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The DIRECTV Group, Inc. (NASDAQ:DTV)

Q4 2009 Earnings Call Transcript

February 18, 2010 2:00 pm ET

Executives

Jonathan Rubin – SVP, Financial Planning and IR

Mike White – President and CEO

Bruce Churchill – EVP and President & CEO, DIRECTV Latin America

Pat Doyle – EVP and CFO

Analysts

Ben Swinburne – Morgan Stanley

Todd Chanko – Deutsche Bank

Bryan Kraft – Cross Research

Vijay Jayant – Barclays Capital

Marci Ryvicker – Wells Fargo Securities

Spencer Wang – Credit Suisse

Jason Bazinet – Citi

Richard Greenfield – Pali Capital

John Hodulik – UBS

Jason Armstrong – Goldman Sachs

Tom Eagan – Collins Stewart

Mike Pace – JP Morgan

Matt Harrigan – Wunderlich Securities

Operator

Good day, ladies and gentlemen. My name is Jessica and I will be your conference operator today. At this time, I would like to welcome everyone to the DIRECTV group's fourth quarter 2009 earnings conference call. All lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. As a reminder, today's call is being recorded. It is now my pleasure to turn the call over to your host, Jonathan Rubin, Senior Vice President of Investor Relations and Financial Planning. Sir, you may begin.

Jonathan Rubin

Thank you, operator and thanks everyone for joining us for our fourth quarter 2009 financial results and outlook conference call. With me today on the call are Mike White, President and CEO, Larry Hunter, General Counsel, Pat Doyle, CFO and Bruce Churchill, President of DIRECTV Latin America. In a moment, I'll hand the call over to Mike, Pat and Bruce for some introductory remarks but first, I'll read to you the following.

On this call, we make statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause actual results to be materially different from those expressed or implied by the relevant forward-looking statements. Factors that could cause actual results to differ materially are described in each of DIRECTV and DIRECTV US's annual reports on Form 10-K, quarterly reports on Form 10-Q and other filings with the SEC which are available at www.sec.gov. Additionally, in accordance with the SEC's Regulation G that requires companies reporting non-GAAP financial measures to reconcile these measures to the most directly comparable GAAP measure, we provide reconciliation schedules for the non-GAAP measures which are attached to our earnings release and posted on our website at directv.com.

With that, I'm pleased to introduce Mike White.

Mike White

Thanks, John and great job on reading that Safe Harbor Statement. Thanks, everybody for joining us for our fourth quarter 2009 earnings call. I'd like to kind of start out this call as my first call with some opening remarks about how I see our business and our strategies. And then I'm going to turn it over to Pat and Bruce to provide a bit of additional color on our DIRECTV businesses in both the U.S. and Latin America.

First of all, let me say how truly excited I am to be CEO of this great company DIRECTV. I've now been on the job officially for a bit about a month and a half but actually unofficially a bit more than that and I've already had a chance to get a much better appreciation for why DIRECTV has performed so well as a company over the past several years.

Simply put in my mind, it's about a terrific product and brand and a talented team of people. We had an excellent management meeting of our top 150 executives earlier in January where I had a chance to get a firsthand look and meet all of our people, seeing the capabilities, the passion, the expertise and the will to win the DIRECTV leaders have.

I've also had a chance to quickly see the DIRECTV truly has advantaged technology, it has distinctive content, I like to say 'done with a twist, it has industry leading customer service to provide a great customer experience and needless to say, I think the best brand in the business. And of course, it doesn't hurt that we also consistently generate prodigious amounts of cash, have a strong balance sheet and have demonstrated the discipline to return that cash to our shareholders. With that kind of a foundation, I'm confident that we have an extremely bright future ahead of us.

Now, before talking about our priorities and our outlook for 2010, let me just quickly recap full year 2009, a year that I think was an extremely strong year for both our U.S. and Latin America businesses, frankly no thanks to me, but thanks to the leadership of Chase Carry, Larry Hunter and the entire DIRECTV management team.

In our U.S. business, despite an increasingly competitive industry, we still ended up the year adding the most net subscribers in four years. We also managed to grow our Pre-Sac Margin by over 100 basis points and drove our CapEx down about 15% while also significantly improving our call center and installer networks performance. Once again last year, we had the highest customer service ratings in the American customer satisfaction index and we outperformed all of our major competitors for the ninth consecutive year.

In Latin America, Bruce and his team had an absolutely terrific year. Our performance was even more impressive as we established new records for virtually every key financial metrics from gross adds, to net adds, to revenues, to profits before depreciation and amortization. All of these achievements drove industry leading results at the consolidated DIRECTV level including as you saw in our release nearly 10% revenue growth for the full year and 40% free cash flow growth.

On top of all that, we repurchased another $1.7 billion of stock bringing the total buybacks to about $10 billion over the past four years while reducing our shares outstanding by over a third. So with that as back drop, I think it's fair to say that we head into 2010 with solid momentum and some real areas of strength across our business.

Let me just briefly touch on how I see the external environment that we face going forward. You won't be surprised that I believe the economic recovery in the U.S. continuous to be quite fragile. Consumers are still very cautious about spending money and they're very focused on getting good value for their money. On the other hand in Latin America and most especially in Brazil, the macroeconomic environment is quite a bit more buoyant.

Second, our industry, the pay television industry in the United States is certainly in the process of maturing and I would say is increasingly competitive while the industry in Latin America I think continues to offer opportunities for us to increase our penetration levels and support strong overall growth prospects.

Furthermore, on the cost side, programming expenses in general in our industry are increasing at a faster rate than overall CPI. The good news with all that said is consumers remain passionate about watching video both inside and outside their hopes and video is the fastest growing service on the internet as well as on mobile phones and other portable devises.

As DIRECTV's new CEO, my goal is to continue to build on our successful track record of agility and resilience taking us to even higher levels of market share, revenue, profits and cash flow. To do that, there are a few things that we've been doing that we won't change but will continue to emphasize going forward and let me touch on those.

First, we intend to continue to lead our industry by introducing innovative new products and services. For instance, later this year, we'll allow our customers to fully connect all of the media devises in their homes.

Second, we'll continue to build the strength of our DIRECTV brand through innovative advertising and marketing campaigns designed to attract high quality subscribers. Now, as an aside, aggressive marketing coupled with competitive pricing and discounting has certainly become a more important part of our overall industries marketing strategies. I frankly don't see that changing any time soon and for our part at DIRECTV will remain competitive by responding appropriately while also keeping a sharp eye on quality.

Next, we remain committed to delivering the industries best customer service, providing a world class customer experience each and every time. And finally, we'll continue to manage our costs with discipline to support margin expansion. Now, with all of that said, our industry is rapidly changing. The economic and consumer environment is changing and it's important that we change too and evolve our strategic and operational priorities in that regard.

Now, I should say we've kicked off a major effort here at DIRECTV to conduct a comprehensive review of all of our strategies and we expect to complete that review later this Spring and I look forward to sharing the results of our work with you all later this year. But from my initial observations and from the way we've structured some of that work, I think you should expect to see some shift in emphasis in a couple of key areas in our 2010 strategies and plans. Let me just touch on those areas and I really – - I am just going to highlight three areas that I would focus on.

First, our vision at DIRECTV has been to provide the absolute best television experience to our customers. That's still critical, but I think it's fair to say that increasingly our consumers expect us to be even more of a full video provider and they also expect to access that content whenever and wherever they want to.

As a result, in 2010, DIRECTV will make it even easier for our customers to record their favorite shows and access that program from any television in their home with a single whole home DVR that will also connect with other media devises. We'll create ways for our customers to take that same programming with them on the go, including the ability to watch their favorite team live on their mobile phone.

Later this year, we'll be launching the industries first 3D channel line up offering the latest 3D movie releases and sporting events like Major League Baseball All-Star Game and help lead the development of future 3D content as well. We'll continue to connect more of our customers to the internet so that they can watch home movies, share photos with friends and even watch YouTube.

And finally, we'll introduce DIRECTV CINEMA later this Spring, an exciting new movie service where our customers will watch the latest box office hits with a simple click of their remote rather than waiting days or even weeks to get those same movies by mail.

In doing that we'll immediately expand our pay-per-view offerings to nearly 400 titles of the highest movies versus only about 15 titles today and about half of those movies will be ready to watch at the same time they become available on DVD. Simply put, overall, we intend to continue to create innovative products and services that lead our industry and create loyal customers for life.

Second, there's nothing more important to me than keeping our 18 million customers plus passionate about our DIRECTV service and earn their loyalty on a daily basis. Now, I understand that's not an easy task. We take over 130 million phone calls a year for instance and I don't take it lightly.

Although DIRECTV generally ranks at the top of our industry on customer satisfaction and we've made tremendous progress over the last year, I think there's still more to do and we need to take our game to an even higher level.

Frankly, it still amazes me that Pay TV Providers as a group continue to rank at the bottom of the ACSI survey year-after-year. Somehow, we must and will crack the code on the challenge of providing world class customer experience every day.

Now, undoubtedly achieving higher service levels is going to involve perhaps changes in policies and practices, maybe some new sales and marketing tactics and perhaps even further investments in the homes of our customers, but over time, I believe that the financial returns will be fully realized if we have the most loyal happiest customers in the industry. In fact, I would argue that managing churn or as I like to say it turning it up side down and talking about increasing loyalty is quickly becoming our greatest value driver and perhaps our most important priority as our company and industry mature.

Third and finally, we'll carefully be reviewing our overall corporate and business development strategies. Let me just touch on a couple starting with Latin America and international. I personally believe we have tremendous international growth opportunities ahead of us. First, we intend to fully leverage our strengths in Latin America and continue to drive strong growth en our businesses there while at the same time taking the chance to selectively assess opportunities outside of Latin America, particularly emerging markets.

Now, I understand that there's been some debate about the pros and cons of splitting DIRECTV Latin America off into a separate company. And although I've not drawn any final conclusions, certainly my initial thoughts are very similar to those you've heard expressed publicly by both Pat and Bruce, namely that I believe DIRECTV Latin America gained substantial and tangible operational financial and competitive synergies by being focused with DIRECTV.

I think those benefits should be quite apparent particularly when you hear Bruce's comments later about their very significant leadership position in both HD and DVR services throughout the region. And I think it's also fair to say Bruce would point out I think there's some things we could learn here in the U.S. from the success that we've had in Latin America.

Second, I believe Latin America still has significant growth potential as well as value creation potential that we've yet to fully exploit on behalf of our shareholders.

Now, another question that I'm often asked is whether or not we're interested in buying content. Let me be clear. I don't see this as a primary focus for us, but I would say my answer is pretty much the same probably as you've heard in the past from Chase.

We will continue to opportunistically pursue, what I'd call tuck under content deals that are neither overpriced and are deals where we could provide specific tangible value or synergies. One example where I could imagine that and where we certainly I think have some unique value is in sports. To state the obvious, sports is DIRECTV's greatest programming strength and as such it represents an area where we have the greatest opportunity I think to create value.

Now as part of the Liberty merger, we now own three regional sports networks and I'm very excited about bringing DIRECTV'S differentiated services to our fans in Seattle, Denver and Pittsburg. And we're also developing strategies to selectively gain DIRECTV market share in those cities, while also looking at other cities in the country for possible opportunities for expansion.

In closing let me just paraphrase John Malone, when he introduced me as DIRECTV's new CEO a couple months ago. John talked about the orchestra and the conductor, but from my standpoint, the great orchestra starts with having great musicians. I'm bless today have those great musicians and our management team as well as our entire employee population.

My job as the conductor of those great musicians is to continue to bring out the best in each and every one of them, both as individuals but most importantly as a team. If someone who has spent a lot of time in my career studying strategy and understanding competition and how to compete, I can assure you we will continue to win in the marketplace first and foremost, while at the same time consistently delivering strong sustainable financial returns to our shareholders.

We have an unbelievable set of assets here at DIRECTV and I'm excited about our opportunity to make DIRECTV an even more fabulous service to our customers in the years ahead.

With that let me turn the call over to Bruce Churchill for a summary of DIRECTV Latin America's results and outlook. Bruce?

Bruce Churchill

Well, as Mike said, overall DIRECTV Latin America had one of its best quarters ever, highlighted by our record setting subscriber growth throughout the region. Just as a quick reminder to everybody, all of the figures I'm about to discuss exclude results for Sky Mexico, which we account for on an equity basis.

However, it's important to note that Sky Mexico also had extremely strong subscriber growth in the quarter. Looking first at our gross additions, we achieved a new record in the quarter, growing 35% to 460,000 bringing our full year results to $1.58 million gross additions. What I'm particularly pleased about is this growth occurred throughout the region.

In addition to the strong results we're accustomed to seeing in countries like Brazil, Venezuela and Argentina, we also experienced significant growth in other territories such as Columbia, Puerto Rico and Chile. I think this speaks to the strength of our pan-regional strategy.

Furthermore, our growth is coming from both of the higher end of the market as well as from the middle market segment, which is becoming more recent focus of our efforts. At the higher end, increasing sales of HD and DVR services are driving much of the growth. For example, sales of HD and DVR services to new customers were over twice the rate of a year ago and reached about 25% for all of DTVLA's gross additions in the fourth quarter.

Much of the increased sales are coming out of satellite dish antenna [ph] where we're capitalizing on our DVR leadership position, but we're also seeing accelerated demand for HD services in Brazil and we launched our HD services there in the second quarter of last year. And we're already reaching double-digit penetration levels for new subscribers in Brazil.

In Brazil, we have the most comprehensive HD offering in the country with about 30 channels and we expect to further extend our lead with the launch of several new channels this year, including additional HD programming from global.

With respect to our focus on the middle market segment, we've had success with both our prepaid offerings as well as our lower priced post paid packages. Prepaid gross adds compromised more than 25% of our total gross adds in the fourth quarter. Although most of our prepaid subscribers continue to come from Venezuela, we have begun to gain traction in other territories such as Puerto Rico and Columbia. And the prepaid product is an important component of the sales increase in those territories that I referred to earlier. And Brazil, our growth has been fueled by the recently launched Sky Digital Lite package which is a post paid package targeted at the middle market.

Turning now to churn, this was another area where we saw favorable trends in the quarter as our average monthly churn rate declined five basis points to 1.54%. This improvement was mostly due to a nine basis point reduction in post paid churn to 1.45% in the quarter, which represented the lowest post paid churn level for us in over two years, well below the 1.5% sweet spot that many of you have heard me talk about in the past for post paid customers.

Although Q4 is typically been a strong quarter for us in terms of churn, I do believe that much of this improvement reflects the increased penetration of HD and standard def DVR services discussed earlier, as well as our use of more focused upgrade and retention strategies.

We're also seeing our prepaid churn levels stabilize as this subscriber base matures and we continue to refine our recharged strategies. I think it's also worth noting that our strong results for both gross adds and churn are favorably impacted by the relatively stable macroeconomic and financial conditions that we are currently seeing across most of the region.

The combination of higher growth additions and lower churn drove a 59% increase in net additions to a record 254,000 in the quarter, bringing our DTVLA subscriber base to almost 4.6 million. This represents year-over-year growth of 18% and if you include Sky Mexico, we now have over 6.5 million subscribers throughout Latin America.

Looking now in our financials, DTVLA's revenue and cash flows were all solid IN the quarter, particularly considering the higher cash and repatriation charges in Venezuela. Revenues of 839 million were up 47% driven by both strong subscriber and ARPU growth. Excluding the favorable FX impact coming primarily out of Brazil, revenues would have increased by around 35%. ARPU of about $63 in the Fourth Quarter grew 25% and reflected a favorable FX impact of about $5, again, driven primarily by exchange rates in Brazil. Excluding the FX impact, DTVLA's ARPU would have increased about 16% in the quarter, reflecting both price increases and higher penetration of advanced products.

Operating profit before depreciation and amortization increased 20% in the quarter to 219 million and includes a $45 million charge related to the exchange of Venezuela currency for U.S. dollars as we continued to repatriate cash from Venezuela. There were no currency transaction charges in the fourth quarter of 2008.

For the full year 2009, we incurred $213 million in charges from repatriating cash from Venezuela compared with only 29 million in 2008. Cash flow from interest and taxes including these FX charges was down a bit in the quarter as the increase in OPBDA was more than offset by higher subscriber related CapEx, reflecting a significant increase in gross adds and sales of advanced products.

I'd like to conclude with a few comments about our 2010 outlook. Beginning with subscribers, we're looking for another great year with net adds at or above the record of 2009. This full outlook assumes that the overall economic and financial conditions remain generally stable and the strong trends seen last year continue in terms of increasing sales of HD, DVR and prepaid services.

We're also anticipating strong demand for our differentiated and oftentimes exclusive coverage of the FIFA World Cup in the middle of the year. We have about six hours of original programming each day and in all countries except Brazil, we will be the only provider in Latin America showing all of the games live in high-definition.

Revenue growth this year is likely to be roughly half of last year's growth, reflecting affects of a devaluation in Venezuela. Otherwise we would have expected about the same growth as last year. And since I've been receiving a number of questions about the impact of this devaluation, I thought it would be helpful to provide a bit of color on this subject.

As many of you probably know, in January, the Venezuela government announced the official exchange rate for the bolivars would go from 2.15 to 4.3 boliviars into the dollar. In other words, relative to 2009, Venezuela revenues and ARPU will be reduced by about 50% when translated into dollars.

From an OPBDA perspective, however, we're not expecting a significant impact from the devaluation because we have already been withdrawing excess bolivars from Venezuela throughout the year, at the even more unfavorable paramount rate which has the effect of depressing our OPBDA.

In short, DTVLA's reported 2009 OPBDA of $697 million, already has the Venezuela devaluation baked in. Also keep in mind most of the costs associated with the Venezuela business including programming are denominated into local currency, so at the consolidated DTVLA level even with a rapid subscriber growth and the full year effect of the Venezuela devaluation, we are targeting a very strong year in terms of OPBDA, as we expect higher margins and subscriber growth to generate OPBDA growth of more than 20% in 2010 compared with 2009.

However, cash flow before interest and taxes is likely to be modestly down primarily because we're expecting an increase in CapEx, mostly due to the higher gross adds and increased sales of advanced products.

So in wrapping things up, I hope you can see by my comments, we remain extremely bullish on our growth prospects in Latin America. And we look forward to an even better year in 2010.

So with that I'll turn the call over to Pat to discuss DIRECTV U.S. Pat?

Pat Doyle

Thanks, Bruce. Overall I thought DIRECTV US had a very solid quarter, highlighted by industry leading revenue growth, higher margins largely gained through operational improvements and substantial free cash flow growth. The one area that fell below expectations was subscriber growth which I'll talk about in a minute.

Looking first at the top line, DIRECTV U.S. revenue growth was solid at 8%, although ARPU growth of 2.1% was flat with the third quarter's rate. We're actually quite pleased with the results because we saw several favorable trends that should carry into 2010. At the top were the premium channels, where buy rates in the fourth quarter declined at the slowest rate of the year. Pay-per-view movie revenues were also solid and grew at the fastest rate of the year. The same holds true for advertising revenues which were up about 13% over last year and represented our best quarter ever for add sales.

NFL Sunday Ticket revenues also were very strong and exceeded our expectation, so with these favorable trends we remain confident that ARPU growth in 2010 will be greater than the level attained in 2009. Although net additions of 119,000 fell below our expectations, there were actually several positive trends in the quarter related to the quality of new subscribers and take rates for HD and DVR services.

The decline in gross additions was mostly due to stricter credit policies and a more competitive environment. During the second half of the year, we implemented several policy changes aimed at further improving the profitability of new subscribers. For example, we raised the minimum credit score required for new customers to receive our national offers, we required credit cards in our commercial and MDU channels, we improved the profitability of the DIRECTV month's packages and we dropped dealers that did not meet our quality standards.

All of these measures impact gross additions; however, we believe that over the long-term, subscriber returns will be greater due to the resulting lower churn and higher margins. But as I mentioned the overall quality of new subscribers remains high both in terms of credit scores and sales of advanced services. For example, we reached a record high for HD and DVR sales as nearly 70% of new subscribers signed up for these services. By comparison, we added about 50% more HD and DVR customers than our largest competitor last year. As a result, we ended the year with an advanced services penetration rate of around 60% of our total subscriber base.

Turning now to churn, I thought that the 1.52% in the quarter and the increase over last year were consistent with our previously stated goal of striking a better economic balance between our churn rate and the dollars spent to retain customers. As we discussed on the last call, we regularly update our offers for existing customers to reflect a more challenging economic and competitive landscape.

In recent quarters, we've tightened up our offers by making them less attractive, particularly for lower quality subscribers. In some cases, these stricter policies result in higher cancellations, especially for the more price sensitive customers who are shopping around for the cheapest deal. The return however is quite evident when you look at the more than $100 million or 23% reduction in our cash, upgrade and spending expenses, compared to last years fourth quarter.

Now looking at our cost and margins, I thought we did an excellent job managing costs in the quarter with the exception of fact. As a result, DIRECTV U.S. has OPBDA margin increased 260 basis points to about 25% while OPBDA grew 21% to almost $1.3 billion in the fourth quarter. About a half of the margin growth was due to the lower upgrade in retention costs that I talked about earlier.

The next largest contributor was in programming where we picked up about a 60 basis point margin improvement over the prior year. We've done a good job managing these costs all year leading to a full programming cost increase of less than 2% per subscriber. Also in the fourth quarter we benefited from booking profits on our existing NFL Sunday Ticket contract.

You may recall historically, we've booked our NFL Sunday Ticket revenues at zero margin. However, based on the greater than expected NFL revenues in the fourth quarter that I talked about earlier and the expectations of continued success this year, which by the way is the last year of the current contract. We started booking modest profits and expect to continue recognizing gains this year as well.

Another area where we're seeing an important progress is in subscriber services. We've shared with you many of our targets and initiatives over the last couple of years and it's encouraging that we are now starting to see the pay off. For example, fourth quarter service levels at or call centers were significantly better than a year ago and at a lower cost. Also, our set-top box reliability is better and we've implemented several technology advancements in the field aimed at improving efficiencies and as a result, we've recently seen significant reductions in the number of truck rolls and service calls.

The one area that did not meet expectations was SAC, which was greater than last year, primarily due to higher marketing cost and investments in the home. As I mentioned earlier, we increased some of our offers for new customers to be more competitive. It's important to note that these offers were introduced in concert with our tighter credit policies to insure that the quality of additions was not compromised.

In addition we're spending more money for advanced services and new technologies in the home. As an example, the percentage of new customers signing up for our HD-DVR box was 50% higher than a year ago, while this receiver is roughly twice the cost of a standalone HD box.

We also decided in Q4 to install our advanced SWM dish which stands for single wire multi-switch in all new HD households. Although this new dish costs more than a standard dish, we believe this is an important investment to make as we strive to future prove customers homes, in anticipation of the many new services we're introducing in the coming months including multi-room viewing, new broadband applications and the home media center.

So with a solid top line growth, higher margins and a 35% decline in capital expenditures, cash flow before interest and taxes grew by 42% to just under $1 billion which was reflects, by far the best quarter ever for DIRECTV U.S. And at the consolidated DIRECTV's level, fourth quarter free cash flow which includes DIRECTV Latin America, taxes and interest grew even faster at 64% to $710 million. These strong results contributed to a full year free cash flow growth of 40% to a record 2.36 billion in 2009.

In terms of our consolidated balance sheet, we ended 2009 were 2.6 billion of cash and about 8 billion of total debt. The debt balance at year-end includes the Bank of America debt assumed at the completions of the Liberty transaction in November of last year. And at year-end that balance was about 1.2 billion and since then we have continued to pay down the BofA debt and related equity collars and expect to be finished with that process later this month.

Also in the quarter, we booked 29 million in revenues and 12 million in OPBDA for our three new regional sports networks. These results are included in our sports networks eliminations and other segment. We're very excited about owning the Pittsburg, Rocky Mountain and Northwest, RSNs and welcome them to the DIRECTV family.

Before turning the call back over to John, I'd like to provide our 2010 outlook for both DIRECTV U.S. and for the consolidated company. Starting at the top line for DIRECTV U.S., we're targeting revenue growth in the mid to high-single digit range, which is very similar to last years level.

Relative to 2009, we're expecting less contribution from our subscriber growth but as I mentioned earlier, we're expecting faster ARPU growth in 2010 compared to 2009. We're also looking for an increase in OPBDA a margin, which is expected to help drive OPBDA growth in the low teens range.

Cash flow before interest and taxes growth is expected to be a bit higher in the mid-teens range as we target another year-over-year decline in set top box CapEx. For non-set top box CapEx, it's likely to remain in the 500 to 600 million range we've seen in the past. At the consolidated company level, cash flow before interest and taxes expected to be strong and consistent with the DIRECTV U.S. performance.

However, cash taxes are expected to increase quite a bit in 2010 due to our higher profit levels and the cessation of the benefits gained over the past couple of years from the accelerated depreciation associated with the two economic stimulus programs in the U.S.

In addition, we're anticipating greater interest expense as we increase our leverage. As a result, free cash flow which I'll remind you grew at a faster than expected rate last year a 40% is likely to be in the mid-single digit range.

EPS is expected to more than double to over $2, excluding the nearly 500 million charge in 2009 related to the Liberty transactions, we're targeting EPS growth of some 50% driven by the OPBDA growth, lower depreciation and amortization expenses and a continued decline in shares outstanding due to buybacks.

And finally, a few words about our return of capital strategy and the balance sheet, which I know are topics of great interest to many of you. First, as you saw in our press release this morning we announced a new share repurchase program of 3.5 billion. We still believe that our stock is undervalued and as such we will continue repurchasing our stock in the same aggressive, but opportunistic fashion you seen from us over the past few years.

We expect to begin repurchasing shares soon once the equity collars have been fully unwound. Regarding our total debt to OPBDA target, at this time we do not have a specific timeline for achieving that target. Many of you know the difficulty in predicting when and if we hit that target, particularly considering the uncertainty of the financial markets combined with our low net debt and rapidly growing OPBDA. And indeed a problem most companies could only hope for.

Having said that we will carefully review our longer term capital structure with our board as part of our overall strategy efforts is spring. We will share any further thoughts on that once our board has had a chance to review our thinking and approve a longer term capital structure.

So in Summary, as we head into this new year, we feel real good about our operating and financial strengths and look forward to further extending our video leadership position with the many new and exciting products we'll be launching later this year. And with these strengths, we're targeting yet another year in which we lead the industry in both top line and bottom line growth as well as returning capital to shareholders. With that, I'll turn the call back to Jon.

Jonathan Rubin

Thanks, Pat. Before moving on to Q&A, investors should note we have members of the media on this call in a listen only mode. I'd like to remind the media they are not authorized to quote any participants on this call either directly or in substance other than the representatives of DIRECTV. In addition, we're webcasting this call live on the internet and an archived copy will be kept on our website. And with that operator, we're ready for the first question.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Ben Swinburne from Morgan Stanley.

Ben Swinburne – Morgan Stanley

Thank you. I guess good morning to you guys. Mike, I had a couple of questions for you going back to some of your prepared remarks, you talked about your long-term view on DIRECTV and over the years, DIRECTV has shifted its strategy between market share growth and top line investment mode to harvest free cash flow. And I think there's always been a balance there as you look at whether you're putting money to work or focusing on near-term earnings, which as you know in the short-term are actually inversely correlated.

How are you thinking about that balance when you look at the business today? You mention the competitive landscape and maturing business model. But you also talked about product investments et cetera. And opportunities to do more than you're already doing in terms of product delivery. So maybe you could spend a few minutes for us thinking about how you're looking at the business from a balance of top line growth versus free cash and earnings? And I have one follow-up.

Mike White

Sure. Sure, Ben. I think first of all as you all know we had the digital transition last year. We also started in February of last year with AT&T. But both of those gave us a significant bump in the number of adds that we've got in the first half of last year that frankly, I don't expect us to see repeating this year. So I think there is some unique things that we need to take into consideration and how we strike the balance.

And to your point exactly Ben, I think business as interconnected as this it is about finding the right equilibrium and as a business matures in my mind as I said in the call I'm frankly more interested and how we create passionate loyalty out of our consumers for life, but necessarily chasing lower quality subs. But having said all that we need to stay competitive and I'm used to kind of whether they are map wars or whether they are colo wars and we intend to be fully competitive.

But I think it is balance to your point exactly and I would say we recognize that the industry has gotten a bit more competitive in the last six months and we are fine tuning our own strategies accordingly. But at the same time, I think DIRECTV has been very good about trying to consciously manage and strike the appropriate balance between the discipline with which we manage ARPU, SAC and cost to insure we continue to deliver strong cash flow to our shareholders.

So I guess my view is I think it's a bit of both unfortunately. We've got both be competitive but at the same time I think it doesn't do anybody any good to chase poor quality subs. And I think it's that delicate balance that if you will that we will continue to strike as we head into this year.

Ben Swinburne – Morgan Stanley

And just a quick follow-up. What I heard from you earlier it sounded like if I had to pick one metric that you thought it was the most important driver value it would be churn, I guess correct me if I'm wrong and that's consistent from what we've heard from DIRECTV over the years. Is that true and if so do you think churn there's room for churn to go down from here or are you happy with the levels you're at today or do you think the competitive environment is going to push you high or any color there would be helpful, that's it.

Mike White

Sure. Sure. Look, first of all churn wasn't that much worse in the fourth quarter than third quarter only 10 basis points different. I'm not sure you can manage it any tighter than that. I think though overall, our view historically and mine still is that 1.5% churn is probably a normative level. You may find a quarter will be a little bit above that and a quarter will be a little bit below that. But to me, my point about churn is that I want to shift our mindset to looking at what do we need to do to make it. So nobody ever wants to leave the franchise? Now, that's an aspirational goal.

But as I said from a financial standpoint, I think 1.5% is probably about the sweet spot for us on churn. But I do think that the whole area of continuing to look to create even greater passion and loyalty in our customers is really got to be the area of focus as an industry matures and suffice it to say, I think this is a reasonably mature industry.

Ben Swinburne – Morgan Stanley

Thanks a lot.

Operator

Our next question comes from Doug Mitchelson from Deutsche Bank.

Todd Chanko – Deutsche Bank

Good afternoon. This is actually Todd Chanko coming in for Doug. About SAC, should we expect it to continue at these levels due to swim all some DVR, broadband connectivity all that stuff going on in the home or will it moderate?

Mike White

Well, I think as we look at it overall in an increasingly competitive business, I don't necessarily expect it to go down in an absolute sense. But we're managing our SAC costs overall and we expect to get leverage. I mean I expect to grow revenues faster than SAC would go up. But even the increase in the number of advanced products and things, there are a number of factors that go into the total SAC line item but our expectation for this year is there will be an increase in SAC, but I don't expect it to grow at the same rate as revenue, Pat, anything?

Pat Doyle

Yeah. I think if you look at the fourth quarter obviously there were some things that drove SAC that we talked about. We did launch using our swim technology, which we think is a great decision in the quarter that had some effect on it. We did match the competitors a little bit. I shouldn't say match, I mean we came in with a cash back offer. So there was some things in the fourth quarter that might have been unique but like Mike said, what we see going forward is we are going to make some investments in the home in 2010 and whether it's multi room viewing, it's a higher percentage of broadband, connectivity later in the year, home media center, we'll obviously have the full effect in the year of using the swim on all of our HD installs.

All of those we think are kind of must investments in the home and that will as Mike said first of all make for a better experience for the customer, secure customer plus they're all revenue opportunities. So I think kind of looking at the fourth quarter there was certain things that drove the rate to what it is but going forward, we will be investing a little bit more in the home. So as Mike said, I wouldn't necessarily see the rate coming down much from the fourth quarter rate but for the rate of different reasons as we invest more in the home.

Todd Chanko – Deutsche Bank

Okay. Great. Thank you very much.

Operator

And we'll now go to Bryan Kraft from Cross Research.

Bryan Kraft – Cross Research

Hi, thank you. Just two questions. I guess can you comment on what kind of trends you're seeing so far in the current quarter in the U.S. in terms of gross adds? And then secondly, can you talk a little bit about the outlook for satellite investment, when do you think you're going to have to start launching one or two satellites, maybe over the next two to three years. And when do you start the, when do you expect to start making some of those investments? Thanks.

Mike White

Sure, Brian. Pat, why don't you take those two? I think we've talked about both of them.

Pat Doyle

Yeah. I mean I think probably not going to say too much about gross adds, I think as Mike said earlier we expect gross adds to be down from 2009 to 2010 for a variety of reasons. And also the first quarter, if you remember back in the first quarter of 2009 we were coming out of 2008 with a lot of momentum where a lot of our competitors were in a weakened position, which we took advantage of so we had kind of a blowout first quarter last year in 09.

So I won't say anything more than that and again we expect kind of gross adds to trend down from '09 to '10. On the satellite launch, we don't have any satellites after our D12, which was already launched. But I think now, we'll probably begin talking with our board about our satellite strategy not only for back up but then replacement. So we'll probably begin to see a time here where we'll procure a satellite and begin to spend some money on the manufacture satellite. It won't be big numbers but I think either maybe even later this year we might see that happening.

Bryan Kraft – Cross Research

Okay. Thank you.

Operator

Our next question comes from Vijay Jayant from Barclays Capital.

Vijay Jayant – Barclays Capital

Hi, just wanted some clarification, the buyback you announced for 3.5 billion is it targeted to be completed in 2010? Any color, Pat, on the underlying programming cost increases, cable guys have talked about mid to high-single digit growth, obviously your growth pretty much low in '09. Can you just talk about broadly and how you sort of see that? Thanks.

Mike White

Vijay, I'll take the programming on Pat you want to just comment on the share buyback? We do intend to complete.

Pat Doyle

Yeah. Share back our objective would certainly to be to complete it this calendar year.

Mike White

I think Vijay on programming, again we had a lot of unique things running through the P&L last year that kind of were favorable I would say. As I look at this year, I would expect us to be probably more in the mid-single digit range in terms of programming costs. But I think we still expect that we should be able to get leverage out of it. But it's going to be closer to where our revenue our ARPU was growing. So I would say, I don't see us at the high-single digit range, but certainly we're not going to be in low-single digits either as we look at this year.

Vijay Jayant – Barclays Capital

Thanks.

Operator

We'll now go to Marci Ryvicker from Wells Fargo Securities.

Marci Ryvicker – Wells Fargo Securities

Thanks. Just to follow-up on the programming cost, would that be mid-single digit growth per sub?

Pat Doyle

Right.

Mike White

Yes. Yeah. That's right.

Marci Ryvicker – Wells Fargo Securities

And then now that you've completed the Liberty merger, Mike, I'm curious what your thoughts are on the synergies between the satellite operator and the telco?

Mike White

Well, I think we have an excellent relationship with a number of telcos that we partner with already. And I think more of our focus has been on the wireline side. As I said it's kind of interesting we cooperate in some areas and compete in other areas. Certainly, as we look at bundles I continue to believe bundles is a valuable strategy and tactic to have in the giver with their wireline businesses. And I certainly continue to believe that kind of both the broadband and the satellite can work together. Particularly, in some of the more rural areas I would say of the country. So I think there are synergies in the partnerships that we currently have with both Verizon and AT&T and Qwest.

Marci Ryvicker – Wells Fargo Securities

So there's no need to be part of the same company, I guess is what you're saying?

Mike White

Well, I think there are things that we can think differently about that are opportunities for us. I believe that DIRECTV is the best video provider out there. I think we're much more than a satellite company from my observation and a couple months I've been involved here. When I look at our capabilities in the user interface in set top box R&D, in programming aggregation, in content with a twist like things like the 101 channel, there's an awful lot of what I would call the software of this company that I think still has tremendous potential to be leveraged whether it's selectively in international or whether it's in the U.S.

And certainly, as part of our strategy process this spring, we're certainly brainstorming internally what other ways might we leverage those capabilities but no, I don't believe it necessarily means you have to be one company. I think there are ways that we could kind of think differently about our business with the telcos that would benefit both them and us for instance.

Marci Ryvicker – Wells Fargo Securities

Okay. Thank you.

Operator

And we'll now go to Spencer Wang with Credit Suisse.

Spencer Wang – Credit Suisse

Thanks. Just to follow-up on that last question. Mike, at different points in the past there's been some discussion about DIRECTV…?

Mike White

I think we lost you there, Spencer. Hello?

Operator

Just one moment.

Mike White

Okay.

Unidentified Speaker

We'll get him back.

Operator

Sir, your line is open.

Spencer Wang – Credit Suisse

Hi, sorry about that. Can you hear me now?

Mike White

Yeah. I've got you Spencer, thanks.

Spencer Wang – Credit Suisse

Great. Just to follow-up on the last question. Mike, there's been discussion in the past about DIRECTV perhaps investing in a broadband network either probably wireless one. I was wondering if you could just share with us your thoughts on that just given the movement of DIRECTV towards providing video anytime any place. And then just one quick follow-up question, just on the 3D initiative, do you have enough capacity for that or should we expect some sort of material impact on CapEx as you roll that outgoing forward? Thank you.

Mike White

Good. Now, on the 3D, we're fine. I don't expect to material impact. That's frankly the D12 satellite, which is launched that's giving us that capacity. So we're in good shape for the 3D and frankly, I would expect to see it grow. We'll see how much it grows. I think we've got a lot to learn about that depending on how many television sets get sold.

On the question of investing in a wireless capability in the U.S. business, I frankly don't see that as a likely focus for us but selectively in some international Markets and in Latin America we have been looking at broadband and whether there's possibly some ideas that we could do, we could make some investments to get broadband space in some of those Markets.

I don't know it's a broad based strategy but it's certainly something that we'll take a look at but in the U.S. I don't as I said frankly think that's our core competence so I wouldn't expect us to be making a major investment there and I'll leave it at that I guess.

Spencer Wang – Credit Suisse

Great. Thank you.

Operator

And we'll now go to Jason Bazinet from Citi.

Jason Bazinet – Citi

Thanks. I just had a question for Mr. White. Regarding the decision to tighten credit policies when I look at your doubtful account balance measured as gross Accounts Receivable, it's about the lowest it's been in four years and I was just wondering, is your decision to tighten the policies at this juncture, is it more defensive given the fragile nature of the consumer? Is it in response to higher SAC to make sure you get good return on your investment or is this an explicit attempt to move up market if you will and improve sort of the quality of your customer vis-a-vis your competitors?

Mike White

That's a really good question Jason and it's Mike. We've spent a lot of time thinking about that. You're absolutely right. When I first came I was amazed at how steady and low our bad debt had been through the whole challenging economy of the last couple of years. I think it's fair to say it's got more to do with as you put more investment in the home and you sell more advanced products you want to make sure that customer isn't going to leave you six months after you sign them so a lot of the focus there has been less about bad debt and much more about consumers that are prone to stay loyal to our service for the full length of the contract.

So I would say it's got much more to do with trying to insure that we manage our churn and have a really good investment given that in our industry when we sign up a customer we make a significant investment to put an ODU on the roof to go to the home and wire them up, not to mention the Marketing cost to capture the sub in the first place so you want to make sure given that up front investment and then the discount in the first year, that you've really got a customer that's going to be with you for the full contract. Now Pat I don't know if there's anything else?

Pat Doyle

Yeah. I think Jason, we had talked last year on occasion about how we spent about six months going in and updating our predictive model on customer value and it's a great model, it's really sophisticated and as a result of that, we did find that there were areas as Mike said with growing investment in the home and then the growing promotional discounts that some customer segments that used to be profitable and worth us exploring were no longer profitable.

So the ones I gave in my remarks, again it was not just the credit score. We looked at a whole Bevy of kind of what I would call targeted areas where again you're not trying to do this with a sledgehammer but do it surgically by picking areas where you can get the best return without also scaring off some good quality customers.

So we'll continue to do that. I mean, obviously in these types of areas, the best thing that we can kind of do is just make sure we're not investing money and also company resources because these people do use up resources. That doesn't make sense.

Jason Bazinet – Citi

Perfect. Makes sense, thank you.

Operator

And we'll now go to Richard Greenfield from Pali Capital.

Richard Greenfield – Pali Capital

Hi. Couple of questions. One Mike, I heard your comments on DIRECTV Latin America but clearly, if you look at where the stock is trading, you're not getting a lot of value for that rapid growth business and you're making comments about DIRECTV or the video business in the U.S. being a more mature business but you're not getting kind of credit publicly in the public markets for that so how do you reconcile your comments about the advantages of being part of the company with the market seeming undervaluation of that part of the business. Two, could you just quantify what the increase year-over-year is in that tax catch up that you're actually going to bear this year and then just a final question for Mike on, just was curious whether you actually are a DIRECTV subscriber or were you in the past and if you weren't and you are now, what do you see as the key differences in what you have in terms of a service, thanks.

Mike White

Terrific. Richard. I'll let Pat handle the tax catch up question and I'll take the other two. First of all in terms of Latin America, I'm not sure I agree with the premise that we don't get any credit for it but I think certainly it's our job as Management as to provide more transparency and more clarity to the street about our strategy, about our potential, about the scale, about what we can do with that business and I think we've ramped up Bruce's exposure over the last year and we intend to do even more of that in the years ahead

so I think it's partly being able to articulate a clear strategy and to be clear with the street about what our expectations are in terms of cash, in terms of Latin America, so frankly, the math I've seen and I've looked at it with a couple bankers, I'm also not yet sold that if you try and split-off or spin-off a business that has two joint ventures in the middle of it, one in Brazil and one in Mexico that I'm going to create more shareholder value that way.

I'd be pretty surprised frankly from my experience in looking at that issue but I'd say first and foremost, this is a business that's just blossoming right now and to me, we've got significant value creation potential over the next few years. I'll never say never on anything. I think we'll always look at what's in our shareholders best interest but as I look at it today, at least my initial reaction is that I think there's a lot of value creation and I think it's up to us to do a better job of explaining to you all how we're going to realize that value and what our strategies are to deliver it.

On the second question on being a subscriber, yes, when John Malone first interviewed me, I happened to be a subscriber in Connecticut and so I'm a very happy subscriber. I was very familiar with the product and frankly as someone out of the consumer business when I first took this job, I think there were three things I looked at.

One is, is it a great product, two, is it a great brand and three, is what's the culture and team of people you are going to work with and in all three of those fronts as I did my due diligence, I was very, very enthusiastic about this company that I was joining and so I think our user interface is better than anybody else's.

I think once you've seen high-def, you'd never go back to standard def. I think the sports offerings that we have are second to none and I also think that more than anybody else we don't just aggregate content. We do what I call distinctive content with a twist.

Eric Shanks and his team are always thinking creatively about what else we can do there.I think we're certainly from my experience the best marketer of multiple channel video out there and I think there's still lots more opportunities for us to innovate with our product down the road. Pat, do you want to try the tax question?

Pat Doyle

Yeah. On the tax, So if you go back to 2009 when you look at the net effect of the 2008 and 2009 stimulus plan, it reduced our income tax payments by about 100 million, when we look at 2010 it's going to increase our taxes by about 100 million, a little bit more in each case so we've got a 200 million plus kind of delta when you compare 2009 to 2010 and then as we said obviously we've got we're expecting a nice increase in earnings next year that's driving up the payments as well.

Richard Greenfield – Pali Capital

And is 2011 then clean?

Mike White

2011 would be clean.

Pat Doyle

Depending on what Washington does.

Richard Greenfield – Pali Capital

Yeah.

Mike White

Richard. Tell me what the administration is going to do. I mean, we don't see anymore stimulus.

Richard Greenfield – Pali Capital

I mean, we don't see anymore stimulus.

Operator

We'll now go to John Hodulik from UBS.

John Hodulik – UBS

Okay. Thanks. On the buyback, you got the $3.5 billion out there and I realize you don't want to put a time frame on the 2.5 types leverage target but you could buyback stock at this rate for years and you would get know where near that target ratio, so my question is, is this the number we should model in going forward beyond 2010 and does the buyback preclude a payment of a dividend especially as the U.S. business slows and gets more mature, may be you could talk about balancing return of cash by backs versus dividends.

Pat Doyle

Sure, I'd be happy to, John. First of all I'd prefer not to comment for a lot of reasons on 2011, 12 or 13 other than to say we're going to take a careful look that with our Board of Directors this Spring as part of the strategy effort and certainly this is an amazing cash flow generator, so I'll leave to you the modeling exercise but certainly we will be looking at all of those questions, the balance of dividend, share buyback, whatever it is we do I'm a big believer that we should be consistent and do something that's sustainable over a long period of time.

And as I said we are also going to look at other opportunities to see if there's a better return than that but frankly, our base case that we'll be looking at with our Board, we think we would return the cash to shareholders probably and we need to figure out what the optimal strategy between dividend and buyback but I wouldn't rule anything out. I wouldn't rule a dividend out at this time. I think again that's something for our Board to consider and Pat and his team will be framing up our thinking on that some time later this Spring.

John Hodulik – UBS

Okay. Thanks.

Operator

Our next question comes from Jason Armstrong from Goldman Sachs.

Jason Armstrong – Goldman Sachs

Hi. Great. Thanks. Just a couple of questions. May be first one more, on the buyback and just a reminder the mechanics sort of behind it? My understanding is that the restriction exists that you can't have a plan in place for a buyback of more than 20% of the shares which clearly this isn't but there's nothing stopping you from getting through this by the end of the year and then reloading with another sort of sub 20% plan.

Just refresher on if that's the right way to think about it and if there's any other limitation we should think about from a tax perspective and second question, you talked about remaining competitive and some of the recent plan changes from December into January you took away the low end family plan so you really don't have a low end price point in the market at this point. I'm wondering if you can talk through the puts and takes of that decision as you thought about having a void in that segment in the market, thanks.

Mike White

Sure. You want to take the first one Pat?

Pat Doyle

Yeah. You're right. The general rules are in the reverse trust that you can't have a plan at the time of the transaction to reacquire more than 20% of the stock. We don't have a plan to do that, so yeah, I mean there’s – - we will move forward on those 3.5 billion which like you said is even well below the 20% and then we'll certainly look at it again when we finish but there's not a restraint that would make us stop after that.

Mike White

Jason. On the second question, suffice it to say we're taking a fresh look at all of our strategies and packages this Spring and I think it's an interesting question about how we compete on the low end or whether we choose to compete on the low end. I do think the most important thing and I've said this to the team here is that we need to be who we are. We're not cheaper, we're better and we have to keep a good value for our consumers and insure we're in an appropriate value range but at the end of the day this company has been about innovation and differentiation and being better and we will take a look at our segments. I do think we'll think differently about segmentation frankly as this industry matures in a number of respects but I think it's a little premature for me to go much beyond that but suffice it to say that's an interesting question and I think we're going to take a fresh look at it this Spring.

Jason Armstrong – Goldman Sachs

Okay. Thank you

Operator

And we'll now go to Tom Eagan from Collins Stewart.

Tom Eagan – Collins Stewart

Super. Thank you. I guess Mike or Pat could you update us on the NFL streaming? I know in the third quarter you mentioned you had about twice as many in that quarter on the iPhones as you did on PCs all of the previous year, so update us on that and just tell us what's next on that? Thanks.

Pat Doyle

Yeah. Sure. Tom. I mean, first of all we're very pleased with the relationship we have with the NFL and the streaming product which we have the rights to now is growing quite nicely year-over-year but it's still relatively small. I think it's still in its infancy in many ways but we are absolutely talking to a number of the other leagues looking at where there are opportunities in other sporting things we could do and online or streaming opportunity on mobile and really, I think there are opportunities for us to think about it even as a separate service from our DIRECTV service, customers that we might sell as well.

So we recognize that mobile is going to be an integral part of our strategy going forward. We know our customers want to be able to watch stuff when they want and where they want. We're working on authentication. Our first kind of real product was the NFL rights but I expect that to continue to grow quite nicely this year, just as our DVR scheduler,

I think we've now had 2 million customers scheduling their DVRs from their mobile phones so I think we're just at the very beginning of our mobile strategies in that regard. And so you're thinking about expanding the content that's being streamed but also you're working now with both AT&T and Verizon and Qwest on that, right?

Tom Eagan – Collins Stewart

Yes.

Pat Doyle

Okay.

Tom Eagan – Collins Stewart

On both fronts.

Pat Doyle

Yes. Yes and yes.

Tom Eagan – Collins Stewart

Okay. Thank you.

Operator

We'll now go to Mike Pace with JP Morgan.

Mike Pace – JP Morgan

Hi. Thank you again. In the context of all of the capital structure comments and questions was wondering at least it was my understanding may be incorrectly that filling the CEO seat was important for Moody's to revisit their ratings. I was wondering if you could update us on any discussions you've had there, thanks.

Mike White

Good question. Mike. Who have you been talking to? You must have seen my calendar. Pat, do you want to?

Pat Doyle

Yeah. I think we do intend to meet with Moody's in the next couple of weeks. Part of that is a normal process as well as we show them our new outlook for 2010 and beyond introduce Mike to both of the agencies and it is important obviously from their perspective that they get to know the CEO and get to know kind of their philosophy on leverage dividends or whatever it will be, so we will be meeting with both of the rating agencies in the near future.

Mike Pace – JP Morgan

Okay. Great. That's it, thank you.

Pat Doyle

Thanks. Mike.

Operator

And we have time for one more question. That question comes from Matt Harrigan from Wunderlich Securities.

Matt Harrigan – Wunderlich Securities

Great. Thank you. In Latin America you talked a lot about the favorable macro but even beyond that I know if you lack at Brazil and its regulators satellite did about 90% of the gross adds in Q4, some of the low end guys as well as yourself and then you cited the traction you're getting in Chile and Argentina which are traditionally big cable Markets. Do you think what's happening is your technology right now and sort of working with the U.S. guys as well you're able to leap frog the cable guys a little bit faster in Latin America right now and you're comparative advantage is widening out and then secondly, on the regional sports side, would that possibly encompass trying to start networks on your own on a Greenfield basis?

Pat Doyle

I'll take the second one but Mike, short answer to your first one is yes but I'd like Bruce to give a little more color to it.

Bruce Churchill

I think that's right. I do think that the product we deliver in the market is superior to what cable has, particularly in some of the basic products for example, DVR, HD that I talked about we have the advantage of introducing products that have been road tested in the most competitive market in the world, namely the United States, so they work, we get them sooner because they're introduced sooner in the United States.

And we get them cheaper because we have the advantage of leveraging off the 18 million subscriber base we have in the U.S. All of those things do add up to I believe a better product and better price. So I do think that's how we differentiate ourselves from cable and a lot of consumers see that.

Pat Doyle

I would add for my own experience extensive international experience, putting fiber or whatever in an emerging market good luck. I think that the satellite coupled with particularly our prepaid approach is a uniquely advantaged technology in emerging Markets.

On your second question on regional sport networks, again, we're taking a look at it. I don't know when you say starting a network I'm not sure what that means. Certainly, we would entertain discussions with teams that had an interest in working with us. I think we've got a core capability there but I wouldn't make more of it either. I think there's some selective opportunities that we'll be looking at to continue to build out our sports franchise that we have in that area.

Matt Harrigan – Wunderlich Securities

Great. Thank you so much.

Pat Doyle

Thanks. Matt.

Operator

Thank you. This concludes today’s DIRECTV group's fourth quarter 2009 earnings conference call. You may now disconnect your lines. And have a pleasant afternoon.

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