Dish Network 1998 Annual Report Download - page 54

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F–7
1. Organization and Business Activities
Principal Business
The operations of EchoStar Communications Corporation (“ECC,” and together with its subsidiaries, or referring to particular
subsidiaries in certain circumstances, “EchoStar” or the “Company”) include three interrelated business units:
• The DISH Network – a direct broadcast satellite (“DBS”) subscription television service in the United
States. As of December 31, 1998, EchoStar had approximately 1.9 million DISH Network subscribers.
• EchoStar Technologies Corporation (“ETC”) – engaged in the design, distribution and sale of DBS
set-top boxes, antennae and other digital equipment for the DISH Network (“EchoStar receiver
systems”), and the design and distribution of similar equipment for direct-to-home (“DTH”) projects of
others internationally, together with the provision of uplink center design, construction oversight and
other project integration services for international direct-to-home ventures.
• Satellite Services – engaged in the delivery of video, audio and data services to business television
customers and other satellite users. These services may include satellite uplink services, satellite
transponder space usage, billing, customer service and other services.
Since 1994, EchoStar has deployed substantial resources to develop the “EchoStar DBS System.” The
EchoStar DBS System consists of EchoStar’s FCC-allocated DBS spectrum, DBS satellites (“EchoStar I,”
“EchoStar II,” “EchoStar III,” and “EchoStar IV”), digital satellite receivers, digital broadcast operations center,
customer service facilities, and other assets utilized in its operations. EchoStar’s principal business strategy is to
continue developing its subscription television service in the United States to provide consumers with a fully
competitive alternative to cable television service.
Agreement with News Corporation Limited and MCI Telecommunications Corporation/WorldCom
On November 30, 1998, EchoStar announced an agreement with MCI Telecommunications
Corporation/WorldCom (“MCI”), The News Corporation Limited (“News Corporation”) and its American Sky
Broadcasting, LLC subsidiary, pursuant to which EchoStar would acquire or receive:
• the rights to 28 frequencies at the 110° West Longitude (“WL”) orbital location from which EchoStar
could transmit programming to the entire continental United States;
• two DBS satellites constructed by Space Systems/Loral, delivered in-orbit and currently expected to be
launched during 1999;
• a recently-constructed digital broadcast operations center located in Gilbert, Arizona;
• a worldwide license agreement to manufacture and distribute set-top boxes internationally using News
Data System, Limited’s encryption/decoding technology;
• a commitment by an affiliated entity of News Corporation to purchase from ETC a minimum of
500,000 set-top boxes; and
• a three-year, no fee agreement for the DISH Network to rebroadcast FOX Broadcasting Company
owned-and-operated local station signals to their respective markets.
EchoStar will not incur any costs associated with the construction, launch or insurance (including launch
insurance and one year of in-orbit insurance) of the two DBS satellites. EchoStar and MCI also agreed that MCI
will have the non-exclusive right to bundle DISH Network service with MCI’s telephony service offerings on
mutually agreeable terms. In addition, EchoStar agreed to carry the FOX News Channel on the DISH Network.
EchoStar received standard program launch support payments in exchange for carrying the programming.
By combining the capacity of the two newly acquired satellites at the 110° WL orbital slot and EchoStar’s
current satellites at the 119° WL orbital slot (subject to FCC approval), EchoStar expects that the DISH Network
will have the capacity to provide more than 500 channels of programming, Internet and high-speed data services and