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EchoStar (NASDAQ:SATS)

Q3 2012 Earnings Call

November 06, 2012 1:30 pm ET

Executives

Deepak Dutt

Dean A. Manson - Senior Vice President, Secretary, General Counsel and Member of Disclosure Committee

Michael T. Dugan - Chief Executive Officer, President and Director

Anders N. Johnson - President

Pradman P. Kaul - Chairman of the Board of Managers, Chief Executive Officer and President

Markus Wayne Jackson - President of EchoStar Technologies LLC

Kenneth G. Carroll - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Business Development and International

Grant A. Barber - Chief Financial Officer, Executive Vice President and Member of Disclosure Committee

Analysts

Jason B. Bazinet - Citigroup Inc, Research Division

Andrew DeGasperi - Macquarie Research

Chris Quilty - Raymond James & Associates, Inc., Research Division

Operator

Good afternoon. My name is Nicole, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q3 2012 earnings call for EchoStar Corp. [Operator Instructions]

Mr. Dutt, you may begin your conference.

Deepak Dutt

Thank you, operator, and good day, everyone. Welcome to EchoStar's Third Quarter 2012 Earnings Call. I'm joined today by Mike Dugan, our CEO; Ken Carroll, CFO; Pradman Kaul, President of Hughes; Mark Jackson, President of EchoStar Technologies; Anders Johnson, President of EchoStar Satellite Services; Grant Barber, CFO, Hughes; Dean Manson, Executive Vice President, General Counsel and Secretary.

As you know, we invite media to participate in listen-only mode on the call, and ask that do not identify participants or their firms in your reports. We also do not allow audio taping, which we ask that you respect.

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

Dean A. Manson

Thank you, Deepak, and hello, everyone. All statements we make during this call that are not statements of historical fact constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by such forward-looking statements. For a list of those factors and risks, please refer to our Annual Report on Form 10-K, and our quarterly report on Form 10-Q.

All cautionary statements that we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our report and should not place undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

Let me now turn it back to Deepak.

Deepak Dutt

Thank you, Dean. We'll the start comments with Mike Dugan. Mike?

Michael T. Dugan

Thanks, Deepak, and welcome, everybody, to our third quarter 2012 earnings call. Executive staff is pleased to have delivered a solid quarter, and I'd like to highlight some important events.

First, a few financial highlights. Third quarter 2012 revenue was $765 million compared to $863 million in the third quarter of 2011. The decline was driven primarily by a lower set-top box shipments as a result of the strong shipments in the first half and the resulting high inventories at our customers. EBITDA in the third quarter of 2012 was $164 million, an increase of 7% over third quarter of 2011. Net income attributable to EchoStar's shareholders in the third quarter of 2012 was $22.6 million compared to a net loss of $19.1 million in the third quarter of 2011.

A reconciliation of EBITDA to GAAP net income is available on our Form 10-Q for the third quarter 2012 filed with the SEC and posted on our website, www.echostar.com\investors. Earnings per share on a fully diluted basis rose to $0.26 in the third quarter of '12 from a loss of $0.22 in the third quarter of 2011. Cash from operating activities in the third quarter, a loss of $0.22 in the third quarter -- I'm sorry, 2012, was $166 million, a 33% increase over the third quarter of 2011. From a liquidity perspective, we, once again, ended the quarter in a strong financial shape, with approximately $1.6 billion in cash and marketable securities.

Now for some recent highlights from our different business units. First, you may recall that EchoStar XVII, previously known as JUPITER, our Ka-band high-throughput satellite booked by Space Systems/Loral was successfully launched by Arianespace on July 5 from Europe's spaceport in French Guiana. It was successfully placed into its permanent geosynchronous orbit at 107.1 degrees, that's longitude, and completed our in-orbit test successfully and ahead of schedule.

By the end of September, we have built our 14 gateways, and on October 1, we launched our HughesNet Gen4 service with our retail use sales channels and wholesale service distribution partners, Dish Network and Frontier Communication. The satellite with JUPITER High-Throughput Technology is expected to dramatically increase Internet browsing performance and support high-bandwidth applications, such as video and music.

HughesNet Gen4 customers are able to obtain faster speeds of up to 15 megabits per second and significantly larger download capacity so they can experience Internet access at its fullest. Initial sales volumes from all channels are very encouraging, and we are receiving very positive reactions from our early customers.

Second, Hughes new order input from enterprise customers continued at a strong pace in Q3, with $349 million of orders, a 40% increase over third quarter 2011. Significant orders in our North American enterprise business included Row 44, Xplorernet, Social Security Administration, the Government Education & Training Network, Wyndham, Galaxy Broadband, Halliburton and a new government classified contract. Key orders in the international business were received from Camelot in the U.K., Telemar and Hobba [ph] in Brazil; Avanti and South Berg [ph]. This strong order activity results in a healthy, nonconsumer order backlog of just over $1 billion in the end of the fourth quarter of 2012 -- the third quarter of 2012.

Hughes also ended the quarter with approximately 616,000 subscribers. We continue to work on our negotiations on a joint venture agreement with a potential Brazilian partner to provide DTH service in Brazil. The satellite would be located in the 45-degree west orbital slot that our Brazilian subsidiary was awarded by Anatel, the Brazilian regulatory agency. We look forward to expanding our business in one of the fastest growing regions in the world soon.

I'm excited to announce that we've introduced 2 new Slingbox models into our retail channels. The Slingbox 350 with 1080p HD streaming, and the Slingbox 500, with HDMI-integrated Wi-Fi and 1080 HD streaming and personal media play box. All SlingPlayer's web and mobile refresh reviews in the press have been positive, with many 4-star ratings for the apps and all the new Slingbox features.

You may recall that in the second quarter, we were informed by an international launch service that an abnormality occurred with the proton launch of 2 Russian satellites. As a result, we expected a delay in the launch of EchoStar XVI. I am pleased to inform you that the spacecraft has since been transported to the launch site in Baikonur, with the launch expected in late November aboard a Proton-M Briz-M vehicle.

Our EchoStar XVIII program commenced -- EchoStar XVIII is a CONUS/spot hybrid satellite that will support future Dish Network operations at the 110 or 61.5 degree orbital location. It's currently in the design phase, and estimated to ship by mid-2015. EchoStar XVIII will be a DISH-owned asset, but EchoStar will manage and provide TT&C services for them.

Finally, our ESS business secured new additional and renewed order from Americom government services, Arc Tow [ph], Harris Caprock government services and Right Met [ph] . This brings the contract of backlog to our satellite services business from satellites in orbit and under construction to over $1.8 billion as of the end of third quarter, thus continuing our strong visibility into future revenues. These exciting technology and service announcements position us very well for revenue and margin expansion in the near and the long term.

I think we're now ready for the question-and-answer part of the call, and I'll turn the call over to the operator to conduct the questions and answers.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jason Bazinet.

Jason B. Bazinet - Citigroup Inc, Research Division

I just had 2 quick questions. Since you're one of the few companies in our coverage universe with sort of some government exposure, do we need to be worried at all about sequestration? Is that something that could impact your revenues if the government ends up going down that path? And then second, on the -- I know there's a lot of litigation around the Joey and Hopper, but it seems like Sling has sort of gotten swirled in with some of this litigation with the broadcast networks. How should we think about potential legal implications of that to the extent the lawsuit goes against you? Is that -- I just don't know how the liabilities if there are any, will sort of be partitioned between DISH and EchoStar.

Michael T. Dugan

Yes. Let me take the first question. I think we feel very confident about the heritage that the Slings had in the marketplace for a very long time. We believe the technology is extremely legal, let's say, and although it's been certainly brought in as an aspect of the ad skipping activities on broadcast litigation, I -- yes, we're pretty confident that Sling has a long history of not causing problems, and the way a customer utilizes Sling is to access content that they already own. So we're not too worried about the Sling stuff. But obviously, we cannot predict the legal recourse of any litigation. If I wanted anything over the last couple of years is predict and the time to outcomes that you'd expect. So but, obviously, Sling has been in the market a very long time without any challenge and hopefully, that will persevere. The second question -- well as far as -- I'll let Anders Johnson talk to that.

Anders N. Johnson

I think, at this time, it's too hard to tell whether those automatic cuts as they kick in the Pentagon's budgets how they'll cascade through the various programs. Right now, we don't foresee any particularly severe events on the government's consumption satellite bandwidth in that market sector.

Michael T. Dugan

And I'd just add, while we are -- we do have government activity both on the use side and on the satellite services side. We're well diversified amongst the consumer and general commercial markets as well. So again, I don't see the risk being that great.

Operator

Your next question comes from the line of Amy Yong.

Andrew DeGasperi - Macquarie Research

This is Andrew for Amy. I just had a question on the JUPITER side. Like how is that progressing -- I'm sorry, EchoStar XVII, just on the rollout? And also, what is the total addressable market for satellite broadband in the U.S.? If you could comment on that.

Michael T. Dugan

Well, first of all, I think within the company, we constantly refer to JUPITER as XVII and XVII as JUPITER, so that's not a problem at all. And second, I'll let Pradman speak to how well this business is going on in the third quarter.

Pradman P. Kaul

Okay. The additional rollout has been very promising. As Mike mentioned in his earlier remarks, we're very pleased with the new orders that we've received to date on JUPITER and a number of sites we've actuated. And we see that trend continuing strong. As you may recall, many times in the roadshow and other presentations, we've indicated that the market in the United States for unserved and underserved households is about 14 million, of which, about 1 million of them have been penetrated by ViaSat. And that's -- so the penetration is about 7%. So it's very level -- so we still see a very robust market over the next 4, 5 years.

Andrew DeGasperi - Macquarie Research

Okay. And I just have -- if I could just ask a question on the -- on what's going on in Mexico and Brazil. I know there were reports that you're -- and talks with several operators in Brazil, particularly. Could you maybe expand on that?

Michael T. Dugan

I don't think we really have anything of substance to share at this time. It is true we're in negotiations, and we're excited about the opportunity in Brazil. But we certainly don't have anything that can be brought to the public at this moment in time. I'm sorry, about that, but that's the reality of the situation.

Andrew DeGasperi - Macquarie Research

No, it's okay. And lastly, on the set-top box business, as there's obviously, some weakness year-over-year, I'm just curious, is this to do with the cost structure that you have an agreement with DISH or is this something else.

Michael T. Dugan

Well, I think Mark can talk about that, but the reality is Mark has brought a very cost-effective design structure in place with Hopper and the Joey, which allows DISH some major advantages. But on the other hand, Mark has reduced our revenue because he did such a good job. So I'll let Mark talk about it.

Markus Wayne Jackson

Yes. I think, Mike, it's absolutely right. That's our biggest hitter right now, that we just cost-reduced the product. We're trying to add cost with features, as you see with the Hopper. And as our customers take higher end technologies, we hope to either slow that trend down or turn it around. But for sure, we're delivering a much lower cost solution in the marketplace. And the other thing is we are somewhat dependent on how the overall market is doing or getting sub base in the U.S. right? So we're dependent on DISH and our other customers in Canada and Mexico and how the overall economy is doing and how their sub adds are doing in general to sell for them.

Andrew DeGasperi - Macquarie Research

Right. So just if I could clarify, you said that if you add features, it potentially could increase revenue or margins or both?

Markus Wayne Jackson

Basically, revenue, overall. So we're adding lots more features and functionalities, as you saw with the Hopper product and our last generation. We have a new product coming into the market soon, which have a lot more features. Again, it's costs will be higher.

Michael T. Dugan

That and a lot more EchoStar technology. I think that the key thing is we're servicing a lot more TVs for DISH with a much lower cost and that reflects into the ETC revenue stream at this time. But we've got -- we've got a lot of exciting things coming, including a refresh of Slingbox and some of the additional customers Mark has on the horizon. So although, I can't say we're overly pleased by the quarter's performance in that specific small area of the business, it's certainly something that we're focused on.

Operator

Your next question comes from the line of Chris Quilty.

Chris Quilty - Raymond James & Associates, Inc., Research Division

I wanted to stick with the ETG segment, and specifically, you had mentioned high inventory with customers. Do you have a sense of how long it might take to work through that? And is it inventory of the new Hopper, Joey or older product that they're working through?

Michael T. Dugan

I think it's both. I mean, there's certainly a transition going on right now in all the customer bases to more HD product -- more HD-centric product, and certainly, the Hopper, Joey configuration is a very cost-effective way to get the 2, 3, 4 HDTVs serviced. The inventory situation has been managed very effectively by the customers, and we don't see anything but a positive outcome going forward. But we're not in direct control of their inventory requirements.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Understand. And can you talk a little bit about the customer expansion efforts, either domestically or in Europe prospectively? And I think one of your customers, Liberty, just started taking deliveries of a competitive product from Samsung. And can you talk about your product portfolio and how it stacks up and whether that impacts your market share or growth opportunities with that particular customer?

Markus Wayne Jackson

Well, in regards to Liberty, we're actually very focused on them because as they integrate Europe, they'll be a potentially bigger and bigger customer. I think we've done a good job for them, but they did roll out a new extremely high-end product based on an Intel system. We'll have to see how that performs in the field. I hear mixed messages about its performance in the field. But everybody will have to make that determination of how they do it.But we're excited about Brazil. We hope that, that will be a big growth market for us. We're doing some interesting things in Mexico to help with their growth, and we're -- hopefully, with whoever we partnership in Latin America will lead to some other opportunities for some growth in the set-top box business.

Michael T. Dugan

And we're pretty confident that the Hopper, Joey architecture that we brought in is very effective, the ability to do Primetime Anytime. If you noticed, some of the competitors are quickly trying to figure that out and do something similar. So we think they've got to jump there, Mark is hard at work at staying ahead of the rest of the competitors, with adding set of new features that will come out early next year, and we can't control people's decisions to source product. But we know we've got a great product set, and our customers, so far, really love the Hopper and the Joey and all the functionality that we hope to build a stronger business off them.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Great. On the services side of the business, you had a sequential revenue decline, which I don't think I've seen that in your historical pattern. Was there something specifically you would attribute to the decline?

Kenneth G. Carroll

This is Ken. I don't think there's anything specific going on there. I'd have to look at it more closely.

Michael T. Dugan

Grant, do you have any comment on that?

Grant A. Barber

None on the Hughes side. The 2 pieces, as you know, that we have, Chris, are both the enterprise business, domestic and international. Those are continuing the trends that you've seen in the past that they're up based on the domestic business plus our European. But in the consumer, we continue to provide service. Clearly, we launched the Gen4 services Pradman mentioned October 1. You won't see any of that new service offering in the third quarter, and we'll report on that next quarter.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Right. I guess my question was specifically to EchoStar Satellite Services, where it declined sequentially from 71.4 down to 65.7.

Kenneth G. Carroll

Okay. So you're talking about the segment revenue.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Yes, I'm sorry.

Kenneth G. Carroll

Okay. Yes, so I think a couple of things going on. One is that we've been -- we've kind of held CATSAT out. Again, in -- from a strategic standpoint to make sure we have an asset available for the Brazil 45 degree orbital slot, so we've got to wait until certainly to like 16 launches before we can do anything with that. So that's one -- probably one primary area where we probably slipped a little there. And then, again, we'll see a little bit -- because of the Echo XVI launch delay, we have originally -- I think probably a year ago, we scheduled for June and have slipped to September and now to November.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Okay. But there weren't any transponder -- I didn't look through the Q with a fine-toothed comb. Any transponders or satellites that were removed from service?

Anders N. Johnson

No. And we've had -- in the Q, you'll see that there have been additional satellite anomalies on AMC-16 and I believe, Echo XII. But neither of those have really affected the ability to self-service into the marketplace at this point in time.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Okay. And final round of questions here on the Hughes business. Still reported in the current quarter, it looks like another net loss of subscribers. Do you expect, Pradman, that going into Q4, with the Gen4 service, that you should be able to turn positive? Or are you going to be dealing with customer churn issues on the SPACEWAY platform that will keep the subscriber growth flat or down for a while?

Pradman P. Kaul

Well, we are obviously, as I've mentioned earlier, feeling good about the initial take on the Gen4. And that should make it turn positive, obviously, and we are hopeful of -- that in Q4, we'll have positive subscriber growth.

Chris Quilty - Raymond James & Associates, Inc., Research Division

And are there -- is there anything you're doing differently with respect to transition plans, either subsidizing hardware for customers that want to step up or actively swapping out customers that would differ from what you did back a couple of years ago from the Ku-band to the SPACEWAY transition?

Pradman P. Kaul

Yes, we have a pretty attractive upgrade plan for our existing subs. And those plans are on the web, if you want to take a look at it, Chris. So unlike the last time when we went from Ku to SPACEWAY, we were not encouraging upgrades as aggressively. So I think that's different this time.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Okay. And I forgot, one final question switching back to the technologies group. The -- can you explain the significance of the HDMI port on the new Slingbox 500, what feature set that enables?

Markus Wayne Jackson

Chris, it's a one connection to the box for certain content, and so it just makes the install easier. And it also gives you access to a lot of the new modern TVs.

Michael T. Dugan

But it also simplifies the user experience because Mark's team got it down to the place where there's not a lot of requirement for you to change the input on the TV set to access the various parts. It can all come through the Slingbox, so your set-top box and so on and so forth. So it's a significant improvement, both in picture quality but usability of its system.

Operator

Your next question comes from the line of Craig Noon [ph]

Unknown Analyst

I have a couple of quick strategic questions. First, according to the 10-Q filed today, you have only about $71 million of future obligations related to Echos XVI and XVII. And since you have no additional satellites under construction, you're going to start generating a pretty significant amount of free cash flow above which you're already generating. So could you just walk through your current capital allocation plans and priorities? And I have one follow-up after that.

Michael T. Dugan

Well, first of all, I think Anders was clear. We do -- a fact I think we disclosed. We do have an additional satellite on track that we started to execute on. We're obviously, looking at a couple more. So I wouldn't assume that we're done building satellites and spending capital funds on satellite construction and build. I'm not sure we're ready to disclose any additional breakdown on how we're going to spend our capital over the next years. So I think you can historically look. We don't see a huge difference in the way we're going to work in the future from the way the 2 companies worked in the past. I think you could use that as guidance. But I don't think we're going to give you any more information than that right now.

Unknown Analyst

Okay. And the satellite that you have disclosed, I guess I didn't catch it in the Q. What is that related to?

Anders N. Johnson

:

That's Echo XVIII, which is actually -- it will be built primarily -- the build will be primarily funded by DISH. We will provide satellite build and management, and then we'll also fly the bird. But to Mike's point, I mean, obviously we're working on a joint venture in Brazil. We're looking at other alternatives. We've got new Gen4 service that's come up that clearly requires shack on the retail versus wholesale customer base. So those, clearly, will be priorities as we move forward.

Unknown Analyst

Okay. And then I know you guys and MVS don't give out exact numbers for Dish Mexico subscribers. But our estimates have you guys north of 2.5 million subs now and depending on which analyst you look at, you're sitting on somewhere around $5 to $7 per share of an unmonetized value. Could you just walk through how you think about Dish Mexico from a strategic standpoint and how you plan to return some of that value you've created with your 50% stake there?

Michael T. Dugan

Yes. So I mean, obviously we're in a -- we've got a good business going down there. We'll not comment on the actual number of subscribers. We treat it as an equity investment. We believe the partnership has worked well. We're able to provide a number of additional services to that joint venture from uplinking to set-top box sales and activities. So we're going to continue to work to support the JV and grow that business as quick as we can. There's opportunities there that, from a competitive standpoint, if you go look at the offerings that they have versus the other DTH providers in Mexico have, if we can garner some additional channels in that market, it should give us -- it should give the JV a fair amount of upside.

Unknown Analyst

Okay. And then actually, last one, if I may. Just given the high visibility you have with Echo sat services and then the Hughes segments, which now accounts for roughly 85% of your total EBITDA, could you just walk through strategically, how Echo Technology fits in with the rest of the business? Just if you look at the other FSS and Hughes comps, you're effectively seemingly getting no value even negative value for the Echo Technologies business.

Michael T. Dugan

I mean, I don't disagree with your assessment. Certainly, it's a subject of discussion a lot internally. I don't know if Ken has got a better suggestion.

Kenneth G. Carroll

Yes. No, I mean, I think as we move forward, I think there's -- between the engineering groups at both Hughes and at ETC, I mean, I think there's opportunity to create some convergence there. I think, the ETC group continues to develop leading-edge applications that are primarily used at this point in time by DISH. But as we, for example, again, move to the, hopefully, in the near term, successful on the Brazilian JV, we'll be able to take some of those applications and introduce those into those markets and who knows where that goes. So I think there's upside. But again, I mean the set-top box market or industry in general, is a tough business that has low margins.

Operator

Your next question comes from the line of Joel Rosen [ph].

Unknown Analyst

Just a couple. Pradman, on the big uptick on the enterprise side at Hughes. Can you just give a little color of kind of what's driving that? I mean does the go-to-market strategy change? Are there any other solutions that you're offering now that you haven't in the past? Maybe just some use cases of kind of what the new customers are taking?

Pradman P. Kaul

Yes, sure. If you look at our enterprise business, we, obviously, have our enterprise business in North America and then we have an enterprise business internationally. In North America, over the last couple of years, we have done a significant transformation of the business from just providing connectivity via satellite to a managed network service offering. We've been able to go to the major corporations in the United States and offer them a managed network service, where the access technology for each branch is optimized based on the location of that branch. We are not limiting the access technology to only satellites or VSAT but also DSL, cable or wireless. And that has made us very, very competitive in this managed network service marketplace because we pick the optimum access technology for each branch. And then we bring on to it all our value-added offerings in the different services that we provide. Internationally, we have 3 service companies in Europe, Brazil and India. And all of them are addressing the enterprise market in their regions and doing a very good job of capitalizing on our technology and management -- and our network service offerings that we have developed in the United States. So between the 2 of them, both are growing this year, and we are very pleased with the progress we've made this year in the enterprise business.

Michael T. Dugan

And also, I think I'd like to take the opportunity to point out that this terrible event on the East Coast of Hurricane Sandy and so on, has brought to the forefront again if somebody has a generator and they turn their generator on, all of a sudden, they've got their broadband back, if you have satellite capability, and that's been a big asset to a number of business owners. And Pradman and his team have worked very closely with the emergency services to help provide improved broadband service with -- getting them systems and so on where the infrastructure has been damaged. So that's somewhat of a nice feedback on all of the activities out of a horrible event. And we're going to plan to focus on that with the more and more natural disasters that we're suffering. We're going to make sure that we're ready to step in and help when necessary. So that's -- I'd like to commend the Hughes guys for what they're up to there.

Unknown Analyst

Great. And then just on the consumer side on Gen4, any more color you can give us on the mix of wholesale, retail, how DISH has been in terms of their bundled offering, ARPU you're getting? I mean, just really any color that you can offer.

Michael T. Dugan

The customer acceptance has been great. The partner acceptance has been great. I think we're all very thankful we had a safe launch and that the technology is working as well as it could be and all the gateways are up and everything. It's been a very, very successful launch. I promise you, we'll give you clearer information on the next call. But we've got to be -- as you know, we've got to be really careful about being too forward-reaching. But the bottom line is I'm excited by the product. I think it's doing great, and I think you'll be pleased.

Unknown Analyst

And then just lastly, on the balance sheet, you obviously, have a massive amount of cash and marketable securities. I mean, how do you think about having the most efficient balance sheet, which, I mean, this really isn't -- I mean, are there large M&A opportunities that are still out there? How do you think about distributing that cash or paying down debt or just how do you think about maximizing that?

Kenneth G. Carroll

Well, yes, so I think, strategically, yes, we do have a lot of cash on the balance sheet, and we've got, obviously, a couple of things we're working on. I mentioned earlier as it relates to CapEx priority. But I would say we're always interested in looking at strategic alternatives that make -- that would make this business a better, more effective company. And so we will continue to look in the marketplace and see what strategic opportunities there are out there. So I think really that's about all I can say as it relates to that.

Operator

Your next question comes from the line of Chris Lo [ph].

Unknown Analyst

Two questions for you. Dish Mexico, the satellite service revenues were up. They basically doubled sequentially. Can you comment on what exactly -- what the increased services were there? Were you giving them more capacity? And is that ongoing? And then second question, you contributed, I think, $35 million or $36 million of assets to the DISH Digital LLC with DISH. Can you take us through what those assets were, number one? And then, what's the kind of operating strategy of that actual business?

Michael T. Dugan

Well, the first thing is Dish Mexico is expanding their offering. They need additional transponder capacity. They're adding additional services as they try to move from being a very low cost provider to actually attack other segments of the Mexican economy, and they're continuing to utilize our broadcast centers and our satellites to do that. And that's really the reason for the uptake. So I guess there's not a whole lot more to say. And then, Dish Digital is a JV between us and DISH, we continue to focus on over-the-top content delivery because that's certainly something that's going to continue to grow in the U.S. and in fact, internationally. Our contributions were from a technology standpoint, and I think whatever is out there in the public domain should explain that. Well enough, we're looking at the opportunity at -- in that JV to attack international markets and support some of our international DBS presence with additional capabilities as the markets are ready for them. And they are certainly continuing to work very closely on what's possible in the U.S But I don't think we really have a lot more to say about that.

Unknown Analyst

Is it fair to say that it's geared more towards kind of the software or patent angle versus the hardware angle? Or is that incorrect?

Michael T. Dugan

Well, there's a lot of technology there. I mean, I think it's public knowledge that we contributed the move organization and a lot of that patent stuff, certainly, the JV has the advantage to take -- the ability to take advantage of. And I wouldn't say it's just software. A lot of very experienced resources and so on that have become part of the JV and so I think it's a development team and an understanding, a very intimate understanding of what's required to be the best provider in the business. And I'm confident that, that's going to be a great investment.

Operator

Your next question comes from the line of Eric Cole [ph].

Unknown Analyst

A 2-part question regarding the Gen4 service. If I was living in one of these rural areas in the U.S., what's going to make the service now compelling enough for me now that I'm going to subscribe versus having not had a broadband service before? And then number two, for the families, households that do subscribe, can you just explain to me which service, Power, Power PRO, Power MAX, is most appropriate for them? I'm assuming that the number of maybe simultaneous PCs you have using or trying to get access at the home might influence which of the 3 services is most appropriate.

Michael T. Dugan

Pradman, you want to try to take that?

Pradman P. Kaul

Right. Well, in terms of what is most appropriate, I think the driving factor is going to be the size of the data bucket you want. If you look at those 3 plans, each of them has a different amount of data that you can use per month. And depending on your applications and whether you're only browsing or you're doing video streaming and browsing or a lot of video streaming, you'll pick one of those 3 plans. And you obviously pay extra for the additional size of the bit bucket. The speeds -- 10 megabits for the -- down to your home for the Plan A and Plan B, and Plan C gets you to 15. But I think for most applications, 10 is pretty good. You only need 15 if you are a very, very heavy user and you do a lot of streaming et cetera. That's how I would differentiate the 2. But everybody has their own view on which plan is optimum for their use. In terms of the compelling need, clearly, everybody or most people today want to have an access to the Internet. And if you are in an unserved or underserved area your ability to get these kinds of speeds is limited. As I mentioned, we have, let me think, 14 million households that don't have the ability to get broadband kind of speeds to get access to the Internet for those kind of speeds. That becomes the compelling need why people are flocking to this kind of offering.

Unknown Analyst

And before your service, I mean how were they accessing broadband in these rural areas?

Pradman P. Kaul

These unserved areas were primarily dial-up.

Operator

Your next question comes from the line of Richard Lee [ph].

Unknown Analyst

On Echo XVI and XVIII, is that a replacement capacity? Or is there any incremental revenue opportunities there?

Michael T. Dugan

Well, I think we typically always build the next-generation spacecraft that provides higher power to the ground, with an additional spotting capability and so on. So it's a combination of in-orbit capacity and then some expansion, additional spottings, et cetera, et cetera.

Unknown Analyst

Okay. Is there...

Anders N. Johnson

Yes, so on Echo XVIII, given it will be satellite that is primarily funded by DISH, the opportunity -- the revenue opportunities will be on kind of management of the satellite build contract and on the monthly TT&C applications. Echo XVI is an EchoStar-built bird, so there would be incremental revenue opportunities on that bird.

Unknown Analyst

And are those 2 satellites replacing any existing satellites from the fleet?

Anders N. Johnson

Well, they'll be taking over parts of some of the satellite's missions when they're in orbit. But it's premature to announce exactly what they're going to be doing.

Operator

There are no further questions at this time. I'll turn the call back over to the presenters.

Michael T. Dugan

Okay. Deepak?

Deepak Dutt

Yes. So this brings us to the end of the call, since there are no more questions. Let me just thank you all for participating in today's session. Good day.

Operator

This concludes today's conference, and you may now disconnect.

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Source: EchoStar Management Discusses Q3 2012 Results - Earnings Call Transcript
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