DIRECTV 2004 Annual Report Download - page 42

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THE DIRECTV GROUP, INC.
In addition to the changes above, beginning on January 1, 2004, we allocate pension and other postretirement benefit expenses
to our subsidiaries. Beginning in the fourth quarter of 2004, we report payments in transit drawn on bank accounts at financial
institutions where we have no cash on deposit in “Accounts Payable” instead of our previous practice of deducting these
payments in transit from “Cash and cash equivalents.” Prior period information has been reclassified to conform to the current
period presentation.
SATELLITE FLEET
Satellites. DIRECTV U.S. currently uses a fleet of six satellites to broadcast its service from its 101 WL, 110 WL and 119
WL orbital locations. DIRECTV U.S. also broadcasts from 72.5 WL under its arrangement with Telesat, Industry Canada and
the FCC. Additionally, DIRECTV U.S. broadcasts from 95 WL using transponders on a satellite it leases. Most of DIRECTV
U.S.’ programming is distributed from 101 WL.
The FCC licensed DIRECTV U.S. to operate 46 DBS frequencies at various orbital positions including 32 frequencies at the
101 WL orbital location, 11 frequencies at the 119 WL orbital location, and three frequencies at the 110 WL orbital location. In
the third quarter of 2004, DIRECTV U.S. obtained final approval from Industry Canada and the FCC to use the 72.5 WL orbital
location. As a part of DIRECTV U.S.’ arrangement with Telesat, DIRECTV U.S. transferred its DIRECTV 3 satellite, which
was previously used as an in-orbit spare, to the 82 WL orbital location for use by Telesat and relocated its DIRECTV 5 satellite
to the 72.5 WL orbital location, where it broadcasts its service using 16 frequencies.
Satellites Under Construction. DIRECTV U.S. currently has seven satellites under construction. DIRECTV 8, which is
expected to launch in the second quarter of 2005, will provide backup capacity at the 101 WL orbital location. DIRECTV 9S,
which is expected to launch in the first quarter of 2006, will provide backup capacity at the 101 WL and 119 WL orbital
locations.
In the third quarter of 2004, DIRECTV U.S. announced a plan for five new next-generation satellites. DIRECTV U.S. plans to
launch SPACEWAY 1 and SPACEWAY 2 by mid-2005, which will be used for DTH programming instead of broadband data
services as originally planned. DIRECTV U.S. also plans to launch DIRECTV 10 and DIRECTV 11 in early 2007. These four
satellites will provide DIRECTV U.S. with increased capability for local and national high-definition channels, as well as
capacity for new interactive and enhanced services and standard-definition programming. Once launched, these satellites will
operate from our Ka-band orbital locations. In addition, DIRECTV 12S is also being built and will serve as a ground spare.
RESULTS OF OPERATIONS
Executive Overview and Outlook
The following discussion relates primarily to DIRECTV U.S., which generates over 85% of our revenues and is the source of
most of our revenue growth.
Revenues. Our revenue increases over the last three years have been driven by the growing subscriber base and increasing
ARPU at DIRECTV U.S. After accounting for churn, DIRECTV U.S. added 1.8 million net new owned and operated
subscribers during 2004. DIRECTV U.S. added 1.2 million net new owned and operated subscribers in 2003 and 1.1 million net
new owned and operated subscribers in 2002. DIRECTV U.S. expects 2005 gross subscriber additions to remain relatively flat
as compared with gross subscriber additions for 2004 and churn to slightly improve in 2005 as compared to 2004. As a result,
DIRECTV U.S. expects lower net subscriber additions in 2005 as compared to 2004. The slight improvement in churn is
expected to result from upgrade and retention initiatives in 2005 and prior periods and the benefits DIRECTV U.S. expects to
receive as a result of its acquisition of the NRTC distribution rights, which will allow DIRECTV U.S. to more effectively
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