Dish Network 2003 Annual Report Download - page 15

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10
In order to receive DISH Network programming, a subscriber needs:
• a satellite antenna, which people sometimes refer to as a “dish,” and related components;
• a “satellite receiver” or “set-top box”; and
• a television set.
EchoStar Receiver Systems. EchoStar receiver systems include a small satellite dish, a digital satellite receiver that
decrypts and decompresses signals for television viewing, a remote control, and other related components. We offer
a number of set-top box models. Our standard system comes with an infrared universal remote control, an on-screen
interactive program guide and V-chip type technology for parental control. Our premium models include a hard
disk drive enabling additional features such as digital video recording of up to 180 hours of programming, a
UHF/infrared universal remote, and an expansion port for future upgradeability. Certain of our standard and
premium systems allow independent satellite TV viewing on two separate televisions. We also offer a variety of
specialized products including HDTV receivers. Set-top boxes communicate with our authorization center through
telephone lines to, among other things, report the purchase of pay-per-view movies and other events. DISH
Network reception equipment is incompatible with competitors’ systems.
Although we internally design and engineer our receiver systems, we outsource manufacturing to high-volume
contract electronics manufacturers. Sanmina-SCI Corporation (formerly known as SCI Systems, Inc.) is the primary
manufacturer of our receiver systems. JVC also manufactures some of our receiver systems. In addition, during
2002, we signed manufacturing agreements with RCA/Thomson and Celetron USA, Inc.
Conditional Access System. We use conditional access technology to encrypt our programming so only those who
pay can receive it. We use microchips embedded in credit card-sized access cards, or “smart cards” to control
access to authorized programming content. ECC owns 50% of NagraStar LLC, a joint venture that provides us with
smart cards. Nagra USA owns the other 50% of NagraStar. NagraStar purchases these smart cards from NagraCard
SA, a Swiss company which is an affiliate of Nagra USA. These smart cards, which we can update or replace
periodically, are a key element in preserving the security of our conditional access system. When a consumer orders
a particular channel, we send a message by satellite that instructs the smart card to permit decryption of the
programming for viewing by that consumer. The set-top box then decompresses the programming and sends it to
the consumer’s television.
Theft of subscription television programming has been widely reported and our signal encryption has been pirated
and could be further compromised in the future. Theft of our programming reduces future potential revenue and
increases our net subscriber acquisition costs. In addition, theft of our competitors’ programming can also increase
our churn. Compromises of our encryption technology could also adversely affect our ability to contract for video
and audio services provided by programmers. It is illegal to create, sell or otherwise distribute mechanisms or
devices to circumvent that encryption. We continue to respond to compromises of our encryption system with
security measures intended to make signal theft of our programming more difficult. In order to combat piracy and
maintain the functionality of active set-top boxes that have been sold to subscribers, we intend to replace older
generation smart cards with newer generation smart cards in the future. However, there can be no assurance that
these security measures or any future security measures we may implement will be effective in reducing piracy of
our programming signals.
Installation. While many consumers have the skills necessary to install our equipment in their homes, we believe
that most installations are best performed by professionals, and that on time, quality installations are important to
our success. Consequently, we have expanded our installation business, which is conducted through our DISH
Network Service LLC subsidiary. We use both employees and independent contractors for professional
installations. Independent installers are held to DISH Network Service LLC service standards to attempt to ensure
each DISH Network customer receives the same quality installation and service. Our offices and independent
installers are strategically located throughout the continental United States. Although there can be no assurance, we
believe that our internal installation business helps to improve quality control, decrease wait time on service calls
and new installations and helps us better accommodate anticipated subscriber growth.