Dish Network 2001 Annual Report Download - page 81

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–16
Effective September 27, 2001, in connection with EchoStar’s increased equity interest in StarBand, EchoStar
began subsidizing the cost of equipment to the subscriber by offering discounted equipment through its independent
dealers. As such, beginning September 27, 2001, EchoStar accounts for the sale of StarBand equipment similar to the
accounting for its DISH Network One-Rate Plan, Bounty Programs, and Free Now promotion, as discussed in
subscriber promotion subsidies below.
EchoStar offers a bundled price of $100.99 for EchoStar’s America’s Top 150 (“AT 150”) programming and
the Starband Internet service. For StarBand customers activated prior to September 27, 2001, in accordance with EITF
Issue No. 99-19, EchoStar recognizes $35.99 for the video portion of the revenue and records a liability to Starband for
the $65.00 related to the Internet service. The $10.00 discount from the total standard price of EchoStar’s AT 150
($40.99/mo.) and the Starband Internet service ($70.00/mo.) is shared 50/50 between EchoStar and Starband. In the
event EchoStar does not collect the monthly programming and Internet payments from a subscriber, EchoStar is not
obligated to remit payment to Starband for Internet services rendered to the subscriber.
For StarBand customers activated after September 27, 2001, as a retailer of the StarBand service, EchoStar
recognizes the entire $100.99 of revenue for the video and Internet service and records costs equal to the monthly
payment made by EchoStar to Starband for providing the service. In the event EchoStar does not collect the monthly
programming and Internet payments from a subscriber, EchoStar is still obligated to remit payment to Starband for the
cost of providing the Internet service to the customer.
Subscriber Promotion Subsidies and Subscriber Acquisition Costs
Subscriber promotion subsidies – cost of sales includes the cost of Echostar receiver systems distributed to
retailers and other distributors of EchoStar’s equipment and receiver systems sold directly by EchoStar to subscribers.
Subscriber promotion subsidies – other includes net costs related to various installation promotions and other
promotional incentives. EchoStar makes payments to its independent dealers as consideration for equipment
installation services and for equipment buydowns (commissions and rebates). EchoStar expenses payments for
equipment installation services as Subscriber promotion subsidies – other. EchoStar’s payments for equipment
buydowns represent a partial or complete return of the dealer’s purchase price and are, therefore, netted against the
proceeds received from the dealer. EchoStar reports the net proceeds or cost from its various sales promotions through
its independent dealer network as a component of Subscriber promotion subsidies – other. No net proceeds or cost
from the sale of subscriber related equipment is recognized as revenue. Accordingly, subscriber acquisition costs are
generally expensed as incurred except for under EchoStar’s Digital Home Plan which was initiated during 2000
wherein the Company retains title to the receiver system and certain ancillary equipment resulting in the capitalization
and depreciation of such equipment cost over its estimated useful life.
Deferred Debt Issuance Costs and Debt Discount
Costs of issuing debt are generally deferred and amortized to interest expense over the terms of the respective
notes (see Note 4).
Deferred Revenue
Deferred revenue principally consists of prepayments received from subscribers for DISH Network
programming. Such amounts are recognized as revenue in the period the programming is provided to the subscriber.