Dish Network 1999 Annual Report Download - page 30

28
Substantially all of our EchoStar Technologies Corporation, or ETC, revenues have resulted from sales to two
international DTH providers. We currently have agreements to provide equipment to DTH service operators in Spain
and Canada. As a result, our ETC business currently is economically dependent on these two DTH providers. 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. Although there can be no
assurance, we expect that our DTH equipment and integration services revenue for the year ended December 31, 2000
will approximate DTH equipment and integration services revenue during 1999. 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.
As previously reported, since 1998, Telefonica, one of the two DTH service providers described above, has
had recurrent discussions and negotiations for a possible merger with Sogecable (Canal Plus Satellite), one of its
primary competitors. While we are not currently aware of any formal negotiations between Telefonica and Canal Plus
Satellite, there are again rumors of a potential merger in the marketplace. Although we have binding purchase orders
from Telefonica for deliveries of DTH equipment in 2000, we cannot predict the impact, if any, eventual
consummation of this possible merger might have on our future sales to Telefonica.
Satellite services revenue totaled $41 million during 1999, an increase of $19 million as compared to the same
period during 1998. These revenues principally include fees charged to content providers for signal carriage and
revenues earned from business television, or BTV customers. The increase in satellite services revenue was primarily
attributable to increased BTV revenue due to the addition of new full-time BTV customers. Satellite services revenue
for the year ended December 31, 2000 is expected to increase as compared to the year ended December 31, 1999, to the
extent we are successful in increasing the number of our BTV customers and developing and implementing new
services.
In order, among other things, to prepare for a potential adverse result in our pending litigation with the four
major broadcast networks and their affiliate groups, we have sent letters to some of our subscribers warning that their
access to CBS, NBC, Fox and ABC distant network channels might be terminated this year. Such terminations would
result in a small reduction in average monthly revenue per subscriber and possibly increased subscriber turnover.
While there can be no assurance, any such decreases could be offset by increases in average monthly revenue per
subscriber resulting from the delivery of local network channels by satellite, and increases in other programming
offerings that will follow the launch of EchoStar VI during the second quarter of 2000.
DISH Network Operating Expenses. DISH Network operating expenses totaled $739 million during 1999, an
increase of $344 million or 87%, compared to the same period in 1998. The increase in DISH Network operating
expenses was consistent with, and primarily attributable to, the increase in the number of DISH Network subscribers.
DISH Network operating expenses represented 55% and 59% of subscription television services revenue during the
years ended December 31, 1999 and 1998, respectively.
Subscriber-related expenses totaled $575 million during 1999, an increase of $278 million compared to the
same period in 1998. Such expenses, which include programming expenses, copyright royalties, residuals payable
to retailers and distributors, and billing, lockbox and other variable subscriber expenses, represented 43% of
subscription television services revenues during the year ended December 31, 1999 compared to 44% during the
same period in 1998. Although we do not currently expect subscriber-related expenses as a percentage of subscription
television services revenue to increase materially in future periods, there can be no assurance this expense to revenue
ratio will not materially increase.
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 subscriber equipment
installation and other operating expenses. Customer service center and other expenses totaled $122 million during
1999, an increase of $50 million as compared to the same period in 1998. The increase in customer service center and
other expenses resulted from increased personnel and telephone expenses to support the growth of the DISH Network,
and non-cash compensation expense from significant post-grant appreciation of stock options granted to certain key
customer service center employees during 1999. Customer service center and other expenses totaled 9% of
subscription television services revenue during 1999, as compared to 11% during the same period in 1998. Customer
service center and other expenses in total, and as a percentage of subscription television services revenue, may increase