Dish Network 2002 Annual Report Download - page 32

30
Through 2002, our primary international customer was Bell ExpressVu. We currently have certain binding
purchase orders from Bell ExpressVu, and we are actively trying to secure new orders from other potential
international customers. However, we cannot guarantee at this time that those negotiations will be successful. Our
future international revenue depends largely on the success of these and other international operators, which in turn,
depends on other factors, such as the level of consumer acceptance of direct-to-home satellite TV products and the
increasing intensity of competition for international subscription television subscribers.
DISH Network Operating Expenses. “DISH Network operating expenses” totaled $2.218 billion during the
year ended December 31, 2002, an increase of $460 million or 26% compared to the same period in 2001. The increase
in “DISH Network operating expenses” was primarily attributable to the increase in the number of DISH Network
subscribers. “DISH Network operating expenses” represented 50% and 49% of “Subscription television services”
revenue during the years ended December 31, 2002 and 2001, respectively. The increase in “DISH Network operating
expenses” as a percentage of “Subscription television services” revenue primarily resulted from the expansion of our
DISH Network Service Corporation, the opening of a new call center, increased costs in order to meet the demands of
current “must carry” requirements and costs associated with offering additional markets where we carry local
channels.
“Subscriber-related expenses” totaled $1.766 billion during the year ended December, 2002, an increase of
$333 million compared to the same period in 2001. 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% of “Subscription television services” revenues during each of the years ended
December 31, 2002 and 2001. Promotions under which subscribers received free or discounted programming
increased “Subscriber-related expenses” as a percentage of “Subscription television services” revenue in 2002 as
compared to 2001. This increase was offset by a variety of factors including $1.00 price increase in February 2002,
the increased availability of local channels by satellite in 2002 and an increase in subscribers with multiple set-top
boxes.
“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 DISH Network Service Corporation business. “Customer service center and other” expenses
totaled $390 million during the year ended December 31, 2002, an increase of $105 million as compared to the same
period in 2001. “Customer service center and other” expenses totaled 9% and 8% of “Subscription television services”
revenue during the years ended December 31, 2002 and 2001, respectively. The increase in “Customer service center
and other” expenses in total and as a percentage of “Subscription television services” revenue primarily resulted from
increased personnel and telephone expenses to support the growth of the DISH Network, the opening of a new call
center, increased operating expenses related to the expansion of our DISH Network Service Corporation business,
increased competition and increased costs due to second-dish installations in order to meet the demands of “must
carry”. These expenses and percentages could temporarily increase in the future as additional infrastructure is added to
meet future growth. We intend to continue to implement the automation of simple telephone responses and to
increase Internet and satellite receiver-based customer assistance in the future in order to better manage customer
service costs.
“Satellite and transmission” expenses include expenses associated with the operation of our digital broadcast
centers and contracted satellite telemetry, tracking and control services. “Satellite and transmission” expenses totaled
$61 million during the year ended December 31, 2002, a $21 million increase compared to the same period in 2001.
The increase in “Satellite and transmission” expenses primarily resulted from increased operations at our digital
broadcast centers in order to meet the demands of current “must carry” requirements and the launch of 18 additional
local markets during the year ended December 31, 2002. “Satellite and transmission” expenses totaled 1% of
“Subscription television services” revenue during each of the years ended December 31, 2002 and 2001. “Satellite and
transmission” expenses could increase in the future as additional satellites are placed in service, additional local
markets are launched, to the extent we successfully obtain commercial in-orbit insurance and to the extent we
increase the operations at our digital broadcast centers in order, among other reasons, to meet the demands of current
“must carry” requirements.