Dish Network 2001 Annual Report Download - page 40

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Impacts from our litigation with the networks in Florida, new FCC rules governing the delivery of
superstations and other factors could cause us to terminate delivery of distant network channels and superstations to a
material portion of our subscriber base, which could cause many of those customers to cancel their subscription to our
other services. Any such terminations could result in a small reduction in average monthly revenue per subscriber and
could result in an increase in our percentage churn.
Commencing January 1, 2002, we were required to comply with the statutory requirement to carry all
qualified over the air television stations by satellite in any market where we carry any local network channels by
satellite. Any reduction in the number of markets we serve in order to comply with “must carry” requirements for other
markets would adversely affect our operations and could result in a temporary increase in churn. While we believe we
meet statutory “must carry” requirements, the FCC could interpret or implement its “must carry” rules in ways that may
require us to reduce the number of markets where we provide local service. In combination, these resulting subscriber
terminations would result in a small reduction in average monthly revenue per subscriber and could increase our
percentage churn.
For the year ended December 31, 2001, DTH equipment sales and integration services revenue totaled
$271 million, an increase of $11 million compared to the same period during 2000. DTH equipment sales consist of
sales of digital set-top boxes and other digital satellite broadcasting equipment to international DTH service operators,
sales of StarBand equipment and sales of DBS accessories, including equipment upgrades. This increase in DTH
equipment sales and integration services revenue was primarily attributable to an increase in sales of StarBand
equipment and DBS accessories. This increase was partially offset by a decrease in demand for digital set-top boxes
from our two primary international DTH customers.
A significant portion of DTH equipment sales and integration services revenues through 2001 resulted from
sales to two international DTH providers, Via Digital in Spain and Bell ExpressVu in Canada. For 2002, we have
binding purchase orders from Bell ExpressVu and we are actively trying to secure new orders from Via Digital for
delivery starting in the third quarter of 2002. However, we cannot guarantee at this time that those negotiations will be
successful. In addition, our future revenue from the sale of DTH equipment and integration services in international
markets depends largely on the success of these DTH operators and continued demand for our digital set-top boxes. As
a result of these factors, we expect total DTH equipment sales and integration services revenue to decrease in 2002
compared to 2001. Although we continue to actively pursue additional distribution and integration service
opportunities internationally, no assurance can be given that any such efforts will be successful.
DISH Network Operating Expenses. DISH Network operating expenses totaled $1.758 billion during the year
ended December 31, 2001, an increase of $493 million or 39% compared to the same period in 2000. DISH Network
operating expenses represented 49% and 54% of subscription television services revenue during the years ended
December 31, 2001 and 2000, respectively. The increase in DISH Network operating expenses in total was consistent
with, and primarily attributable to, the increase in the number of DISH Network subscribers. We expect to continue to
control costs and create operating efficiencies. While there can be no assurance, we expect operating expenses as a
percentage of subscription television services revenue to remain near current levels during 2002. If we are successful
in obtaining commercial launch and in-orbit insurance, this expense to revenue ratio could increase.
Subscriber-related expenses totaled $1.433 billion during the year ended December 31, 2001, an increase of
$463 million compared to the same period in 2000. The increase in total subscriber-related expenses is primarily
attributable to the increase in DISH Network subscribers. Such expenses, which include programming expenses,
copyright royalties, residuals currently payable to retailers and distributors, and billing, lockbox and other variable
subscriber expenses, represented 40% and 41% of subscription television services revenues during the years ended
December 31, 2001 and 2000, respectively. The decrease in subscriber-related expenses as a percentage of
subscription television services revenue primarily resulted from our programming package price increases during
2001. While there can be no assurance, we expect subscriber-related expenses as a percentage of subscription
television services revenue to remain near current levels during 2002.
Customer service center and other expenses principally consist of costs incurred in the operation of our DISH
Network customer service centers, such as personnel and telephone expenses, as well as other operating expenses
related to our service and installation business. Customer service center and other expenses totaled $285 million during
the year ended December 31, 2001, an increase of $34 million as compared to the same period in 2000. The increase in