EchoStar suffers slower rate of take-up

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EchoStar, the satellite operator controlled by Charlie Ergen, has acquired 195,000 new subscribers in the second quarter of the year, down 13 per cent on last year.

The slower rate of new customers, echoing similar trends reported by its satellite rival DirecTV this week, did not affect EchoStar’s profitability and the average revenue per user rose 7 per cent to $62.71. However, with cable rivals such as Cablevision, Comcast and Time Warner accelerating the pace at which they are adding new video subscribers, satellite operators will face further pressure to come up with a way to offer broadband too.

Cable companies’ edge over satellite is largely due to their ability to offer high-speed internet access and telephone connections alongside multi-channel television.

“The strategic question is competition, and the slowing growth in gross additions, as well as the higher churn rate, may reflect greater competitive pressure from cable, which has been reporting record basic subscriber adds in the first half of 2006,” said Craig Moffett, analyst at Sanford Bernstein. He has downgraded the satellite groups to neutral this week, causing their share prices to fall.

Shares of EchoStar and DirecTV, controlled by Rupert Murdoch’s News Corp, had risen to highs in recent months on the back of speculation that the two groups could try to merge, not least as a strategy to reduce the potential costs of providing broadband internet access.

Mr Murdoch said this week that so far there had been no negotiations between the groups.

The two satellite players’ previous merger attempt was blocked by regulators, but changes in the competitive environment might mean a tie-up would be approved.

The two companies are jointly bidding for spectrum that could be used to provide broadband services. The auctions, being held by the Federal Communications Commission, started this week and could last until October. So far, the joint venture has submitted the highest bids.

EchoStar said it was continuing to look at various alternatives for providing broadband. This week, DirecTV also said it was still looking at broadband options and that it was particularly interested in developments in the wireless broadband markets.

Carl Vogel, vice-chairman of EchoStar, said mobile broadband was not a “must have” for the company, although it was still looking at opportunities closely.

EchoStar, with 12.5m customers, is focusing on increasing the availability of high-definition television, and says it offers more high-definition programming than any of its rivals.

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