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DirecTV Group Inc. (NASDAQ:DTV)

Q4 2005 Earnings Conference Call

February 8th 2006, 11:00 AM.

Executives:

Jon Rubin, VP, IR

Chase Carey, President, Chief Executive Officer

Michael Palkovic, Chief Financial Officer

Analysts:

Vijay Jayant, Lehman Brothers

Kathy Styponias, Prudential

Douglas Shapiro, Banc of America Securities

Benjamin Swinburne, Morgan Stanley

Andy Baker, Cathay Financial

Thom Egan, Oppenheimer & Company

Jessica Reif Cohen, Merill Lynch

Jeff Wlodarczak, Wachovia Securities

Aryeh Bourkoff, UBS

Carrie Hat, Credit Suisse

Qaisar Hasan, Buckingham Research

Steve Mather, Sanders Morris Harris

Doug Mitchelson, Deutsche Bank Securities

Lale Topcuoglu, Goldman Sachs

Craig Moffett, Sanford C. Bernstein

Spencer Wang, JP Morgan

Operator

Good day and welcome to the DirecTV Group Fourth Quarter Financial Results and Outlook Earnings Call. Today’s conference call is being recorded. At this time for opening remarks and introduction I would like to turn the conference over to the Vice President of Investor Relation Mr. Jon Rubin. Please go ahead.

Jon Rubin, VP, IR

Thank you operator and thank you everyone for joining us for our Fourth Quarter 2005 Financial Results and Outlook Conference Call. With me today on the call are Chase Carey, our President and CEO, Michael Palkovic our CFO, Larry Hunter our General Counsel and Pat Doyle, Treasurer and Controller. In a moment I will hand the call over to Chase and Mike for some introductory remarks but first I am obligated to read to you the following.

On this call we make statements that may constitute forward-looking statements with in 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 the DirecTV Group’s and DIRECTV U.S.’s annual reports on Form 10-K. Quarterly reports on Form 10-Q and our other filings with the SEC which are available at www.sec.com additionally in accordance with the SEC’s Regulation G that requires Company’s reporting non-GAAP financial measures to reconcile these measures to the most directly comparable GAAP measure, we provide reconciliations schedules for the non-GAAP measures. These schedules are attached to our earnings release and are posted on our website at www.directv.com; with that I am pleased to introduce Chase.

Chase Carey, President, Chief Executive Officer

Thanks John. Good morning everybody. I just got a few comments on the fourth quarter then I would leave Mike take you through it in more detail, after Mike finishes I will come back and make a few comments on our 2006 outlook. Starting with the fourth quarter in ’05 I guess is up from 10,000 feet I would say we were reasonably pleased with the fourth quarter. Some may think some of the highlights we saw continue to strength, in a bottom line measures like cash in OPDA operating profit, I think we saw a specific areas of strength that included SAC/ARPU growth and a number of key operating cost categories which I think particularly in light cost that were incurred for Katrina in the fourth quarter showed real strength and efficiencies there. Currently with the quarter where we had, an array of key initiatives, so that we launched successfully launched, we launched our new HD MPEG-4 box, we launch the new DVR box, we launched our initial HD local program markets. We also saw continued strength in areas like our RBOX relationship it really crop the board I think we made progress on an array of key initiatives from strengthening, added the installed network both on a quality efficiency basis, steps to more aggressively utilize our website which I think has both cost and -- cost and quality benefits to us, strengthen direct sales and – and really a lot of strength across the board that I think really provides the foundation in a fresh derivatives just going forward.

Before turning over I guess they want to focus for a minute on a couple of the, couple of the metrics in the fourth quarter and just add up a bit more of a comment first churn obviously something we’ve talked about a fair bit in the last few quarters and certainly been an area of real focus for us. Clearly churn for the fourth quarter is still way too high but its coming down, and I think it came down pretty much inline with what we hope and as we look forward, into ’06 I think we, feel that we are getting on top of it making the progress that we help to make in terms of really getting the churn back to where it should be.

Second number subs, obviously was a low number in the quarter, better in many ways again I would sort of probably say that sub number ended up around what we planned and really what we experienced in the, in the fourth quarter with the impact of a number of initiatives that we are focused on ensuring that we were, we were capturing quality subscribers, and I guess sub highlight a couple of the initiatives. First, we further tighten the credit policy, not as significantly as we get earlier in the year but really is a part of continuing to make sure, that if we could find places to tight things up a bit make sure we’re weeding out customers that are creating the value, we should that we will do so and if we found a way to fine tune the credit policies in the fourth quarter, to weed out a few more customers that are meeting our hurdles that in fact is a bit. We also ended up terminating our relationship with some of, some other dealers, third party dealers we had, who really were not delivering the quality of subscribers that we are looking for and there is no question we do that, it takes a little while for the system to adjust and replace that.

And third, we adjusted our compensation structure to really again focus more on quality and to have more of a consequence targeted churn and again that had an impact on it. So, a lot of these types’ changes take them on -- to digest. So we, we sort of went through that period in the fourth quarter but, we’re clearly in the direction we want to go I do think really positioned us for strong profitable growth going forward.

The final area just to touch on retention marketing, which I guess it also was bit higher than we planned on a quarterly basis, there was always been a seasonality in the fourth quarter, but really in the fourth quarter what we had was some pent-up demand in the HD and DVR area and as we move to the more, as we move to new offers in those two product lines in the fourth quarter that gives you stuff, but then again I think it was a disproportionate bit, partially because there is a little pent-up being a new demand that partially, because again the seasonality of the holiday season could be (indiscernible) product, added a dimension to it. But I think overall retention marketing as of the others that we feel pretty good about where we are in terms of managing that towards the type flattening we’ve talked about before.

The one last thing, I want to just turn in over to Mike to just touch on quickly is we did announce, as if you saw the press release today a $3 billion buyback, $3 billion buyback will pursue in the open market, the rational for this is really we have a balance sheet that it gives us the strength pursue this and with the stock price that we don’t reflect, believe reflects the value of DIRECTV. We think this is an appropriate step for us to take. I’m quite sure, that I am sure many would ask is this buyback at this point the pension fund who has a, as it lock the stock has indicate that they are not a seller, as the current the press price of the stock. So they are not part of the buyback that we announced today. Now, with that I’ll turn it over to Mike to make some more specific comments about the quarter.

Michael Palkovic, Chief Financial Officer

Thanks Chase. First of all gross adds as Chase mentioned for the quarter were 965,000, were about 13% below last year, both last year and last quarter’s gross adds. Although the number was a bit below expectations, we’re particularly pleased with the quality of these new subscribers. For example, we lowered the percentage of high-risk customers for the third consecutive quarter since we implemented the stricter credit policy. High-risk customers in the fourth quarter represented approximately 15% of gross adds are about 40% less than a year ago. That means almost 85% of our gross adds are coming in as high quality subscribers based on the credit scores. And to further emphasize this point although our total gross adds were lower in the fourth quarter we actually 14% more high quality subscribers than the fourth quarter of last year before the new credit policy was implemented.

Now are taking steps to further improve the quality of new subscribers. For example, in November we tighten the credit policy again by raising the minimum score for high-risk customers that are required to pay an upfront fee. You may recall this is the second time we increased the minimum score in the last year. And on January 25th we increased the amount of money, the high-risk customers are required to pay from $200 to $300 from the previous amount of $150 to $200. Again more focused on high quality and additional initiatives that we’ll continue to look at.

In addition to that we terminated certain dealers with poor performance and announced new dealer incentive plans that are better aligned with our strategy to improve the credit quality of new customers. In particular the new incentives for the much greater percentage of dealers’ compensation at risk if a new customer turns within the first six months. We made this change because our churn experience tells us that if a high-risk customer is going to churn, it will most likely occur in the first three to six months after activation. As a result of these changes over the past year our monthly churn in the quarter declined to 1.7% compared to 1.89% in the third quarter. It should be made clear however that this level is still unacceptably high and we except that these ongoing initiatives will drive the churn even lower in 2006.

Before moving on to revenues, I’d like to spend a minute revealing the fourth quarter impact related to Hurricanes Katrina, Wilma and Rita. We included in our fourth quarter churn approximately 10,000 subscribers affected by the hurricanes. This number represents the number of subscribers that we disconnected above and beyond the normal churn that we saw in the region affected specifically by Hurricane Katrina. In other words our churn would have been about 1.68% the quarter, if we had not made this adjustment. Also in the quarter we reported a charge of $10 million related to the three Hurricanes primarily due to a higher level of service cost in the impacted areas.

Turning to revenues DIRECTV US grew to top-line by 15% to $3.4 billion. As you’ve seen in recent quarters the revenue growth came from strong subscriber and ARPU growth. Fourth quarter ARPU increased 5% to 7553 which of course revenues from our NFL Sunday Ticket package.

Operating profit before depreciation and amortization of $442 million was up nearly four-fold over last year. The biggest driver of the increase is lower subscriber acquisition cost resulting from both lower gross adds and more importantly lower cost per gross add. A SAC of $639 on the quarter was particularly meaningful because it was lower than a year ago, even though we put a lot more hardware in to customers’ homes.

In the quarter new subs took about 2.6 basic boxes compared to 2.5 boxes last year and we had a significantly more DVR and HD subs in a year ago. For example the total DVR subs added in the fourth quarter of about 320,000 but half of these were new subscribers or 65% higher than last year’s fourth quarter. In total we now have approximately 2.5 million DVR subscribers. Clearly the SAC savings we’ve obtained from set-top box cost reductions and other efficiencies has exceed our expectations. As an example we’ve reduced the cost of our basic set-top box by roughly 40% over the past two years to under $60 today. With new customers getting an average of 2.6 boxes this alone translates into roughly $100 in SAC savings.

We are also very pleased with the positive trends we are seeing in installation and commission cost as well. With these types of sayings we’re confident that we can stabilize SAC going forward.

Pre-SAC margin of 31% increased by about 220 basis points over the prior year’s fourth quarter. Since G&A and upgrade and retention cost were relatively flat on an absolute basis compared to the prior year both contributed to the higher pre-SAC margin. The margin improvement in G&A was mostly related to scale efficiencies and the margin improvement and an upgrade in retention was primarily due to a shift down in local upgrades offset by higher HD upgrades and subs taking on move this program.

Finally before I turn the call back to Chase free cash flow in the quarter was $155 million bringing the full year total for DIRECTV U.S. to $536 million. With that I’ll turn the call back to Chase.

Chase Carey, President and CEO

Thanks Mike. I am going to make a few comments on ’06, probably not going to spend too much time because the meeting the Half Year Meeting we planned a couple of week from now, really in many ways is up -- meeting we planned up look more, more subsequently about in ’06 for the next time -- really the next 2 to3 years. But I do want to make some comments on ’06 at least to give you some prospective on it. Clearly its going to be an important year for us with an array of key initiatives. First, we will address as we move forward with our HD local launches and HD overall will launch in the next few months, another 24 local markets that will bring us up to 36 local markets launched on a percentage basis, that puts us in the high 50% of the country that will be delivering HD locals to. We’ll continue to move forward and build out HD locals throughout the year, we will probably have launched somewhere in north of 50 local markets by the end of the year, that would put us probably 2/3rds – 2/3rds plus of the country that will be delivering HD locals to as we move through the year. So, really that’s a major initiative, I mean the content area we are going through also in the next few months launch our initial VOD service. We’ve announced that we see a few deals with CBS and with NBC and Fox in that regard of course this is a, an area we will continue to build on, but as we go through the year but it is an area we are excited about. We have an array of other content initiatives, we are going to, we are moving forward with and have launched and will launch ranging from original programming things like CD USA we launched last month than others more enhanced and interactive features in areas like Sports News and elsewhere.

And really an array of content initiatives and putting one for co-past traditional television, we have a video game feature, we’re going to launch in the second half of DirectTV game tracker. We are going to launch in the second half of ’06, so I think an array of content initiatives that we think will really differentiate and excite the marketplace that we got coming. Clearly also a lot going on in sort of the device and services side of the business, later in the year we launched the Gateway. Our Gateway product which is sort of a, a whole-home DVR solution, we are launching hand-held products an array of new; it was like the integrated set-top box TV sets.

We are moving forward with the, a whole-home solution that as part of the deal we announced CES a month ago with Intel, the Microsoft during the second half of the year have really moving against a will be the leading solution in terms of a whole-home solution making TVs, PCs, Laptops and the light. So, between the content and the technology side a lot of things would be bringing to the market obviously a lot of initiatives operationally underneath that will be critical to strengthen the business going forward. Just to give you a sense as sort of some other key metrics as we look at ‘06.

In the year we do expect net subscribers to exceed a million as you look at churn, we expect churn to continue to come down, I would say churn certainly, we expect to be below 1.6, closer to 1.5. On the ARPU side I think we continue to see solid – we continue to expect solid growth in ARPU essentially product growth consistent with what you saw in 2005. On the SAC side I think we continue to feel good, I think as Mike just touched on about maintaining a reasonably flat SAC essentially an ability to capture efficiencies and savings across box cost installation, sales cost and the likes that will enable us to offset the increased cost of, of a higher percentage of the advanced products going into the marketplace. We do have a couple of initiatives in 2006 that will head us a bit on the margin. One, the MPEG-4 conversions we obviously now obviously we, as about the end of January we completed the conversion to MPEG-4, so we think we can ship today’s MPEG-4 box, over the next two plus years that will leave us it look like around 800,000 customers will have to convert from MPEG-2 to MPEG-4 cost per conversion which will come down a bit over time will be sort of in the $400 plus range. Well again it’s going to -- well that cost will be incurred over two plus years we expect in ’06. It will probably be about $150 plus million in that year.

We obviously book this up, as gets us with our policies in operating expense, as low in many ways, I think – I do with this – its the CapEx expenditure that is really part of the HD infrastructure, we are putting in place that’s going to put us before front of the market as we move into ‘07. With capacity and we’ve talked about for full national local HD coverage, in 150 plus national channels, it really is a different type of expenditures, I mean unlike our normal retention marketing which is sort of upgrading our customers for these services, this is one we are actually going in, we’re going to make existing equipment obsolete at a point in time. And therefore have a 4: version to it. But it is – it is something that we are moving forward within, you will start to see in ‘06.

In the second area we have some, we have an array of steps that an issue, which is really in the content arena as I touched on, we will have expenses for the standard HD initiatives and thinks like that calling local signals and the HD infrastructure the operating cost to sustain that will kick up in ‘06. To see HD revenue builds over time the cost will come in upfront and the revenues will really build as we had customers once we’ve got that infrastructure in place. We will also have an increase, as the Sunday Ticket product continues to grow, the NFL expense which impacts the margin because it’s a zero margin. We build, we account for, it’s a zero margin, content initiative, well as it grows we’ll have an adverse impact in the margin and then we have the invest -- investment we’re going to make an original content, the other content initiative. So in the content area we do have some targeted stepped up initiative but I think when you look at really the business, the ongoing strength of our overall business, I think we feel very good about it. If you look at the cost of those, you look at those initiatives and inspire those, when you look at the progress, we’re going to make across the Board in the business. ’06 in the year, were we expect to see operating profit or OPDA increased by 25% plus in 2006, and we also I guess the other bottom-line metric that certainly if you look at is the cash side and we will again see strong growth in the cash flow generate the business, and I think the fact that we can grow that cash flow with the MPEG4 in content initiatives as well as the back of the year were we incur.

It’s probably the peak year in our CapEx, we start to talk about the three year CapEx build out, the CapEx are probably be up around $100 million in ’06 from ’05 and then dramatically decrease in ’07 as we finish off that three year plan with the Satellites and the life. It’s also a year where we’ll see the step up to the new NFL contract, the NFL contract, its cash expense will increase we account for it definitely but the cash expense will increase about $300 million in ’06. We offset a bit about with the revenue step up but clearly you’ll see on a cash basis a significant step up in the year. So with those items being observed it is still a year where we booked to – to have strong cash flow growth in 2006.

So, as we look at the year we really think the initiatives we put in place are going to provide the underpinning for really strong growth across the Board for the business, we don’t progress in many ways. So, I think as we look out beyond ’06 to ’07 in a way the, it will not only be ongoing but an escalating level of growth in cash and profits and as we drive the business forward. So, I think, this is been an important 2005 is an important year to provide the foundation for this growth in 2006, the year we’ll make real progress and we really look us, as we look out over beyond to one year to it, in a two and three period ongoing and increasing, strength that returns in terms of bottom-line, bottom-line growth, and really profitable growth for our business. So, with that I’ll turn it back to Jon for questions.

Questions-and-Answer Sesssion

Jon Rubin, VP, IR

Yeah, thanks Chase. Before moving on to Q&A, investors should note that we have members of the media on this call in a listen-only-mode. I would like to remind that –media that they are not authorized to quote any participants on this call other than the representatives of the DirecTV Group. In addition, we are web casting this call live on the Internet, and an archive copy will be kept on our website. Finally, I’d like to ask callers to limit your questions to only one or two until everyone has had a chance to ask their questions. With that operator we’re ready for the first question.

Operator

Thank you. Operator Instruction. Our first question is coming from Vijay Jayant of Lehman Brothers. Please go ahead.

Q - Vijay Jayant

Thank you. Chase when you talked about the 25% OPDA growth in 2006 is that assuming the change potentially in accounting as you move to the lease program or that’s sort of an apples-to-apples comparison?

A - Chase Carey

That’s an apples-to-apples comparison, we do plan to -- we do plan to move to a lease program. That is still something we planned to move to in March but that is not based on that is -- it is on an apples-to-apples basis.

Q - Vijay Jayant

Good, second just a quick question on from account payables for the quarter was up increased like nearly $400 million, can you just explain, so what happened on working capital and I thought going to spring back?

A - Chase Carey

Right, there is a couple of things Vijay first of all there is a tax, an increase year-over-year in the income tax payable line, in that there is a year-over-year higher programming cost included both because of the base grew and our contracts increased. And there was an inventory build which you will see and here is how the balance sheet they went up about a 150 million, those are the big drivers that cause the payable to go up year-over-year.

Operator

Thank you. Our next question is coming from Kathy Styponias of Prudential. Please go ahead.

Q - Katherine Styponias

Hi, thank you. Question for you Chase you did not make any mentioned of a wireless investment and I was just wondering if you can update your thought – if you update us on your thoughts on when you might think you may make that investment and more importantly when you think you can get a wireless product to market? Thanks.

A - Chase Carey

Sure, there is not I mean, bottom-line it is not a lot, new to what I’ve said in the past, I mean clearly it is an area that we continue to focus on, continue to spend a lot of time on, but then you engage with an array of parties on, something handicapped at the end of the day, any deal requires, it requires two parties to agree, always tough to tell how long it takes to find agreement with something that makes sense for us. We are not going to do something that doesn’t makes sense for us, I think if we can find something that does we look to do it soon or rather than later. But, again until we, if and until we can find something that does make sense in terms that do make sense for us. We are not going to move forward but that being said we are actively engaged and looking for ways to opportunities to intelligently, add a dimension there, but again doing it with care with our eyes open, predominantly focused sort of around the sort of wireless broadband options. I think in terms of how long to take from when you sort of the, had something in place to build – it obviously going to, if you’re talking national coverage it will build over time, its not sort of like DirecTV put a satellite in the sky and it cover the country, that I think it would be either probably a year in change that you have, some key markets in place and it would probably take you, a couple of years play and sort of more in a two to three year time frames it really build out a broad level of coverage. But that’s all from a point in time where, where we found something to make sense for us to go forward but.

Operator

Thank you. Our next question is coming from Douglas Shapiro, of Banc of America Securities. Please go ahead.

Q - Douglas Shapiro

Yeah thanks. Couple of things just a real quick on the buyback if could, Chase may be just very generally give us a sense of over what period you would expect to execute that? And then the second thing Chase on the churn it’s obviously a lagging indicator to a degree, so if you look at the churn and the subs you have added with, over the last nine months, since you closed the, put these higher grade churns and placed, are you, is it demonstrable that the churn is coming down on those drivers? Thanks.

A – Chase Carey

I will let Mike answer that churn because he’s got more of the specific facts and figures of that type detail level – clearly, we are getting the benefit for it. But on the buyback if we, if we pursue it simply on an– on an open market basis I think its sort of two plus, probably two plus years, based on sort of, the various, the restriction is in the trading volumes and the like, when look at, us today. I guess the unknown in that over time is the little bit what a pension fund do, again as we said they, they would say at – depressed stock price we got, they are not to sell. But, we will see but if – if it is simply pursued throughout on an open market basis, it’s probably two plus years that to get to that 3 billion, I will let Mike answer that.

A - Michael Palkovic

Yeah Doug, yeah we do, we do churn in a lot of ways, but one of them is first year and second year churn. And I think based on looking at it we saw the, both of those peak if you well in the third quarter and come down on the fourth quarter. So, because we understood pretty well what cause the problem over the last couple of years in terms of churn going up, we’re very confident that those, the quality aspect is going to bring that down each quarter hopefully sequentially throughout ’06 which is going to help us get to the numbers that Chase talked about. So, yeah we’re seeing positive churn’s.

Operator

Thank you. Our next question is coming from Benjamin Swinburne of Morgan Stanley. Please go ahead. Benjamin your line is live.

Q - Benjamin Swinburne

Good morning guys. Can you hear me?

Q - Benjamin Swinburne

Great thanks. What is the biggest of the SAC expectations for ‘06 versus ’05?

A

You said the SAC?

Q - Benjamin Swinburne

Yeah on a progress add basis, are you still going to be, are your assumption for ’06 continuing to assume that you will get upfront fees from customers who either sale credit scoring or have to pay upfront. Mike you mentioned you are raising the upfront cost, so that I am assuming goes against SAC and how are you planning to price the events that tops, in others is it, say you’re going to, market it with a two year contract to get multiple HD boxes. How do you think about pricing or marketing the event stuff?

A - Michael Palkovic

So, Ben, the first issue yeah that’s in our number this quarter that number was about $9, that number actually comes down and, it’s a very small number in ’06. Because the percentage of people that are going to be poor quality is going to continue to come down. So that the price change is probably going to have the effect of having less people paying it. So I have more of a positive impact meaning fewer customers on the platform there less of an impact then in our SAC rate. Second question, I think this is how we are going to price the product, I think that juts an ongoing.

A – Chase Carey

Yeah, that’s obviously below you’ll always continue to, to look at every, with anything stepped it up, a little bit the upfront I think we do have a two year agreement. I think sort of what you see in the market right now is probably a relatively good indication of where are, where we are and I think barring, sort of continuing to monitor and evaluate, research the marketplace, I don’t think I would be assuming there sort of a built interruption, one way or the other. Again, clearly our focus is been to put in, in the last couple of quarters has put in place tools and obligations that enable us to manage churn. We’ve done some fine tuning to that as I said, throughout the few quarters, and I think got to a place that we think as they, we feel pretty good about, will let us sort of manage the quality of customers to what we think it should be, but it’s an ongoing process. So, it is I think with – the types of policies and offers you receive from us is, today, I don’t think one should be assuming, that to plan today to go either direction, but that’s the place we think make sense. So, I guess, top line if you come back, to take that all back to SAC, I mean realistically that, the ability to, the ability to manage SAC is really not driven around these event. As Mike said, if anything that is 9 bucks in the quarter for the credit it will probably be less than that in ’06. Fundamentally what we are really finding is, across the three biggest areas, the box cost are coming down, will come down, again we’re going to end up with a basic box and up low $50, at the second half of this year. So, yet again decrease in the cost of DVRs and HD. We actually think the install cost will go down, not up as we go through in ’06. And we think we’ll capture efficiencies in the sales commission as we go through ’06. So, and those things enable us we do expect from the blip side a higher percentage of customers taking HD and DVR, but we are actually taking in an absolute basis taking down each of the, each of the three cost categories are coming down as we go through ’06. And that will enable us to offset, the cost of adding a more – a higher percentage of the advanced product you know to it. So that is the really the assets of SAC, not, it’s not policy driven, its not offer driven, it is, it is at the end of the day an ability to find cost savings to offset the cost of that more advanced products.

Operator

Thank you our next question is coming from Andy Baker of Cathay Financial. Please go ahead.

Q - Andrew Baker

Thanks a lot. Couple of questions for Mike. First, can you break out the involuntary churn first? And second, when you look at the break out of subscriber acquisition cost, it seems, a lot of the decline year-over-year came –as a third party and you basically helps by the direct customers, how much of a benefit can you get from having a greater percentage of your subscriber acquisitions to your direct channels rather than to the third party? In other words how much you will benefit through SAC for subs when we see there?

A - Michael Palkovic

Okay. First question, involuntary with 45% in the quarter down from 46% in the third quarter. So moving in the right direction not, not as -- decreases we’ll need to see in ‘06, but it is moving in the right direction. The shift of sales from third party dealers you pay commission to. So direct sales has a direct savings impact as you putting more subs against kind of a call center infrastructure, type of model, where you, you’ve got to be a little bit more of mindful as how much money you are spending in that channel directly against it. And that’s an ongoing kind of response, are very close related to call centers, the offers that we use those kind of things. But if, if a net benefit has to shift more of our subs to direct sales, the way we are looking at it right now, that’s one of the ways we’re actually saving commissions over the long-haul is bringing people into .com and 1-800-DIRECTV.

Operator

Thank you. Our next question is coming from Thom Egan of Oppenheimer & Company. Please go ahead.

Q - Thomas Egan

Thanks, two questions. First is, I guess for Mike and Chase. What debt to cash flow ratio are you comfortable with, I mean for example could you afford to buyback 50 billion as well as say the pension shares, say of $50; as well as to go ahead with the broadband initiative. And then secondly Chase, for you comments, its sounds as though margin, the utter margin may grow, may grow for say 12% in ‘05 towards a 13% may be 14% in ’06, just want a little bit comment on that, thanks.

A - Michael Palkovic

On the debt to cash, probably not going to get too far, I mean, we are clearly underleveraged, today for our capacities. I think two weeks from now, I mean probably I am hosting array of things we probably going to provide a bit, I am not sure its going to have the precision of yours exactly the ratio, we look to be at. But I think probably that’s your topic, I probably differ for a couple weeks from now, we are going to address it little bit, more, a bit more substance, in a bit more time, I think, its safe to say that they clearly as you look at the – where we are between the, cash we have, with the buyback, with the balance sheet that clearly is not, has, still remaining capacity in terms of leverage. That we have flexibility and certainly broadband, as we’ve said, I think we’re going to be, we’re going to be judicious on broadband and it is, it is the place where we would, if we were to find something and again make it an if -- if we were to find something that makes sense for us. I think it is a, I think we’re going to be judicious about the amount that gets invested and really probably look to something in its investment into an entity that takes responsibility for at least, certainly initial levels have build out onto itself, not something that sort of falls as beyond the investment that sort of, that’s by the magnitude of our initial commitment. So, I think our broadband, our broadband investment is certainly not one its going to, if we find something that makes sense it is not something that’s going to be filling what would exist today in terms of, in terms of flexibility, liquidated behalf of the company. Second question was asked on margin and Thom, yeah I mean, if you just run through your models, million subs and 5% ARPU, 20% or 25% growth you are going to get couple of point kick up in margin, I think its going to come right having a model. And that again is nothing to do with the lease model that’s just kind of the way the math works.

Operator

Thank you. Our next question is coming from Jessica Reif Cohen of Merill Lynch. Please go ahead.

Q - Jessica Reif Cohen

Well, thanks. Chase, you mentioned that you’re going to spend more money with your content initiative. I just wondering if you could say, put a range on that and well any of the News.Click company is being involved in content. And second question is how much was advertising revenue in ‘05 and can you comment on the outlook for ’06?

A - Chase Carey

Sorry I didn’t hear the latter, what was the last question?

Q - Jessica Reif Cohen

Advertising revenue.

A - Chase Carey

Ad revenue, I think in terms of the content arena, we are actually working with, I mean I think the magnitude at the end of saying in ’06 is somewhere probably north of 50 million, its 50 to 75 probably certainly its not a – probably something in that range across the handful of things. We are working with Fox and some of it, it probably more to take advantage of things they have and sort of a joint production but they’re clearly things with sports and news and the like. We are working its not – we are working with others too, I mean obviously the first deal – deal we did was with NBC. But yes, we are looking to do things, we are working with Fox on initiatives but we’d look to work for the others, but I think its fair to say, its certainly short of a 100, that probably, little bit will be depended upon success in the like of how long which initiatives we find then, what we realize going to, its probably in a $50 million or $75 million range in ‘06. And…

A - Michael Palkovic

The Ad sales, we continue to do really well we had probably our first quarter ever. So we’re north of 200 million to close the year in Ad sales and we expect that to continue to grow. Just to be clear of that part, that’s what we record as revenue, net of fees with any agency. So, obviously the gross value of that business is slightly higher than that but that’s the range.

Operator

Operator Instruction. Our next question is coming from Jeff Wlodarczak of Wachovia Securities. Please go ahead.

Q - Jeffery Wlodarczak

Hi guys good morning. Questions for Mike, specifically on the lease model, can I assume your expensing marketing immediately, have you decided if you are going to capitalize the truck role and given that most of your adds are going to be coming on leased, or you’re going to capitalized equipment retention marketing cost?

A - Michael Palkovic

Yeah, we haven’t fully decided but the way its heading right now is it will probably be boxes only, and it will be boxes for new customers and for upgrade. Basically we are going to own all the boxes, we implement this thing hopefully here before the end of the quarter. And going forward, that number is just going to go into your CapEx, there is going be a shift from your P&L to your CapEx. So, you are going to be looking at a number once we figure it out, it’s going to be north of a billion that will come out of your P&L and go to the balance sheet, hopefully we’ll have a little bit more detail on this in a couple of weeks and we get together.

Operator

Thank you. Our next question is coming from Aryeh Bourkoff of UBS. Please go ahead.

Q - Aryeh Bourkoff

Yes, thanks good morning. Just two questions I wondered with respect to the wireless side or any other initiatives, is there any interest or plans to work with Acrostar more closely and trying to reach that ever with broadband or potentially for a capacity of early issues. And second as a follow-up to one of your earlier comments on payables, do you expect some of or all of this quarter’s increased or reverse itself at ‘06 given inventory and tax effect, or does this balance or presented more permanent levels for payables and, clearly expenses going forward, I am just trying to sense of – get sense of how it reverses next year, thanks.

A - Michael Palkovic

Yeah I mean, I will answer the second part of that. Yeah, I think our inventory levels are probably a little higher than they will be on a regular going forward basis just because we have so many DVRs in the warehouses, getting ready to introduce the box, once the final downloads were met our expectation. So, that will probably come down a little bit. I think the income tax payables probably a fairly steady number, and the programming cost right now should be fairly steady, I mean part of that fourth quarter inflation is again a 1000 there. So, the number goes up for the anecdotal into that line and then that starts coming down a little bit, but that’s if not going to come back, I don’t think you’re going to see the 400 million come down all the way, it will probably be come down a portion of that. In terms of Acrostar, I mean I guess this is generally set on the broadband area, I mean it’s not to speculate on sort of, with any transaction who you do with or what, on what terms I think in general, I think we’re looking to pursue this in a way that makes the most sense, that clearly there are some – in fact the fairest part of something, there are some positives in terms of strengthening the distribution side of it, that we can ought of it, though obviously get more parties, their issues as well. And so, I think we will make those decisions on, will make the most sense for us, I mean have found some opportunities, having more opportunities and historically just to before for us to – to intelligent to figure out places we can work with Acrostar to save some cost obviously at our core of our competitors, that areas like backhauling locals which is really just the cost service and we’ve manage to share that, and just save each of us is, there is nothing comparative about sharing the backhaul and it just saves, each of us some money. So I think we are, we’re certainly open to pursuing things that create value for us, but there always complexities, they have to work, we have to work for ourselves, I think you can talk to a handicap, where you end up on any of this.

Operator

Thank you. Our next question is coming from Carrie Hat of Credit Suisse. Please go ahead.

Q - Carrie Hat

Thanks. I am wondering if you could give us some inside as to what the tax rates are for add on features of the NFL Sunday Ticket like SuperFan? And also I am wondering as you are saying any impact on subscriber growth from the NFL network? Thanks.

A - Michael Palkovic

In terms of SuperFan, actually, sorry the 2005 was actually a pretty good number that exceeded what I expected. We didn’t really, in a really true marketing sense and things what you see in ‘06. We’ve got to, we really didn’t do anything close to what we’re probably going to be doing in ‘06 versus ‘05 and in many ways the product was sort of a process in work, and it process in work in ‘05 we only had half the games in HD, we do have the CBS games in the Red Zone Channel. We were in the midst of launching an array of the boxes in terms of DVRs and HD that created a somewhat chop year experience. So we really didn’t push it the way, we in ‘05 the way we will in ‘06. And probably not going to get end up, we don’t probably get end up really specific numbers on the NFL, but I would end up, saying I think in ‘05 actually even without that push, the buzz around the actual numbers exceeded our expectations, and I think as we really get that product fully developed and really add next year by contract, all the games are in HD all the games in the Red Zone and the other channels, they’re going to have the interactive features like as we’ve really add, the array of dimensions to it, I think that will be an area of real opportunity for us in ‘06.

Operator

Thank you. Our next question is coming from Qaisar Hasan of Buckingham Research. Please go ahead.

Q - Qaisar Hasan

Thanks. I have a couple of questions, one clarification which was on your lease migration, Chase I think you’d mentioned that part of the expenses burden in ‘06 was going to be the MPEG 2 to MPEG 4 migration for your existing HD’s customers. To the extent that you’re indicating also that, as you go to the leased line even for your existing customers the boxes will be capitalized, I am just wondering whether the upgrade cost for MPEG 4 will actually be go into the P&L or will they be brought to the CapEx. The second question had to do with again just a different angle on the broadband questions that you’ve been getting, I am just wondering how you view a wireless verses wire line as broadband alternatives of BellSouth, as you probably will aware as they are making going noise about internet peering and wanting to bring on third parties to basically rent out its DSL capacity, do you see that as an option or as an alternative to trying to build your own wireless broadband? That’s all, thanks.

A – Chase Carey

Sure, on the swaps those are going to be expensed, primarily because these customers purchase those boxes that they have today. So we’re going to replace their equipment when we actually go to a market, switch out the market and upgrade it to MPEG 4. So those will be handled as an expense side and separately from kind of the normal business, which will be boxes that will on going forward.

A - Michael Palkovic

On the broadband basis, on the broadband front, first is relate to the RBOX, we are very engaged with the RBOX, I mean obviously each of them has a somewhat different, they have different plans in place, they are all not, they are one side, just fits all. As you look at a Verizon versus BellSouth versus Qwest, today really across the board, there are healthy relationships we are contended to continuing to work with them. I think we have a very positive relationship to maximizing the value for both of us. And to the degree there is an opportunity to really build those relationships as a long-term, a long-term option for providing a broadband bundle, it is something we certainly are engaged in there obviously complexity as again each of them to very degree says, as build out plans of their own, but if there is, but we are certainly open and in fact continuing, continuing to engage with them about ways that just could be a long-term solution. So, certainly the wireless initiatives that we’re in, that we’re valuating or not, it’s not one or the other. And I think we would certainly be more than open to having a part of one form of solution the, a longer-term solution networks, with -- within RBOX at the same time, we would potentially have as an alternative for our customer, a wireless solution I think in terms of the capabilities of the wireless solutions, we’d now have time to spend a lot of, we spend a lot of time, we had array of parties valuing that then, really it’s up, the wireless, the wireless capabilities are quite robust, clearly as you put in place much as, we’d seen with DirecTV, you look at the ongoing ability to enhance and improve a service, MPEG 4 being the latest example of what you can do in terms of driving one of these technologies forward, particularly in the wireless area where you have the flexibility in and up stuck with the wires in the ground and all the infrastructure that comes with it. Actually really get, I think the competitiveness of that product particularly with mobility being a component of it. Really gives you, it gives provides the opportunity, and that something that it could be not only quite competitive but in many ways. Trump the existing options out there. And so, I think we’ve, we do think the wireless broadband options have exciting potential, I mean clearly they have work, they are not going through all the technology, works and the values of their existing kind of services like their wire that exists today. So, this is not just, this is not just lab or these are real services you can really past and, and really experience today.

Operator

Thank you. Our next question is coming from Steve Mather of Sanders Morris Harris. Please go ahead.

Q - Steve Mather

Hi thanks. Can you talk about the HD timeline and HD margins a bit more, I was wondering if you could tell us about DTV 10 and 11 when they will be launched?

A - Michael Palkovic

10 and 11 work beginning of ’07 as sort of towards we go, towards will enable us, right now before, I mean again with satellites we, there is always could be delays, we had a delay on SPACEWAY-2 obviously. So they are not launched, currently our expectations they go at the beginning of ‘07 and be operational before the middle of ’07. So we would have that, we would have the full fledged local, and we really have a national capability that I think would beat anybody including the majority of cable guys, and that sort of timeframe it is, clearly it is a HD customer, is a significantly more valuable customer as you look at, the benefits we’ve talked before, yes there is a bit higher SAC though I think a year from now we’d look at the HD, the HD MPEG 4 box will be up approximately, I think down in the $175, $180 range in terms of cost of that box. So that gets comes down significantly and clearly when you add both the direct revenue from the HD package which today is a $10 dollar package for HD per month on top of generally would interpreting indirectly a higher ARPU, beyond the HD package on top of what ends up being a churn on an HD customer that I don’t think will say as low it is, and today its going to, 9.6% or something on an HD customer. So you would assume that drips up a bit clearly the combination of, a churn ARPU and HD revenue, against a box cost that may end up paying 175 to 180 bucks against 52 bucks for a basic box. They’ll make that a significantly more valued customer.

Q - Steve Mather

Okay. Can you just talk about the recurring cost to broadcast an HD, not including the box or CapEx or backhaul and all that, just kind of recurring programming cost. And then just a follow-on to that the corollary is the price, I paid $49 a month for 185 channels today in your Total Choice Plus, if I call in or a Total Choice Plus at HD, how much more money I pay, and then how much more are your actual cost, actually just broadcast on a recurring basis in HD?

A - Michael Palkovic

Well, I guess you take the pieces, I mean first you have to get to realize, HD packaging is going to evolve overtime and may realistically today. Most channels are in HD to start. I mean, we just added T&T, we carry most of what there is, to carry that matters if you don’t unless you want, unless you want HD channels as spiders and people jumping of cliffs and then you have, most of what challenge. And it’s a pretty, it’s not a lot of channels that are rolled overtime. So, I think the HD packaging will evolve, so you can’t really just say Total Choice or Total Choice Plus, really there is a discrete enough channels and today you sort of essentially have an HD package. I think overtime it will change HD programming as we got more channels, we’re going to compress more main stream but I think for a period of time, I think going to be continue to have sort of a HD, HD package, so that is almost a separate package Total Choice and Total Choice Plus it cost today $10, again over time, long enough, I think probably as with everything else the HD will move more mainstream and at some point really come more of basic pricing just as we started with local channels and local channels at one point had a price and that local channels overtime have become part of the, become part of the basic proposition, but that’s a multi, multi-year, its not a choice, your profits are, a long-term but for various time, I think you are going to start to see what you got now which is an HD package thus you continue that channels until you get a knob that you can interpreted into the mainstream packaging, which is still a few years down the road. I think in terms of cost, the cost really, they may be -- they are just up and like you could have miss that, I mean the cost, there is a rough backhaul for locals. So, that is enough, we incur, that again we’re going to incur this year for a significant chunk of it. So that is an operating cost. When it’s a CapEx cost for the satellite, we’ll have, we said we are in a three year cycle, we’ve been at shop, and sort of wind-out of it in ’06 and getting ’07 to provide the CapEx side, which is satellites, and satellites and ground installations on a CapEx, there is an operating cost of backhaul locals, and then there is a programming cost that we negotiate with programmers. And that varies and that will be as part of all programming cost after negotiation, that will evolve overtime in that as you deal with programmers in HD content. Today it’s a hot, today it’s a very, the margin on the HD package is a healthy margin, as we get more scale and enable us that will see where it goes. But today certainly up after programming, you might have look at the programming cost against parties, its up significant margin. Now we’ve made a significant investment, so I think its fair for us to have, have a healthy margin against, I think certainly is. They are much larger margin if you look at, in the other programming areas, but again we have made a significant investment to get there.

Operator

Thank you. Our next question is coming from Doug Mitchelson of Deutsche Bank Securities, please go ahead.

Q - Douglas Mitchelson

Thanks, just first in it, so what the depreciable life for your set-top boxes and the leased plans going to be. And then just simply, you’re obviously going to extend your concern in a wireless telecom investment sort of play cables, triple play offerings having some success. So, can you just give us a sense of how your gross adds going to impact in the markets where cables been offered in the triple play bundle? Thanks.

A - Michael Palkovic

Yeah the first part, we haven’t zeroed in on our life, but I would expect it would be in the three year range, Doug. Primarily through technology advances and the period of time we are going to recover these boxes, in any kind of breakage against that, you’ll probably get somewhere in the range of three years on the books for depreciation, the boxes will work for a long time, whether we choose to continue to have boxes in the field for that long time will be a decision we’ll make, in the next two or three years, impact of the bundle?

A – Chase Carey

Well I think the – I mean the impact of the bundle, it has an impact, it’s, I would still not say it is a, it is certainly still not the number one impact on us, it is an impact I would and honestly expect. As we go forward to continue, probably on a marginal basis, I mean, I think continue to increase but its increasing modestly, I mean in many ways its, in many ways I think, it’s not as in one level of the bundle and the other level is really the offer. I mean its, this is much driven by the price, and somebody coming over there a very aggressive price point just as if somebody wants to come out only with a very aggressive price point. A competitive offer has an impact, but it really sort of using that realm of competitive offer. So, I think competitive offers have gotten, increasingly aggressive throughout ‘05 in general, I think the bundle part of it is gotten more aggressive, you saw Cablevision early on with an aggressive and a few more now coming on and again, I thinks its as much the aggressiveness of the offer as it is. But the bundle, but it has an impact on us, it is not the lead impact and the rate of gross, is modest and it’s increasing. So I think it’s a factor and a part, just I think it’s a part of the world we compete in. And I think the flip side ends up being, obviously we have our own response to it, which is why we’ve seen healthy growth and real success in our bundle response to it. And I guess, as the bundle comes along, as we’ve been, as we’ve been saying, I think we feel reasonably good about the ability to compete with the bundle. We have a short-term solution, with the RBOX and we were working on longer-term solutions, and I think that solution works for us, as we determine how do we feel with the longer-term, whether its with the RBOX, whether its with wireless option, to be with the third-party wireless option or the wireless option we own, we have D-Sub that there enough options out there, that we have a short-term solution or a path to a long-term solution. Our partners right now, are actually taking an increasing share with the broadband market from the numbers I’ve seen, that the, if anything the RBOX side of it seems to be getting more increasingly aggressive B-to-B cable and taking, a larger share of the broadband marketplace which all approves to our benefit. So its an issue we deal with, there is certainly an issue competitive offers in general, having impact in our business having increasing impact in our business as people have gotten, as competitors have gotten more aggressive with those offers whether its video specific or bundle.

Operator

Thank you. Our next question is coming from Lale Topcuoglu, of Goldman Sachs. Please go ahead.

Q - Lale Topcuoglu

Hi guys. Can we get a little bit more quality if you really seeing a slowdown in your net adds, as you know affect from premature and aside, a 200 net adds was quite below, I think I would say everybody’s expectations. And I think when we look at what TiVo reported in terms of DVR net adds for their quarter that ended in October was about around 370,000 adds that were associated with DirecTV. Back in your number that would have implied, you should have add around 130,000 for the month of October alone. So, there is something happening after October, maybe you really scaled back on pushing out DVRs. Because if you were to, I think a lot of us expected you could have easily hit over 400,000 in DVR adds.

A – Chase Carey

You got too many. I can’t, but Mike may be able to follow your math, you got too many moving pieces of math for me to follow, certainly as I can’t comment on it generally, I can't follow, too many interlinked numbers to get around. But I guess in some ways that just sort of, we focus on what I’ve said before, we did take an array of steps in the fourth quarter which we knew would have a short-term impact in terms of decreasing subscriber growth. And there all part of strengthening our business and sometimes you have to take a hit for a month or two to get yourself to the right way. So when we not, when we eliminate a set of dealers, those dealers volume, they were generating sale, they don’t get replaced on the next day, they get replaced in a couple of months. But for – as you take out, as you eliminate something like, a set of, meaningful set of dealers that were generating sales for you, it doesn’t get replaced in day one. As you put, new sales policies in place that have got, you have dealers that will step back and determine, how does they adjust their own adds and the like, and will scale back as they’re figuring out. If there is a, now a different side of reward and consequence for churn, that they want to figure out, who they are market to and how and therefore, again we knew when you put that in place, you are going to have a set of, you are going to have your sales organization taking step back which is going to take in a month or two to readjust their plans for a changed, for a changed compensation structure. So, we took a set of steps in the fourth quarter that we knew would take, we would take, we tighten the credit policy forward again. That is going to again have people take a step back if they got a title they adjust to it. So, we took these steps, we know they are going to take, these organization, a couple of months to sort of readjust, I think as we look in the first quarter, we actually have seen, certainly in January adjusting to.

And then in going forward now aggressively having adjusted, how they move to get this forward, focused on higher quality and the like, but really what you saw in the fourth quarter was the impact. These initiatives layered on top of it still with two higher churn number. And as again where there is a tail on churn, it doesn’t come down, 1.7 churn is still too higher churn number. And obviously that affects, that is a consequence of quarters, a year ago, still coming through, working through the system. Well I think the combination of still having, two higher churn which is lot affected us in the last couple of quarters, layered on top of a set of initiatives that clearly affect the gross adds in the fourth quarter. But knowingly and by design is, -- is really, the combination of events that led for the result. And I mean, of all the things it probably, I really don’t, the net add number in the fourth quarter, that was finally, but then I want to get us to a place where we are adding profitable appropriate subs and if it takes a quarter where we, done as many subs as we might otherwise to get ourselves additional strength for ’06. You know that’s fine, and in many ways I guess is whole question of growth, I mean really goes back to saying first and foremost we want to add value added profitable subscribers, and I think the growth will take advantage and I think we do have an opportunity to still add subscribers, I think we still have a, a position of strength competitively that enables us to grow, but it will grow based on, it will grow based on that strength, then we’ll pursue it to the degree that make sense to pursue it, but that as core first and foremost we’re going to make sure if you require to sacrificing some short-term growth or sacrificing long-term growth, then make sure we’re adding proper subscribers to tradeoff, we will make and we made, we knowingly made some of those tradeoffs in the fourth quarter.

A - Michael Palkovic

Just to answer your question on what TiVo repots, TiVo reports boxes. We actually added close to 400,000 boxes on the platform in the quarter but about 300,000 DVR subs and probably 2/3rds of those were TiVo based on the time we got into the market with our new DVR. So, and there is always a little disconnect between that aspect of it and if you look in it full year numbers there is kind of a different fiscal years than I see. You just have to kind of make sure we are doing apples-to-apples. That explains a little bit of their numbers versus ours in the quarter.

Operator

Thank you. Our next question is coming from Craig Moffett of Sanford C. Bernstein. Please go ahead.

Q - Craig Moffett

Yes, hi good morning guys. I wonder, two quick questions if I could. First, if I take your 320,000 DVR subscriptions, it sounds like your, you had about 16% take rate among gross additions and about a 1% of your base upgrade rate during the quarter to about 16% of your base. Can you give us the same numbers for HDTV and are you still trending toward about 50% penetration of advanced set-tops by end of ’07. And then second question, just what are you seeing in terms of, retransmission consent deals as you go forward with a lot of their broadcasters asking for retrans fees that are higher than they have in the past, are you starting to see that?

A - Michael Palkovic

Let me do that.

A - Chase Carey

Mike will do it.

A - Michael Palkovic

I’ll do the first. Your numbers on DVR pretty close to what I am looking at and the HD number has increased now north of 4%. So and that’s the number that’s probably going to start to increase again in ’06. And I don’t think we have a different view at the 50% number whether it’s magically at the end of ’07 or not, in that time frame our business plans have us in generally that direction.

A - Chase Carey

I mean, I don’t think we can get too fine, I think its still, is a reasonable assumption, I think obviously we have to see if it, as we now we ever had HD locals, we’ve had them all for, we’ve had all the 12 markets for a month. And so I think we have to, some of this will evolve as we get better experience with better product we obviously, when we had the DVR product it really is the core for us to push for couple of months. So, we’ve made assumptions, I mean they are clearly not, they are clearly assumptions that we’ll have to as we get better experienced through ’06 continue to evaluate. But I think it still a sort of a decent, everybody called it rough, a rough estimate that certainly not a finding Q1 given the new sub of the product and initiatives we’ve got in the market with it.

Q - Craig Moffett

Retransmission.

A - Michael Palkovic

Our retrans, yeah, like any program we negotiated, that whether it’s a program or a retrans, they try to get more, we try to pay less, I mean there is no, I wouldn’t say there is any -- dynamic is one that’s existed yesterday, exist today and I assume its going to exist tomorrow. And we’ll negotiate it as hard as we can, we get bigger, we think it was more leveraged and we continue to get stronger, but I expect retrans realistically is, not like any other negotiations with the contempt about the program provider whether its a pay channel or a pay channel broadcaster, I think we negotiate with, they are trying to get more, we are trying to pay less.

Operator

Thank you. We have time for one last question; the final question will be coming from Spencer Wang of JP Morgan. Please go ahead.

Q - Spencer Wang

Thanks, just two very quick points of clarification. First on the $100 million increase in CapEx, can we assume that also excludes the lease program and then on the SAC, the flat SAC guidance, is that flat on both the sub -- per sub basis and absolute dollars? Thanks.

A - Michael Palkovic

The CapEx number doesn’t have lease in it – it is comparable to our prior year. And the SAC being flat is on a rate basis, the dollars will have, will depend on how may gross adds we bring in versus the prior year. So, and then we are not given any kind on direction on that one way or the other. So I think that answers both of the questions.

Operator

Thank you ladies and gentlemen that conclude today’s call. Please disconnect your lines at this time and have a great day.

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Source: DirecTV Group Inc. Q4 2005 Earnings Conference Call Transcript (DTV)
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