Executive Summary

• Credit Impact: Mixed; Charlie Ergen hosted a rather short call and is continuing to keep investors guessing on the plans for his windfall of cash from spectrum sales, including a veiled threat to leave Hughes bondholders hanging out to dry. We still believe Ergen is posturing over $1.5 billion of debt, relative to $17 billion of pro forma cash, but the Hughes bonds are not for the faint of heart. Meanwhile, we think DBS should get cash to at least partially repay front-end bonds (additional cash or exchanges for the rest) and the Spectrum Notes have good carry.

• Pay-TV trends continue to reflect secular challenges, but predictable. DISH Pay-TV revenue was $2.36 billion, down 12% YoY in 4Q and below our $2.41 billion estimate. The quarter was driven by YoY subscriber losses for the satellite platform (-12%) and Sling (-6%), partially offset by a 1% increase in ARPU. Pay-TV EBITDA was $684 million, down 15% YoY and below our $715 million estimate, with operating expenses down 10% in the quarter. On the KPI side, DISH reported a net subscriber loss of 140,000 in 4Q, with 121,000 net losses for satellite (our estimate was 160,000) and 19,000 net Sling losses, better than our 71,000 estimate.

• Hughes transitioning to enterprise from consumer. The Broadband & Satellite segment, which consists largely of the Hughes service provider and Jupiter-3 satellite, reported revenue of $400 million, down 3% YoY but ahead of our $337 million expectation, primarily due to a large equipment revenue benefit this quarter (we think likely due to aircraft installation). Segment EBITDA was off only by 3% to $99 million. We note that the Hughes reporting entity includes an incremental $190 million per year in satellite lease expenses paid to the parent.