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EchoStar Stock Falls on Decline in Sub-Growth

EchoStar stock fell nearly 16% Monday on the report that the satellite provider’s subscriber gains had dropped 63% in the third quarter, with churn way up.

EchoStar, parent of the satellite service Dish Network, closed at $40.83, down 15.8%.

Earlier Monday, several analysts issued blistering reports on EchoStar’s performance, with Citigroup downgrading the stock to a “hold” from a “buy.”

EchoStar ended the third quarter with 13.7 million customers, making it the third biggest pay-TV provider.

During a third-quarter conference call Monday, EchoStar chairman and CEO Charlie Ergen blamed Dish Network’s gain of only 110,000 subscribers, down 63% from 295,000 in the year-ago period, on operational problems in the midst of a downturn in the economy, which has included an uptick in housing foreclosures.

“When things are good, we can cover up a lot of mistakes,” Ergen said. “Unfortunately, we made a few mistakes that probably got covered up by a good economy that probably hurt us this quarter because we didn’t operate efficiently.”

EchoStar’s monthly churn rate for the quarter was 1.94%, compared with 1.76% for the same period in 2006.

“I believe the majority of our churn problem this quarter is we didn’t operate efficiently,” Ergen said. “We didn’t answer our phone: That’s the kind of metrics I believe we need to do. We didn’t do our installations as well as we need to. We didn’t audit those installations …We didn’t get our marketing message out very well …Those are core blocking and tackling kind of operational issues and we have historically done a much better job than we have in the past six months on those metrics … that’s my fault.”

Ergen took responsibility for the problems, and said that he planned to take a bigger role in the company’s operations, in addition to his duties on the strategic side. He said he would like Dish Network “to manage” churn at about 1.6%.

“In hindsight, we maybe should have spent more on retention marketing,” Ergen said. “In a sense, you buy your churn rate down … but that’s against a backdrop of weakening economic conditions, and sometimes you don’t want to swim upstream.”

The CEO also fielded questions about EchoStar’s 100-plus page registration statement Nov. 6 on its proposed spin-off of its technology assets into an independent publicly traded company, EchoStar Holding Corp.

That entity, also headed by Ergen, will include EchoStar’s nine satellites, its set-top business and its new acquisition, Sling Media, which the company purchased for $380 million in September.

“With the acquisition of Sling, we get another fundamental building block for digital technology,” Ergen said.

As part of the spin-off, EchoStar also plans a $1 billion buyback of its common stock next year, according to the registration filing. And when the spin-off is complete, EchoStar Communications will change its name to Dish Network Corp.

On the third-quarter call, Ergen was asked about the prospects for Dish Network’s partnership with AT&T to provide a bundle of video, phone and Internet service. The telco has a similar pact with DirecTV, and has indicated it will pick just one of the direct-broadcast satellite providers as a partner by the end of the year.

“Obviously, we value them as a partner and they are single biggest customer,” Ergen said of AT&T. “I think the relationship is strong in that there’s good teamwork between our companies … Obviously, we’re having those discussions. We hopefully believe we’re the stronger partner for them for a variety of reasons. But they’ll have to make that decision.”

EchoStar will continue to pursue its appeal of the patent-infringement judgment that TiVo won against it, according to Ergen.

“We believe we’re right, and we don’t believe we infringed,” Ergen said. “Win or lose [the appeal] we plan to have conversation with TiVo about how we can work together.”

EchoStar’s launch of two satellites this year has been “slipped into next year,” according to Ergen. In 2008, EchoStar will roll out three birds, he added.