels is a lot better than our wholesale approach and I think we do well with our dealers, leading the way in selling our service. So with the limited capacity we have in Brazil, if you get the right partner and the right deal, we'll do it. If we don't, I think that will still be fine.

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Andrew Spinola, Wells Fargo Securities - Analyst [46]

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Understood. And Pradman, your comment before that you are able to create space on the full beams in North America, could you maybe elaborate was their business that had to roll-off to create that space, and was it a material increase in subs that came from that or it was just a fairly small increase?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [47]

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No, it's small and it's really a combination of technology improvements and some of the churn that have curled into those deals and we've freed-up that capacity and signed up new subs to fill that capacity.

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Andrew Spinola, Wells Fargo Securities - Analyst [48]

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Got it. And wanted to ask a question on Jupiter 3, I think I asked this question on the prior call, but right now I guess if we look at your main competitor in the US, they're saying that they plan to be in the market in mid-2019. So, I would think you would need to be procure -- already building a satellite today that to meet that timeframe, if you wanted to have capacity in the market, at the same time the [VAS had] three arrives. I'm trying to understand why you haven't and what that might mean for your approach to the US market?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [49]

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Well, our approach is to be aggressive and we have been looking at different strategies and different architectures and having converged on a solution that we believe makes total sense. So, we're continuing to work very hard on that and as soon as we have -- as soon as we make a final decision, we will announce it to all of you.

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Andrew Spinola, Wells Fargo Securities - Analyst [50]

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One last question from me, Pradman, just on the entry level plan that you described of the US, the $49 and 10 gigabytes, I guess if I try to think about that plan and 25 megabit speeds, it's interesting that the speeds are doubling, but the capacity usage is not increasing for the basic plan versus what's out there in the Gen 4 plan. I would have always thought it was the monthly usage that was the bigger constraint and not the speed. Is this maybe an indication that you just think there's enough demand for the existing types of plans or is my read on speed versus capacity maybe not entirely correct?

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Pradman Kaul, EchoStar Corporation - President of Hughes Network Systems [51]

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Your read is absolutely correct. The capacity is the issue generally within certain limits and not the speed, but people do want speed, because the browsing et cetera is important as to how fast you get the response. But in the end, the limiting factor in -- is the amount of bits we give you for data.

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Operator [52]

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(Operator Instructions) And there are no further questions at this time.

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Deepak Dutt, EchoStar Corporation - VP, IR [53]

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Operator, it looks like we don't have any more questions?

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Operator [54]

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Correct there are no further questions.

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Deepak Dutt, EchoStar Corporation - VP, IR [55]

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Yes, I was going to say, let's end the call, operator?

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Operator [56]

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Thank you. That does conclude today's conference call. You may now disconnect.