10-K 1 form10k.htm DISH NETWORK 10-K 12-31-2007 form10k.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

Form 10-K

(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO ________________.

Commission file number: 0-26176

DISH Network Corporation
(Exact name of registrant as specified in its charter)

 
Nevada
 
88-0336997
 
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S.  Employer Identification No.)
 
         
 
9601 South Meridian Boulevard
     
 
Englewood, Colorado
 
80112
 
 
(Address of principal executive offices)
 
(Zip Code)
 

Registrant’s telephone number, including area code: (303) 723-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
 
Name of Exchange on Which Registered
Class A common stock, $0.01 par value
 
The Nasdaq Stock Market LLC

    Securities registered pursuant to Section 12(g) of the Act:     None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨ No x
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x          Accelerated filer ¨            Non-accelerated filer ¨         Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes ¨ No x

As of June 29, 2007, the aggregate market value of Class A common stock held by non-affiliates of the Registrant was $8.8 billion based upon the closing price of the Class A common stock as reported on the Nasdaq Global Select Market as of the close of business on that date.

As of February 19, 2008, the Registrant’s outstanding common stock consisted of 210,137,548 shares of Class A common stock and 238,435,208 shares of Class B common stock, each $0.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated into this Form 10-K by reference:

Portions of the Registrant’s definitive Proxy Statement to be filed in connection with its 2008 Annual Meeting of Shareholders are incorporated by reference in Part III.
 


 
 

 

TABLE OF CONTENTS


PART I
Disclosure regarding forward-looking statements
i
Item 1.
1
Item 1A.
19
Item 1B.
30
Item 2.
31
Item 3.
32
Item 4.
36
   
 
PART II
     
Item 5.
36
Item 6.
37
Item 7.
39
Item 7A.
65
Item 8.
67
Item 9.
67
Item 9A.
67
Item 9B.
68
   
 
     
PART III
     
Item 10.
70
Item 11.
70
Item 12.
70
Item 13.
70
Item 14.
70
     
PART IV
   
 
Item 15.
70
   
 
 
76
 
F-1


DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

We make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 throughout this report.  Whenever you read a statement that is not simply a statement of historical fact (such as when we describe what we “believe,” “intend,” “plan,” “estimate,” “expect” or “anticipate” will occur and other similar statements), you must remember that our expectations may not be correct, even though we believe they are reasonable.  We do not guarantee that any future transactions or events described herein will happen as described or that they will happen at all.  You should read this report completely and with the understanding that actual future results may be materially different from what we expect.  Whether actual events or results will conform to our expectations and predictions is subject to a number of risks and uncertainties.  For further discussion see Item 1A.  Risk Factors.  The risks and uncertainties include, but are not limited to, the following:
 
 
·
we face intense and increasing competition from satellite and cable television providers as well as new competitors, including telephone companies; our competitors are increasingly offering video service bundled with 2-way high-speed Internet access and telephone services that consumers may find attractive and which are likely to further increase competition.  We also expect to face increasing competition from content and other providers who distribute video services directly to consumers over the Internet;
 
 
·
as technology changes, and in order to remain competitive, we will have to upgrade or replace some, or all, subscriber equipment periodically and make substantial investments in our infrastructure.  For example, the increase in demand for high definition (“HD”) programming requires not only upgrades to customer premises equipment but also substantial increases in satellite capacity.  We may not be able to pass on to our customers the entire cost of these upgrades and there can be no assurance that we will be able to effectively compete with the HD programming offerings of our competitors;
 
 
·
we rely on EchoStar Corporation (“EchoStar”), which was owned by us prior to its separation from DISH Network (the “Spin-off”) described in this Annual Report, to design and develop set-top boxes and other digital equipment for us.  Equipment costs may increase beyond our current expectations; we may be unable to renew agreements on acceptable terms or at all; EchoStar’s inability to develop and produce or our inability to obtain equipment with the latest technology could affect our subscriber acquisition and churn and cause related revenue to decline;
 
 
·
DISH Network® subscriber growth may decrease and subscriber turnover may increase, which may occur for a variety of factors, including some, such as worsening economic conditions, that are outside of our control and others, such as our own operational inefficiencies, customer satisfaction with our products and services including our customer service performance, and our spending on promotional packages for new and existing subscribers, that will require us to invest in additional resources in order to overcome;
 
 
·
subscriber acquisition costs may increase and the competitive environment may require us to increase promotional spending or accept lower subscriber acquisitions and higher subscriber churn; we may also have difficulty controlling other costs of continuing to maintain and grow our subscriber base;
 
 
·
satellite programming signals are subject to theft; and we are vulnerable to subscriber fraud; theft of service will continue and could increase in the future, causing us to lose subscribers and revenue, and also resulting in higher costs to us;

 
·
we depend on others to produce programming; programming costs may increase beyond our current expectations; we may be unable to obtain or renew programming agreements on acceptable terms or at all; existing programming agreements could be subject to cancellation; we may be denied access to sports programming; foreign programming is increasingly offered on other platforms; our inability to obtain or renew attractive programming could cause our subscriber additions and related revenue to decline and could cause our subscriber turnover to increase;
 
 
·
Current dislocations in the credit markets, which have significantly impacted the availability and pricing of financing, particularly in the high yield debt and leveraged credit markets, may significantly constrain our ability to obtain financing to support our growth initiatives.  Such financing may not be available on terms that would be attractive to us or at all;
 
 
·
we depend on Federal Communications Commission (“FCC”) program access rules and the Telecommunications Act of 1996 as Amended to secure nondiscriminatory access to programming produced by others, neither of which assure that we have fair access to all programming that we need to remain competitive;
 
 
 
·
our industry is heavily regulated by the FCC.  Those regulations could become more burdensome at any time, causing us to expend additional resources on compliance;
 
 
·
if we are unsuccessful in subsequent appeals in the Tivo case or in defending against claims that our alternate technology infringes Tivo’s patent, we could be prohibited from distributing DVRs or be required to modify or eliminate certain user-friendly DVR features that we currently offer to consumers.  The adverse affect on our business could be material.  We could also have to pay substantial additional damages.
 
 
·
if our EchoStar X satellite experienced a significant failure, we could lose the ability to deliver local network channels in many markets; if either of our EchoStar VII or the EchoStar VIII satellite experienced a significant failure, we could lose the ability to provide certain programming to the continental United States;
 
 
·
our satellite launches may be delayed or fail, or our owned or leased satellites may fail in orbit prior to the end of their scheduled lives causing extended interruptions of some of the channels we offer;
 
 
·
we currently do not have commercial insurance covering losses incurred from the failure of satellite launches and/or in-orbit satellites we own or lease from EchoStar;
 
 
·
service interruptions arising from technical anomalies on satellites or on-ground components of our direct broadcast satellite system, or caused by war, terrorist activities or natural disasters, may cause customer cancellations or otherwise harm our business;
 
 
·
we depend heavily on complex information technologies; weaknesses in our information technology systems could have an adverse impact on our business; we may have difficulty attracting and retaining qualified personnel to maintain our information technology infrastructure;
 
 
·
we may face actual or perceived conflicts of interest with EchoStar in a number of areas relating to our past and ongoing relationships, including:  (i) cross officerships, directorships and stock ownership, (ii) intercompany transactions, and (iii) intercompany agreements, including those that were entered into in connection with the Spin-Off and (iv) future business opportunities;
 
 
·
we rely on key personnel including Charles W. Ergen, our chairman and chief executive officer, and other executives, certain of whom will for some period also have responsibilities with EchoStar through their positions at EchoStar or our management services agreement with EchoStar;
 
 
·
we may be unable to obtain needed retransmission consents, FCC authorizations or export licenses, and we may lose our current or future authorizations;
 
 
·
we are party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business;
 
 
·
we may be unable to obtain patent licenses from holders of intellectual property or redesign our products to avoid patent infringement;
 
 
·
we depend on telecommunications providers, independent retailers and others to solicit orders for DISH Network services.  Certain of these resellers account for a significant percentage of our total new subscriber acquisitions.  A number of these resellers are not exclusive to us and also offer competitors’ products and services.  Loss of one or more of these relationships could have an adverse effect on our net new subscriber additions and certain of our other key operating metrics because we may not be able to develop comparable alternative distribution channels;
 
 
·
we are highly leveraged and subject to numerous constraints on our ability to raise additional debt;
 
 
·
we may pursue acquisitions, business combinations, strategic partnerships, divestitures and other significant transactions that involve uncertainties; these transactions may require us to raise additional capital, which may not be available on acceptable terms.  These transactions, which could become substantial over time, involve a high degree of risk and could expose us to significant financial losses if the underlying ventures are not successful;
 
 
·
weakness in the global or U.S. economy may harm our business generally, and adverse political or economic developments, including increased mortgage defaults as a result of subprime lending practices and increasing oil prices, may impact some of our markets;
 

 
·
we periodically evaluate and test our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act.  Although our management concluded that our internal control over financial reporting was effective as of December 31, 2007, and while no change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, if in the future we are unable to report that our internal control over financial reporting is effective (or if our auditors do not agree with our assessment of the effectiveness of, or are unable to express an opinion on, our internal control over financial reporting), we could lose investor confidence in our financial reports, which could have a material adverse effect on our stock price and our business; and
 
 
·
we may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission (“SEC”).
 
All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear.  In this connection, investors should consider the risks described herein and should not place undue reliance on any forward-looking statements.  We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in other reports we file with the SEC.
 
In this report, the words “DISH Network,” the “Company,” “we,” “our” and “us” refer to DISH Network Corporation and its subsidiaries, unless the context otherwise requires.  “EchoStar” refers to EchoStar Corporation and its subsidiaries.  “EDBS” refers to EchoStar DBS Corporation and its subsidiaries.


PART I

Item 1.
BUSINESS

OVERVIEW

Our Business

DISH Network Corporation, formerly known as EchoStar Communications Corporation, is a leading provider of satellite delivered digital television to customers across the United States.  DISH Network services include hundreds of video, audio and data channels, interactive television channels, digital video recording, high definition television, international programming, professional installation and 24-hour customer service.

We started offering subscription television services on the DISH Network in March 1996.  As of December 31, 2007, we had approximately 13.780 million subscribers.  Our satellite fleet enables us to offer over 2,700 video and audio channels to consumers across the United States.  Since we use many of these channels for local programming, no particular consumer could subscribe to all channels, but all are available using small consumer satellite antennae, or dishes.  We promote the DISH Network programming packages as providing our subscribers with a better “price-to-value” relationship than those available from other subscription television providers.  We believe that there continues to be unsatisfied demand for high quality, reasonably priced television programming services.

Our principal business strategy is to continue developing our subscription television service in the United States to provide consumers with a fully competitive alternative to others in the pay TV industry.

On January 1, 2008, we completed the Spin-off of our technology and certain infrastructure assets into a separate publicly-traded company, EchoStar Corporation, formerly known as EchoStar Holding Corporation, which was incorporated in Nevada on October 12, 2007.  DISH Network and EchoStar now operate as separate publicly-traded companies, and neither entity has any ownership interest in the other.

In connection with the Spin-off, each of our shareholders received for each share of common stock held, 0.20 of a share of the same class of common stock of EchoStar.  Also, in connection with the separation, DISH Network contributed $1.0 billion in cash to EchoStar.  EchoStar’s Class A shares began trading on the Nasdaq Global Select Market on January 2, 2008, under the symbol “SATS.”

Reasons for the Spin-off

Our board of directors regularly reviews our operations to ensure our resources are being put to use in a manner that is in the best interests of DISH Network and its shareholders.  As a result of this ongoing evaluation, our board of directors authorized the Spin-off.  When doing so, our board considered a number of benefits as well as a number of costs and risks associated with the Spin-off.  Among the significant benefits identified by our board of directors were the ability to create more effective management incentives and enhance the recruitment and retention of key personnel, the creation of opportunities for expansion, creating separate companies that appeal to different investor bases and allowing the separate companies to pursue separate business strategies, and allowing each company to pursue the business strategies that best suit their respective long-term interests.  The risks identified and evaluated included the potential impact on credit ratings, the potential for disruptions and loss of synergies, the risk that the Spin-off could result in lower combined trading prices of the two companies and the risk that additional conflicts of interest may arise between the two companies.

Other Information

We were organized in 1995 as a corporation under the laws of the State of Nevada.  Our common stock is publicly traded on the Nasdaq Global Select Market under the symbol “DISH.”  Our principal executive offices are located at 9601 South Meridian Boulevard, Englewood, Colorado 80112 and our telephone number is (303) 723-1000.
 

DISH NETWORK

Programming

Basic Programming Packages.  We use a “value-based” strategy in structuring the content and pricing of programming packages available from the DISH Network.  For example, we currently offer our “America’s Top 100” (“AT100”) package for $32.99 per month.  This package includes over 100 of our most popular digital video and audio channels.  We estimate that cable operators would typically charge over $50.00 per month, on average, for comparable basic service.

Our “America’s Top 200” (“AT200”) package, which we currently offer for $44.99 per month, is similar to an expanded basic cable package, and includes over 200 of our most popular digital video and audio channels, including Sirius Music Channels.  We estimate that cable operators would typically charge over $60.00 per month, on average, for a similar package.  In addition, most of our customers are eligible for a $49.99 per month package that includes AT200, local channels and a digital video recorder (“DVR”).  We estimate that cable operators would typically charge over $70.00 per month, on average, for a similar package.

Our “America’s Top 250” (“AT250”) package, which we currently offer for $54.99 per month, includes over 250 digital video and audio channels, and our “America’s Everything Pak,” which combines our AT250 package and more than 30 commercial-free premium movie channels including HBO, Cinemax, Showtime and Starz, is currently offered for $94.98 per month.

We offer satellite-delivered local broadcast channels for an additional $5.00 per month, when combined with qualifed programming, in over 175 markets in the United States, representing over 97% of all of U.S. television households.  Cable operators typically include local channels in their programming packages at no additional cost.

Movie Packages.  We offer HBO, Cinemax, Showtime, Starz and other premium movie packages starting at $12.99 per month and including as many as 10 channels.  We believe many of our movie packages are a better value than similar packages offered by most other multi-channel video providers.

High Definition Programming Packages.  DISH Network continues to be an industry leader in HD programming distribution offering over 50 channels.  Customers who subscribe to HBO, Showtime and Starz also receive an HD feed of those channels at no additional cost.  In addition, we offer a standalone HD programming package which includes all of our available HD channels.  Similarly, customers who subscribe to standard definition local channels also receive HD local channels, where available.  HD local channels are currently available to more than 50 percent of U.S. households and we expect to offer HD local channels to more than 80 percent of U.S. households by the end of 2008.

DISH Latino Programming Packages.  We offer a variety of Spanish-language programming packages.  Our “DISH Latino” package includes more than 35 Spanish-language programming channels for $27.99 per month.  We also offer “DISH Latino Dos,” which includes over 195 English and Spanish-language programming channels for $39.99 per month.  Our “DISH Latino Max” package includes more than 220 Spanish and English-language channels for $49.99 per month.  Additionally, subscribers may add more than 35 Spanish-language programming channels to any of our AT100, AT200 and AT250 packages for an additional $13.99 per month.

Family-Friendly Programming Package.  Our DishFAMILY package offers over 40 “family-friendly” channels including sports, news, children’s programming, lifestyle, hobbies, shopping and public interest for $19.99 per month, or $24.99 including local channels.  Comparatively, the family tier package offered by most other pay TV providers is more than $30 per month.

International Programming.  We offer over 140 foreign-language channels including Arabic, Portuguese, Hindi, Russian, Chinese, Greek and many others.  DISH Network remains the leader in delivering foreign-language programming to customers in the United States, and our foreign-language programming contributes significantly to our subscriber growth.  Foreign-language programming is a valuable niche product that attracts new subscribers to DISH Network who are unable to get similar programming elsewhere, and while this niche is becoming more competitive, we will continue to explore opportunities to add foreign-language programming.


DISH DVR Advantage.  We offer a number of packages that bundle programming with a DVR at a ten to twelve percent savings per month compared to the price a customer would pay if they subscribe to the components individually.

Sales, Marketing and Distribution

Sales Channels.  While we offer receiver systems and programming directly, a majority of our new subscriber acquisitions are generated by independent businesses offering our products and services, including small satellite retailers, direct marketing groups, local and regional consumer electronics stores, nationwide retailers, telecommunications providers and others.

We generally pay these independent businesses an incentive upon activation of each new subscriber they acquire for us.  We also typically pay them a small monthly incentive for up to 60 months provided the customer continuously subscribes to our programming and the retailer achieves required minimum subscriber acquisition goals.

Marketing.  We use print, radio and television, on a local and national basis, to advertise and promote the DISH Network.  We also offer point-of-sale literature, product displays, demonstration kiosks and signage for retail outlets.  We provide guides that describe DISH Network products and services to our retailers and distributors and conduct periodic educational seminars.  Our mobile sales and marketing team visits retail outlets regularly to reinforce training and ensure that these outlets have proper point-of-sale materials for our current promotions.  Additionally, we dedicate a DISH Network television channel and websites to provide retailers and customers with information about special services and promotions that we offer from time to time.

Subscriber Acquisition Strategy.  Our future success in the subscription television industry depends on, among other factors, our ability to acquire and retain DISH Network subscribers.  We provide varying levels of subsidies and incentives to attract and retain customers, including leased, free or subsidized receiver systems, installations, programming and other items.  This marketing strategy emphasizes our long-term business strategy of maximizing future revenue by increasing our subscriber base.  Since we subsidize consumer up-front costs, we incur significant costs each time we acquire a new subscriber.  Although there can be no assurance, we believe that, on average, we will be able to fully recoup the up-front costs of subscriber acquisition from future subscription television services revenue.

DISH Network subscribers have the choice of purchasing or leasing the satellite receiver and other equipment necessary to receive our programming.  As a result of our promotions, most of our new subscribers choose to lease their equipment, including receiver models that provide HD, DVR, HD DVR and other advanced capabilities for multiple rooms.  Many of these lease programs require the consumer to commit to continue to subscribe to a qualifying programming package for 24 months.  Subscribers in our lease programs are required to return the receivers and certain other equipment to us or be charged for the equipment if they terminate service.  To the extent we successfully retrieve and cost-effectively recondition and redeploy leased equipment from subscribers who terminate service, we are able to reduce the cost of future new subscriber acquisition.  However, these cost savings are limited as technological advances and consumer demand for new features result in the need to replace older equipment for customers over time.

We base our marketing promotions on, among other things, current competitive conditions.  In some cases, if competition increases, or we determine for any other reason that it is necessary to increase our subscriber acquisition costs to attract new customers, our profitability and costs of operation would be adversely affected.

Bundling Alliances

AT&T Inc. (“AT&T”) and other telecommunications providers offer DISH Network programming bundled with broadband, telephony and other services.  While these providers in the aggregate currently account for less than 25% of our gross subscriber additions, the loss of certain of these relationships could have an adverse effect on our new subscriber additions to the extent other distribution channels could not be developed in those markets.  Our net new subscriber additions and certain of our other key operating metrics could be adversely affected if AT&T or other telecommunication providers de-emphasize or discontinue selling our services and we are not able to develop comparable alternative distribution channels.  In addition, AT&T recently announced that they would offer DISH Network programming bundled with broadband, telephony and other services in the former BellSouth territory.  We expect that this expanded offering of DISH Network programming by AT&T will increase the number of gross subscriber additions that are attributable to our relationship with AT&T.


Components of a DBS System

Overview.  In order to provide programming services to DISH Network subscribers, we have entered into agreements with video, audio and data programmers who generally make their programming content available to our digital broadcast operations centers via commercial satellites or fiber optic networks.  We monitor those signals for quality, and can add promotional messages, public service programming, advertising, and other information.  Equipment at our digital broadcast operations centers then digitizes, compresses, encrypts and combines the signal with other necessary data, such as conditional access information.  We then “uplink” or transmit the signals to one or more of our satellites and broadcast directly to DISH Network subscribers.

In order to receive DISH Network programming, a subscriber needs:

 
a satellite antenna, which people sometimes refer to as a “dish,” and related components;
 
a satellite “receiver” or “set-top box”; and
 
a television.

Receiver Systems.  Our receiver systems include a small satellite dish, a digital satellite receiver that decrypts and decompresses signals for television viewing, a remote control and other related components.  We offer a number of receiver models.  Our standard system comes with an infrared universal remote control, an on-screen interactive program guide and V-chip type technology for parental control.  Our advanced models include a hard disk drive enabling additional features such as digital video recording of up to 350 hours of standard definition programming and up to 55 hours of high definition entertainment and the flexibility to further increase storage capacity by attaching an external hard drive.  Certain of our standard and premium systems allow independent satellite TV viewing on two separate televisions and include UHF universal remotes, allowing control through walls when the satellite receiver and TV are not located in the same room.  We also offer a variety of specialized products including HD receivers.  Receivers communicate with our authorization center through telephone lines to, among other things, report the purchase of pay-per-view movies and other events.

Although, historically, we have internally designed and engineered our receiver systems, we have out-sourced manufacturing to high-volume contract electronics manufacturers.  As a result of the Spin-off, we will rely on EchoStar to design, manufacture and engineer our receivers.  We intend to procure all of our receiver systems (other than refurbished or remanufactured systems) from EchoStar for the foreseeable future.  The loss of EchoStar as a supplier of receivers to us would materially impact our business because it would be difficult for us to transition to another maker of receivers without incurring substantial costs.

Conditional Access System.  Conditional access technology allows us to encrypt our programming so only those who pay can receive it.  We use microchips embedded in credit card-sized access cards, called “smart cards,” or in security chips in the satellite receiver, together referred to as “security access devices,” to limit access to authorized programming content.  When a consumer orders a particular channel, we send a message by satellite that instructs the security access devices to permit decryption of the programming for viewing by that consumer.  The receiver then decompresses the programming and sends it to the consumer’s television.  These security access devices, certain aspects of which we can upgrade over the air or replace periodically, are a key element in preserving the security of our conditional access system.

Increases in theft of our signal, or our competitors’ signals, could limit our subscriber growth and cause subscriber churn to increase.  Our signal encryption has been compromised by theft of service, and even though we continue to respond to compromises of our encryption system with security measures intended to make signal theft of our programming more difficult, theft of our signal is increasing.  We cannot assure you that we will be successful in reducing or controlling theft of our service.


During 2005, we replaced our smart cards in order to reduce theft of our service.  However, the smart card replacement did not fully secure our system, and we have since implemented software patches and other security measures to help protect our service.  Nevertheless, these security measures are short-term fixes and we remain susceptible to additional signal theft.  Therefore, we have developed a plan to replace our existing smart cards and/or security chips to re-secure our signals for a longer term which will be implemented later this year.  The project is expected to take approximately nine to twelve months to complete.  While our existing smart cards installed in 2005 remain under warranty, we could incur operational costs in excess of $50 million in connection with our smart card replacement program.

We are also vulnerable to fraud, particularly in the acquisition of new subscribers.  While we are addressing the impact of subscriber fraud through a number of actions, including eliminating certain payment options for subscribers, such as the use of pre-paid debit cards, there can be no assurance that we will not continue to experience fraud which could impact our subscriber growth and churn.

Installation.  While some consumers have the skills necessary to install our equipment in their homes, we believe that most installations are best performed by professionals, and that on time, quality installations are important to our success.  Consequently, we are continuing to expand our installation business.  We use both employees and independent contractors for professional installations.  Independent installers are held to our service standards to attempt to ensure each DISH Network customer receives the same quality installation and service.  Our offices and independent installers are strategically located throughout the continental United States.  Although there can be no assurance, we believe that our internal installation business helps to improve quality control, decrease wait time on service calls and new installations and helps us better accommodate anticipated subscriber growth.

Digital Broadcast Operations Centers.  The principal digital broadcast operations centers we use are EchoStar’s facilities located in Cheyenne, Wyoming and Gilbert, Arizona.  We also use five regional digital broadcast operations centers owned and operated by EchoStar that allow us to utilize the spot beam capabilities of our owned or leased satellites.  Programming and other data is received at these centers by fiber or satellite, processed, and then uplinked to satellites for transmission to consumers.  Equipment at the digital broadcast operations centers performs substantially all compression and encryption of DISH Network’s programming signals.

In connection with the Spin-off we entered into a broadcast agreement with EchoStar pursuant to which EchoStar provides broadcast services including teleport services such as transmission and downlinking, channel origination services, and channel management services to us thereby enabling us to deliver satellite television programming to subscribers.  The broadcast agreement has a term of two years; however, we have the right, but not the obligation, to extend the agreement annually for successive one-year periods for up to two additional years.  We may terminate channel origination services and channel management services for any reason and without any liability upon sixty days written notice to us.  However, if we terminate teleport services for a reason other than EchoStar’s breach, we will need to pay EchoStar a sum equal to the aggregate amount of the remainder of the expected cost of providing the teleport service.  The fees for the services provided under the broadcast agreement are cost plus an additional amount that is equal to an agreed percentage of EchoStar’s cost, which will vary depending on the nature of the services provided.

Customer Service Centers.  We currently operate eleven owned and several out-sourced customer service centers fielding most of our customer service calls.  Potential and existing subscribers can call a single telephone number to receive assistance for sales, hardware, programming, billing, installation and technical support.  We continue to work to automate simple phone responses and to increase Internet-based customer assistance in order to better manage customer service costs and improve the customer’s self-service experience.

Subscriber Management.  We presently use, and are dependent on, CSG Systems International, Inc.’s software system for the majority of DISH Network subscriber billing and related functions.


NEW BUSINESS OPPORTUNITIES

Acquisition of Spectrum for New Services

The FCC announced on January 14, 2008 that we were qualified to participate in the FCC auction of the 700 MHz band.  The 700 MHz spectrum is being returned by television broadcasters as they move to digital from analog signals in early 2009.  The spectrum has significant commercial value because 700 MHz signals can travel long distances and penetrate thick walls.  Under the FCC’s anti-collusion and anonymous bidding rules for this auction, we are not permitted to disclose publicly our interest level or activity level in the auction, if any, at this time.  Based on published reports, however, we believe that any successful bidders will be required to expend significant amounts to secure and commercialize these licenses.  In particular if we were to participate and be successful in this auction we could be required to raise additional capital in order to secure and commercialize these licenses, which may not be available to us on attractive terms in the current credit market environment.  Moreover, there can be no assurance that successful bidders will be able to achieve a return on their investments in the 700MHz spectrum or to raise all the capital required to develop these licenses.

OUR SATELLITES

Our DISH Network satellite television programming is currently transmitted to our customers over satellites that operate in the “Ku” band portion of the microwave radio spectrum.  The Ku-band is divided into two spectrum segments.  The high power portion of the Ku-band  12.2 to 12.7 GHz  is known as the Broadcast Satellite Service (“BSS”) band, which is also referred to as the Direct Broadcast Satellite (“DBS”) band.  The low and medium power portion of the Ku-band  11.7 to 12.2 GHz  is known as the Fixed Satellite Service (“FSS”) band.

Most of our direct-to-home (“DTH”) programming is currently delivered using DBS satellites.  We continue to explore opportunities to expand our available DTH satellite capacity through the use of other available spectrum.  Increasing our available spectrum for DTH applications is particularly important as more bandwidth intensive HD programming is produced and in order to address new video and data applications consumers may desire in the future.

Overview of Satellite Fleet Following the Spin-off

Prior to the Spin-off, we operated 14 satellites in geostationary orbit approximately 22,300 miles above the equator.  Of these 14 satellites, 11 were owned and three were leased.  The satellite fleet is a major component of our DISH Network DBS System.  As reflected in the table below, as of January 1, 2008, we transferred six owned and two leased satellites to EchoStar in connection with the Spin-off.


               
Degree
 
Useful
 
           
Launch
 
Orbital
 
Life/
 
Satellites
 
Retained
 
Transferred (1)
 
Date
 
Location
 
Lease Term
 
Owned:
 
 
                 
EchoStarI
 
X
     
December 1995
 
148
 
12
 
EchoStarII
 
X
 
 
 
September 1996
 
148
 
 12
 
EchoStar III (2)
     
X
 
October 1997
 
61.5
 
12
 
EchoStar IV
     
X
 
May 1998
 
77
 
N/A
 
EchoStar V
 
X
     
September 1999
 
129
 
9
 
EchoStar VI (2)
     
X
 
July 2000
 
 110
 
12
 
EchoStar VII
 
X
     
February 2002
 
119
 
12
 
EchoStar VIII(2)
     
X
 
August 2002
 
110
 
12
 
EchoStar IX (2)
     
X
 
August 2003
 
121
 
12
 
EchoStar X
 
X
     
February 2006
 
110
 
12
 
EchoStar XII (2)
     
X
 
 July 2003
 
61.5
 
10
 
               
 
 
 
 
Leased:
                 
 
 
AMC-15 (2)
     
X
 
December 2004
 
105
 
10
 
AMC-16
     
X
 
January 2005
 
85
 
10
 
Anik F3
 
X
 
 
 
April 2007
 
118.7
 
15
 
                       
Under Construction:
                     
EchoStar XI
 
X
     
Mid-Year 2008
         
EchoStar XIV
 
X
     
Late 2009
         
CMBStar
 
 
 
X
 
Late 2008
         
AMC-14
     
X
 
March 2008
         
Ciel 2
 
X
     
Late 2008
         

(1)
As of January 1, 2008, these satellites were transferred to EchoStar in connection with the Spin-off.
(2)
After the Spin-off, DISH Network entered into satellite capacity agreements with EchoStar to lease satellite capacity on EchoStar III, EchoStar VI, EchoStar VIII, EchoStar IX, EchoStar XII and AMC-15.

Satellite Capacity Lease Agreements

In addition to our owned satellites, we currently lease six in-orbit satellites which are being used to provide, among other things, standard and HD programming to certain local markets, international programming and backup capacity.

Short Term Leased Capacity

As part of the transactions entered into between DISH Network and EchoStar in connection with the Spin-off, we entered into satellite capacity agreements with EchoStar to lease satellite capacity on satellites owned by EchoStar and slots licensed by EchoStar.  These satellites are as follows:

·
EchoStar III - launched in 1997 and is currently located at the 61.5 degree orbital location.

·
EchoStar VI - launched in 2000 and is currently located at the 110 degree orbital location.

·
EchoStar VIII - launched in 2002 and is currently located at the 110 degree orbital location.

·
EchoStar IX - launched in 2003 and is currently located at the 121 degree orbital location.

·
EchoStar XII - launched in 2003 and is currently located at the 61.5 degree orbital location.
 
·
AMC-15 - launched in 2004 and is currently located at the 105 degree orbital location.
 

Certain DISH Network subscribers currently point their satellite antenna at these slots and these agreements were designed to facilitate the separation of EchoStar and us by allowing a period of time for these DISH Network subscribers to be moved to satellites owned by DISH Network and/or to slots that will be licensed to DISH Network following the Spin-off.  However, we may decide to continue leasing these satellites from EchoStar following the initial terms of these agreements, if we determine that it is beneficial for us to do so.  The fees for the services provided under the satellite capacity agreements are based on spot market prices for similar satellite capacity and depend upon, among other things, the orbital location of the satellite and the frequency on which the satellite provides services.  Generally, these satellite capacity agreements will terminate upon the earlier of:  (a) the end of life or replacement of the satellite; (b) the date the satellite fails; (c) the date that the transponder on which service is being provided under the agreement fails; and (d) two years from the January 1, 2008 execution date.

Long-Term Leased Capacity

Anik F3.  Anik F3, an FSS satellite, was launched and commenced commercial operation during April 2007.  This Telesat Canada (“Telesat”) satellite is equipped with 32 Ku-band transponders, 24 C-band transponders and a small Ka-band payload.  We have leased all of the Ku-band capacity on Anik F3 for a period of 15 years.

Ciel 2.  Ciel 2, a Canadian DBS satellite, which is currently expected to be launched in late 2008 and commence commercial operation at the 129 degree orbital location, has both spot beam capabilities and the ability to provide service to the entire continental United States (“CONUS”).  We will have the right to lease at least 50% of the capacity of that satellite, with the remaining 50% required by Canadian regulations to be offered for use by Canadians until the time of launch of the satellite.  Consequently, until Ciel 2 is launched, we will not know the exact amount of capacity available to us on that satellite.  This satellite could be used to provide HD programming to CONUS and as additional backup capacity.

Satellites under Construction

We have also entered into contracts to construct two new satellites which are contractually scheduled to be completed within the next three years.

 
·
EchoStar XI, a Space Systems/Loral, Inc. (“SSL”) DBS satellite, which is expected to be launched mid-year 2008, will provide service to CONUS from the 110 degree orbital location.  This satellite will enable better bandwidth utilization, provide back-up protection for our existing offerings, and could allow DISH Network to offer other value-added services.

 
·
During 2007, we entered into a contract for the construction of EchoStar XIV, an SSL DBS satellite, which is expected to be completed during 2009.  This satellite has been designed with a combination of CONUS and spot beam capacity and could be used at multiple orbital locations.  EchoStar XIV could allow DISH Network to offer other value-added services. 

Satellite Anomalies

While we believe that overall our satellite fleet is generally in good condition, during 2007 and prior periods, certain satellites in our fleet have experienced anomalies, some of which have had a significant adverse impact on their commercial operation.  We currently do not carry insurance for any of our owned in-orbit satellites.  We believe we generally have in-orbit satellite capacity sufficient to recover, in a relatively short time frame, transmission of most of our critical programming in the event one of our in-orbit satellites were to fail.  We could not, however, recover certain local markets, international and other niche programming in the event of such a failure, with the extent of disruption dependent on the specific satellite experiencing the failure.  Further, programming continuity cannot be assured in the event of multiple satellite losses.  In addition, as part of the Spin-off, we transferred EchoStar III, IV, VI, VIII, IX and XII to EchoStar.

Recent developments with respect to certain of these satellites, including the satellites that we contributed to EchoStar as part of the Spin-off and that we currently lease, are discussed below.

EchoStar I.  EchoStar I can operate up to 16 transponders at 130 watts per channel.  Prior to 2007, the satellite experienced anomalies resulting in the possible loss of two solar array strings.  An investigation of the anomalies is continuing.  The anomalies have not impacted commercial operation of the satellite to date.  Even if permanent loss of the two solar array strings is confirmed, the original minimum 12-year design life of the satellite is not expected to be impacted since the satellite is equipped with a total of 104 solar array strings, only approximately 98 of which are required to assure full power availability for the design life of the satellite.  However, there can be no assurance future anomalies will not cause further losses which could impact the remaining life or commercial operation of the satellite.


EchoStar II.  EchoStar II can operate up to 16 transponders at 130 watts per channel.  During February 2007, the satellite experienced an anomaly which prevented its north solar array from rotating.  Functionality was restored through a backup system.  The useful life of the satellite has not been affected and the anomaly is not expected to result in the loss of power to the satellite.  However, if the backup system fails, a partial loss of power would result which could impact the useful life or commercial operation of the satellite.

EchoStar III.  EchoStar III was originally designed to operate a maximum of 32 transponders at approximately 120 watts per channel, switchable to 16 transponders operating at over 230 watts per channel, and was equipped with a total of 44 transponders to provide redundancy.  As a result of past traveling wave tube amplifier (“TWTA”) failures on EchoStar III, TWTA anomalies caused 26 transponders to fail leaving a maximum of 18 transponders currently available for use.  Due to redundancy switching limitations and specific channel authorizations, we can only operate on 15 of the 19 FCC authorized frequencies allocated to EchoStar III at the 61.5 degree location.  While we do not expect a large number of additional TWTAs to fail in any year, and the failures have not reduced the original minimum 12-year design life of the satellite, it is likely that additional TWTA failures will occur from time to time in the future, and those failures will further impact commercial operation of the satellite.
 
EchoStar V.  EchoStar V was originally designed with a minimum 12-year design life.  Momentum wheel failures in prior years, together with relocation of the satellite between orbital locations, resulted in increased fuel consumption, as previously disclosed.  These issues have not impacted commercial operation of the satellite.  However, as a result of these anomalies and the relocation of the satellite, during 2005, we reduced the remaining estimated useful life of this satellite.  Prior to 2007, EchoStar V also experienced anomalies resulting in the loss of seven solar array strings.  During 2007, the satellite lost three additional solar array strings, one in June and two in October.  The solar array anomalies have not impacted commercial operation of the satellite to date.  Since EchoStar V will be fully depreciated in October 2008, the solar array failures (which will result in a reduction in the number of transponders to which power can be provided in later years), have not reduced the remaining useful life of the satellite.  However, there can be no assurance that future anomalies will not cause further losses which could impact commercial operation, or the remaining life, of the satellite.

EchoStar VI.  EchoStar VI, which is being used as an in-orbit spare, was originally equipped with 108 solar array strings, approximately 102 of which are required to assure full power availability for the original minimum 12-year useful life of the satellite.  Prior to 2007, EchoStar VI experienced anomalies resulting in the loss of 17 solar array strings.  During the fourth quarter 2007, five additional solar array strings failed, reducing the number of functional solar array strings to 86.  While the useful life of the satellite has not been affected, commercial operability has been reduced.  The satellite was designed to operate 32 transponders at approximately 125 watts per channel, switchable to 16 transponders operating at approximately 225 watts per channel.  The power reduction resulting from the solar array failures which currently limits us to operation of a maximum of 26 transponders in standard power mode, or 13 transponders in high power mode, is expected to decrease to 25 and 12, respectively, by September 2008.  The number of transponders to which power can be provided is expected to continue to decline in the future at the rate of approximately one transponder every three years.

EchoStar VII.  During 2006, EchoStar VII experienced an anomaly which resulted in the loss of a receiver.  Service was quickly restored through a spare receiver.  These receivers process signals sent from our uplink center for transmission back to earth by the satellite.  The design life of the satellite has not been affected and the anomaly is not expected to result in the loss of other receivers on the satellite.  However, there can be no assurance future anomalies will not cause further receiver losses which could impact the useful life or commercial operation of the satellite.  In the event the spare receiver placed in operation following the 2006 anomaly also fails, there would be no impact to the satellite’s CONUS capabilities when operating in CONUS mode.  However, we would lose one-fifth of the spot beam capacity when operating in spot beam mode.


EchoStar VIII.  EchoStar VIII was designed to operate 32 transponders at approximately 120 watts per channel, switchable to 16 transponders operating at approximately 240 watts per channel.  EchoStar VIII also includes spot-beam technology.  This satellite has experienced several anomalies since launch, but none have reduced the 12-year estimated useful life of the satellite.  However, there can be no assurance that future anomalies will not cause further losses which could materially impact its commercial operation, or result in a total loss of the satellite.  We depend on leased capacity on EchoStar VIII to provide service to CONUS at least until such time as our EchoStar XI satellite has commenced commercial operation, which is currently expected mid-year 2008. In the event that EchoStar VIII experienced a total or substantial failure, we could transmit many, but not all, of those channels from other in-orbit satellites.

EchoStar IX.  EchoStar IX was designed to operate 32 FSS transponders operating at approximately 110 watts per channel, along with transponders that can provide services in the Ka-Band (a “Ka-band payload”).  The satellite also includes a C-band payload which is owned by a third party.  Prior to 2007, EchoStar IX experienced the loss of one of its three momentum wheels, two of which are utilized during normal operations.  A spare wheel was switched in at the time and the loss did not reduce the 12-year estimated useful life of the satellite.  During September 2007, the satellite experienced anomalies resulting in the loss of three solar array strings.  An investigation of the anomalies is continuing.  The anomalies have not impacted commercial operation of the satellite to date.  However, there can be no assurance future anomalies will not cause further losses, which could impact the remaining life or commercial operation of the satellite.

EchoStar X.  EchoStar X’s 49 spot beams use up to 42 active 140 watt TWTAs to provide standard and HD local channels and other programming to markets across the United States.  During January 2008, the satellite experienced an anomaly which resulted in the failure of one solar array circuit out of a total of 24 solar array circuits, approximately 22 of which are required to assure full power for the original minimum 12-year design life of the satellite.  The cause of the failure is still being investigated.  The design life of the satellite has not been affected.  However, there can be no assurance future anomalies will not cause further losses, which could impact commercial operation of the satellite or its useful life.  In the event our EchoStar X satellite experienced a significant failure, we would lose the ability to deliver local network channels in many markets.  While we would attempt to minimize the number of lost markets through the use of spare satellites and programming line up changes, some markets would be without local channels until a replacement satellite with similar spot beam capability could be launched and operational.

EchoStar XII.  EchoStar XII was designed to operate 13 transponders at 270 watts per channel in CONUS mode, or 22 spot beams using a combination of 135 and 65 watt TWTAs.  We currently operate the satellite in CONUS mode.  EchoStar XII has a total of 24 solar array circuits, approximately 22 of which are required to assure full power for the original minimum 12-year design life of the satellite.  Since late 2004, eight solar array circuits on EchoStar XII have experienced anomalous behavior resulting in both temporary and permanent solar array circuit failures.  The cause of the failures is still being investigated.  The design life of the satellite has not been affected.  However, these temporary and permanent failures have resulted in a reduction in power to the satellite which will preclude us from using the full complement of transponders on EchoStar XII for the 12-year design life of the satellite.  The extent of this impact is being investigated.  There can be no assurance future anomalies will not cause further losses, which could further impact commercial operation of the satellite or its useful life.

Competition in the Subscription Television Business

We compete in the subscription television service industry against other DBS television providers, cable television and other system operators offering video, audio and data programming and entertainment services.  We compete with these providers and operators on a number of fronts, including programming, price, ancillary features and services such as availability and quality of receiver, HD programming, VOD services, DVR functionality and customer services, as well as subscriber acquisition and retention programs and promotions.  Many of our competitors have substantially greater financial, marketing and other resources than we have.  Our earnings and other operating metrics could be materially and adversely affected if we are unable to compete successfully with these and other new providers of multi-channel video programming services.


Cable Television. Cable television operators have a large, established customer base, and many cable operators have made significant investments in programming.  Cable television operators continue to leverage their incumbency advantages relative to satellite operators by, among other things, bundling their video service with 2-way high speed Internet access and telephone services.  Cable television operators are also able to provide local and other programming in a larger number of geographic areas.  As a result of these and other factors, we may not be able to continue to expand our subscriber base or compete effectively against cable television operators.

Some digital cable platforms currently offer a video on demand (“VOD”) service that enables subscribers to choose from a library of programming selections for viewing at their convenience.  We are continuing to develop our own VOD service experience through automatic video downloads to hard drives in certain of our satellite receivers, the inclusion of broadband connectivity components in certain of our satellite receivers, and other technologies.  There can be no assurance that our VOD services will successfully compare with offerings from other video providers.

DBS and Other Direct-to-Home System Operators.  News Corporation owns an approximately 40% controlling interest in the DirecTV Group, Inc. (“DirecTV”).  In December 2006, Liberty Media Corporation (“Liberty”) agreed to exchange its 16.3% stake in News Corporation for News Corporation’s stake in DirecTV, together with regional sports networks in Denver, Pittsburg and Seattle.  Although the deal is currently delayed by regulatory approvals, it is expected to be completed in 2008.  News Corporation and Liberty each have ownership interests in diverse world-wide programming content and other related businesses.  These assets provide competitive advantages to DirecTV with respect to the acquisition of programming, content and other valuable business opportunities.

In addition, DirecTV’s satellite receivers and services are offered through a significantly greater number of consumer electronics stores than ours.  As a result of this and other factors, our services are less well known to consumers than those of DirecTV.  Due to this relative lack of consumer awareness and other factors, we are at a competitive marketing disadvantage compared to DirecTV.  DirecTV also offers exclusive programming that may be attractive to prospective subscribers, and may have access to discounts on programming not available to us.  DirecTV launched a satellite in July 2007 with plans to launch another satellite in early 2008 in order to offer local and national programming in HD to most of the U.S. population.  Although we have launched our own HD initiatives, if DirecTV fully implements these plans, it may have an additional competitive advantage.

New entrants in the subscription satellite services business may also have a competitive advantage over us in deploying some new products and technologies because of the substantial costs we may be required to incur to make new products or technologies available across our installed base of over 13.780 million subscribers.

VHF/UHF Broadcasters.  Most areas of the United States can receive between three and 10 free over-the-air broadcast channels, including local content most consumers consider important.  The FCC has allocated additional digital spectrum to these broadcasters, which can be used to transmit multiple additional programming channels.  Our business could be adversely affected by increased program offerings by traditional over-the-air broadcasters.

New Technologies and Competitors.  New technologies could also have an adverse effect on the demand for our DBS services.  For example, we face an increasingly significant competitive threat from the build-out of advanced fiber optic networks by companies such as Verizon Communications, Inc. (“Verizon”) and AT&T that allows them to offer video services bundled with traditional phone and high speed Internet directly to millions of homes.  In addition, telephone companies and other entities are implementing and supporting digital video compression over existing telephone lines which may allow them to offer video services without having to build new infrastructure.  We also expect to face increasing competition from content and other providers who distribute video services directly to consumers over the Internet.

With the large increase in the number of consumers with broadband service, a significant amount of video content has become available on the Internet for users to download and view on their personal computers and other devices.  In addition, there are several initiatives by companies to make it easier to view Internet-based video on television and personal computer screens.  We also could face competition from content and other providers who distribute video services directly to consumers via digital air waves.


Mergers, joint ventures, and alliances among franchise, wireless or private cable television operators, telephone companies and others also may result in providers capable of offering television services in competition with us.

Impact of High Definition TV.  We believe that the availability and extent of HD programming has become and will continue to be a significant factor in consumer’s choice among multi-channel video providers.  Although we believe we currently offer consumers a compelling amount of HD programming content, other multi-channel video providers may have more successfully marketed and promoted their HD programming packages and may also be better equipped to increase their HD offerings to respond to increasing consumer demand for this content.  For example, cable companies are able to offer local network channels in HD in more markets than we can, and DirecTV could offer over 150 channels of HD programming by satellite in the near future.  We could be further disadvantaged to the extent a significant number of local broadcasters begin offering local channels in HD because we will not initially be in a position to offer local networks in HD in all of the markets that we serve.  We may be required to make substantial additional investments in infrastructure to respond to competitive pressure to deliver additional HD programming, and there can be no assurance that we will be able to compete effectively with HD program offerings from other video providers.

Subscriber Promotions.  In addition to leasing receivers to subscribers, we generally subsidize installation and all or a part of the cost of the receivers as an incentive to attract subscribers.  We may also from time to time offer promotional pricing for programming and/or other services we offer in order to attract subscribers.  We also incur costs to retain existing subscribers by, among other things, offering subsidized upgraded or add-on equipment.  Our cost to acquire subscribers through these various programs may vary significantly from period to period and may also materially affect our results of operations.  The level of these efforts (and consequent costs) may also significantly affect our subscriber churn and subscriber additions from period to period, as market perceptions of the relative merits of our promotions versus those offered by our competitors may affect not only the purchase decisions of new subscribers, but also the willingness of existing subscribers to change providers.  We may from time to time face competitive situations in which we would be required to increase subscriber acquisition or retention costs to unacceptable levels in order to attract new subscribers or forestall an increase in subscriber churn.  In those circumstances, we may decide to focus on maintaining our financial performance and not seek to acquire or retain those marginal subscribers.

GOVERNMENT REGULATIONS

We are subject to comprehensive regulation by the FCC for our domestic operations.  We are also regulated by other federal agencies, state and local authorities and the International Telecommunication Union (“ITU”).  Depending upon the circumstances, noncompliance with legislation or regulations promulgated by these entities could result in suspension or revocation of our licenses or authorizations, the termination or loss of contracts or the imposition of contractual damages, civil fines or criminal penalties.

The following summary of regulatory developments and legislation in the United States is not intended to describe all present and proposed government regulation and legislation affecting the video programming distribution industry.  Government regulations that are currently the subject of judicial or administrative proceedings, legislative hearings or administrative proposals could change our industry to varying degrees.  We cannot predict either the outcome of these proceedings or any potential impact they might have on the industry or on our operations.

FCC Regulation under the Communications Act

FCC Jurisdiction over our Operations. The Communications Act gives the FCC broad authority to regulate the operations of satellite companies.  Specifically, the Communications Act gives the FCC regulatory jurisdiction over the following areas relating to communications satellite operations:

 
·
the assignment of satellite radio frequencies and orbital locations;


 
·
licensing of satellites, earth stations, the granting of related authorizations, and evaluation of the fitness of a company to be a licensee;

 
·
approval for the relocation of satellites to different orbital locations or the replacement of an existing satellite with a new satellite;

 
·
ensuring compliance with the terms and conditions of such assignments and authorizations, including required timetables for construction and operation of satellites and other due diligence requirements;

 
·
avoiding interference with other radio frequency emitters; and

 
·
ensuring compliance with other applicable provisions of the Communications Act and FCC rules and regulations governing the operations of satellite communications providers and multi-channel video distributors.

In order to obtain FCC satellite licenses and authorizations, satellite operators must satisfy strict legal, technical and financial qualification requirements.  Once issued, these licenses and authorizations are subject to a number of conditions including, among other things, satisfaction of ongoing due diligence obligations, construction milestones, and various reporting requirements.

Overview of Our Satellites and FCC Authorizations.  Our satellites are located in orbital positions, or slots, that are designated by their western longitude.  An orbital position describes both a physical location and an assignment of spectrum in the applicable frequency band.  The FCC has divided each DBS orbital position into 32 frequency channels.  Each transponder on our satellites typically exploits one frequency channel.  Through digital compression technology, we can currently transmit between nine and 13 standard definition digital video channels from each transponder.  Several of our satellites also include spot-beam technology which enables us to increase the number of markets where we provide local channels, but reduces the number of video channels that could otherwise be offered across the entire United States.

The FCC has licensed us to operate a total of 82 DBS frequencies at the following orbital locations:

 
·
21 frequencies at the 119 degree orbital location and 29 frequencies at the 110 degree orbital location, both capable of providing service to CONUS; and

 
·
32 frequencies at the 148 degree orbital location, capable of providing service to the Western United States.

We currently lease or have entered into agreements to lease capacity on satellites at the following orbital locations:

 
·
500 MHz of Ku spectrum currently divided into 24 frequencies at the 118.7 degree orbital location, capable of providing service to CONUS, Alaska and Hawaii; and

 
·
32 frequencies at a Canadian DBS slot at the 129 degree orbital location, capable of providing service to most of the United States.

We currently broadcast the majority of our programming from the 110 and 119 degree orbital locations.  Almost all of our customers have satellite receiver systems that are equipped to receive signals from both of these locations.

Duration of our DBS Satellite Licenses.  Generally speaking, all of our satellite licenses are subject to expiration unless renewed by the FCC.  The term of each of our DBS licenses is 10 years.  Our licenses are currently set to expire at various times.  In addition, our special temporary authorizations are granted for periods of only 180 days or less, subject again to possible renewal by the FCC.

Opposition and other Risks to our Licenses.  Several third parties have opposed, and we expect them to continue to oppose, some of our FCC satellite authorizations and pending requests to the FCC for extensions, modifications, waivers and approvals of our licenses.  In addition, we may not have fully complied with all of the FCC reporting and filing requirements in connection with our satellite authorizations.  Consequently, it is possible the FCC could revoke, terminate, condition or decline to extend or renew certain of our authorizations or licenses.


FCC Actions Affecting our Licenses and Applications.  A number of our other applications have been denied or dismissed without prejudice by the FCC, or remain pending.  We cannot be sure that the FCC will grant any of our outstanding applications, or that the authorizations, if granted, will not be subject to onerous conditions.  Moreover, the cost of building, launching and insuring a satellite can be as much as $300.0 million or more, and we cannot be sure that we will be able to construct and launch all of the satellites for which we have requested authorizations.

4.5 Degree Spacing Tweener Satellites.  The FCC has proposed to allow so-called “tweener” DBS operations – DBS satellites operating from orbital locations 4.5 degrees (half of the usual 9 degrees) away from other DBS satellites.  The FCC has already granted authorizations to Spectrum Five and us for tweener satellites at the 114.5 and 86.5 degree orbital locations, respectively.  We have challenged the Spectrum Five authorization, and Telesat Canada, a Canadian satellite operator, has challenged our license.  Certain tweener operations, as proposed, could cause harmful interference into our service and constrain our future operations.

Interference from Other Services Sharing Satellite Spectrum.  The FCC has adopted rules that allow non-geostationary orbit fixed satellite services to operate on a co-primary basis in the same frequency band as DBS and Ku-band-based fixed satellite services.  The FCC has also authorized the use of terrestrial communication services (“MVDDS”) in the DBS band.  MVDDS licenses were auctioned in 2004.  Despite regulatory provisions to protect DBS operations from harmful interference, there can be no assurance that operations by other satellites or terrestrial communication services in the DBS band will not interfere with our DBS operations and adversely affect our business.

International Satellite Competition and Interference.  DirecTV has obtained FCC authority to provide service to the United States from a Canadian DBS orbital slot.  We have also received authority to do the same from a Canadian orbital slot at 129 degrees.  The possibility that the FCC will allow service to the U.S. from additional foreign slots may permit additional competition against us from other satellite providers.  It may also provide a means by which to increase our available satellite capacity in the United States.  In addition, a number of administrations, such as Great Britain and the Netherlands, have requested to add orbital locations serving the U.S. close to our licensed slots.  Such operations could cause harmful interference to our satellites and constrain our future operations at those slots if such “tweener” operations are approved by the FCC.  The risk of harmful interference will depend upon the final rules adopted in the FCC’s “tweener” proceeding.

Emergency Alert System. The Emergency Alert System (“EAS”) requires participants to interrupt programming during nationally-declared emergencies and to pass through emergency-related information.  The FCC recently released an order requiring satellite carriers to participate in the “national” portion of EAS.  It is also considering whether to mandate that satellite carriers also interrupt programming for local emergencies and weather events.  We cannot be sure that this requirement will not affect us adversely by requiring us to devote additional resources to complying with EAS requirements.

Rules Relating to Broadcast Services.  The FCC imposes different rules for “subscription” and “broadcast” services.  We believe that because we offer a subscription programming service, we are not subject to many of the regulatory obligations imposed upon broadcast licensees.  However, we cannot be certain whether the FCC will find in the future that we must comply with regulatory obligations as a broadcast licensee, and certain parties have requested that we be treated as a broadcaster.  If the FCC determines that we are a broadcast licensee, it could require us to comply with all regulatory obligations imposed upon broadcast licensees, which are generally subject to more burdensome regulation than subscription television service providers.

Public Interest Requirements.  Under a requirement of the Cable Act, the FCC imposed public interest requirements on DBS licensees.  These rules require us to set aside four percent of our channel capacity exclusively for noncommercial programming for which we must charge programmers below-cost rates and for which we may not impose additional charges on subscribers.  This could displace programming for which we could earn commercial rates and could adversely affect our financial results.  We cannot be sure that if the FCC were to review our methodology for processing public interest carriage requests, computing the channel capacity we must set aside or determining the rates that we charge public interest programmers, it would find them in compliance with the public interest requirements.


Plug and Play.  The FCC has adopted the so-called “plug and play” standard for compatibility between digital television sets and cable systems.  That standard was developed through negotiations involving the cable and consumer electronics industries, but not us.  The FCC is now considering various proposals to establish two-way digital cable “plug and play” rules.  That proceeding also asks about means to incorporate all pay TV providers into its “plug and play” rules.  We are concerned that the FCC may impose rules on our DBS operations that are based on cable system architecture.  Complying with the separate security and other “plug and play” requirements would require potentially costly modifications to our set-top boxes and operations.  We cannot predict the timing or outcome of this FCC proceeding.

Digital HD Must Carry Requirement.  In order to provide any local broadcast signals in a market (“local-into-local authority”) today, we are required to retransmit all qualifying broadcast signals in that market.  The FCC has adopted rules governing our carriage obligations for analog commercial and non-commercial stations.  The FCC has not adopted rules with respect to our carriage obligation for digital signals.  The digital transition in February 2009 will require all full-power broadcasters to cease transmission in analog and switch over to digital signals.  The switch to digital will provide broadcasters significantly greater capacity to provide high definition and multi-cast programming.  Depending upon what rules the FCC adopts, the carriage of digital signals on our DBS system could cause significant capacity constraints, and limit the number of local markets that can be served.  For instance, we would face substantial operational challenges if the FCC were to adopt a “HD carry-one, carry-all” requirement effective February 2009, under which we would be required to carry all broadcasters in HD if any broadcaster in that market is offered in HD.  We have proposed that the FCC provide sufficient time for DBS providers to construct satellites to meet any new requirements, and that any heightened capacity burden be phased-in over a number of years.  The FCC may adopt final digital HD must carry rules as soon as the FCC’s February 26, 2008 Open Meeting, but we cannot predict the exact timing or outcome of this proceeding.  The transition will also require resource-intensive efforts by us to transition all broadcast signals from analog to digital at hundreds of local receive facilities across the nation.

Digital Transition Education.  The digital transition in February 2009 will require all broadcasters to cease transmission in analog and switch over to digital signals.  The FCC has an open proceeding addressing the obligation of broadcasters and multi-channel video programming distributors to notify and educate viewers on the impact of the transition on their household.  It is possible that the FCC may require mandatory bill notification and public service announcements to be aired on DISH Network as a result of this proceeding.

Retransmission Consent. The Satellite Home Viewer Improvement Act (“SHVIA”), generally gives satellite companies a statutory copyright license to retransmit local broadcast channels by satellite back into the market from which they originated, subject to obtaining the retransmission consent of the local network station.  If we fail to reach retransmission consent agreements with broadcasters, we cannot carry their signals.  This could have an adverse effect on our strategy to compete with cable and other satellite companies which provide local signals.  While we have been able to reach retransmission consent agreements with most local network stations in markets where we currently offer local channels by satellite, roll-out of local channels in additional cities will require that we obtain additional retransmission agreements.  We cannot be sure that we will secure these agreements or that we will secure new agreements upon the expiration of our current retransmission consent agreements, some of which are short term.

Dependence on Cable Act for Program Access.  We purchase a large percentage of our programming from cable-affiliated programmers.  The Cable Act’s provisions prohibiting exclusive contracting practices with cable affiliated programmers were extended for another five-year period in September 2007.  Cable companies have appealed the FCC’s decision.  We cannot predict the outcome or timing of that litigation.  Any change in the Cable Act and the FCC’s rules that permit the cable industry or cable-affiliated programmers to discriminate against competing businesses, such as ours, in the sale of programming could adversely affect our ability to acquire cable-affiliated programming at all or to acquire programming on a cost-effective basis.  Further, the FCC generally has not shown a willingness to enforce the program access rules aggressively.  As a result, we may be limited in our ability to obtain access (or nondiscriminatory access) to programming from programmers that are affiliated with the cable system operators.


In addition, affiliates of certain cable providers have denied us access to sports programming they feed to their cable systems terrestrially, rather than by satellite.  To the extent that cable operators deliver additional programming terrestrially in the future, they may assert that this additional programming is also exempt from the program access laws.  These restrictions on our access to programming could materially and adversely affect our ability to compete in regions serviced by these cable providers.

MDU Exclusivity.  The FCC has found that cable companies should not be permitted to have exclusive relationships with multiple dwelling units (e.g., apartment buildings).  That decision is under appeal, and we cannot predict the timing or outcome of that litigation.  Nonetheless, the FCC has now asked whether DBS and Private Cable Operators (“PCOs”) should be permitted to have similar relationships with multiple dwelling units.  If the cable exclusivity ban were to be extended to DBS providers, our ability to serve these types of buildings and communities would be adversely affected.

The International Telecommunication Union

Our DBS system also must conform to the International Telecommunication Union, or ITU, broadcasting satellite service plan for Region 2 (which includes the United States).  If any of our operations are not consistent with this plan, the ITU will only provide authorization on a non-interference basis pending successful modification of the plan or the agreement of all affected administrations to the non-conforming operations.  Accordingly, unless and until the ITU modifies its broadcasting satellite service plan to include the technical parameters of DBS applicants’ operations, our satellites, along with those of other DBS operators, must not cause harmful electrical interference with other assignments that are in conformance with the plan.  Further, DBS satellites are not presently entitled to any protection from other satellites that are in conformance with the plan.

In addition, a number of administrations, such as Great Britain and the Netherlands, have requested modifications to the plan to add orbital locations serving the U.S. close to our licensed slots, similar to the “tweener” operations discussed above.  Such operations could cause harmful interference into our satellites and constrain our future operations at those slots.

Export Control Regulation

The delivery of satellites and related technical information for the purpose of launch by foreign launch services providers is subject to strict export control and prior approval requirements.

PATENTS AND TRADEMARKS

Many entities, including some of our competitors, have or may in the future obtain patents and other intellectual property rights that cover or affect products or services related to those that we offer.  In general, if a court determines that one or more of our products infringes on intellectual property held by others, we may be required to cease developing or marketing those products, to obtain licenses from the holders of the intellectual property at a material cost, or to redesign those products in such a way as to avoid infringing the patent claims.  If those intellectual property rights are held by a competitor, we may be unable to obtain the intellectual property at any price, which could adversely affect our competitive position.

We may not be aware of all intellectual property rights that our products may potentially infringe.  In addition, patent applications in the United States are confidential until the Patent and Trademark Office issues a patent and, accordingly, our products may infringe claims contained in pending patent applications of which we are not aware. Further, the process of determining definitively whether a claim of infringement is valid often involves expensive and protracted litigation, even if we are ultimately successful on the merits.

We cannot estimate the extent to which we may be required in the future to obtain intellectual property licenses or the availability and cost of any such licenses.  Those costs, and their impact on our results of operations, could be material.  Damages in patent infringement cases may also include treble damages in certain circumstances.  To the extent that we are required to pay unanticipated royalties to third parties, these increased costs of doing business could negatively affect our liquidity and operating results.  We are currently defending multiple patent infringement actions.  We cannot be certain the courts will conclude these companies do not own the rights they claim, that our products do not infringe on these rights, that we would be able to obtain licenses from these persons on commercially reasonable terms or, if we were unable to obtain such licenses, that we would be able to redesign our products to avoid infringement.  See “Item 3 Legal Proceedings.”


ENVIRONMENTAL REGULATIONS

We are subject to the requirements of federal, state, local and foreign environmental and occupational safety and health laws and regulations.  These include laws regulating air emissions, water discharge and waste management.  We attempt to maintain compliance with all such requirements.  We do not expect capital or other expenditures for environmental compliance to be material in 2008 or 2009.  Environmental requirements are complex, change frequently and have become more stringent over time.  Accordingly, we cannot provide assurance that these requirements will not change or become more stringent in the future in a manner that could have a material adverse effect on our business.

SEGMENT REPORTING DATA AND GEOGRAPHIC AREA DATA

For operating segment and principal geographic area data for 2007, 2006 and 2005 see Note 10 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.

EMPLOYEES

We had approximately 23,000 employees at December 31, 2007, most of whom are located in the United States.  We generally consider relations with our employees to be good.  Approximately 1,500 of these employees employed by ETC and other businesses transferred to EchoStar in connection with the Spin-off became employees of EchoStar as of January 1, 2008.

Although a total of approximately 33 employees in two of our field offices have voted to unionize, we are not currently a party to any collective bargaining agreements.  However, we are currently negotiating collective bargaining agreements at these offices.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act and accordingly file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (“SEC”).  The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.  Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room.  As an electronic filer, our public filings are also maintained on the SEC’s Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The address of that website is http://www.sec.gov.

WEBSITE ACCESS

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act also may be accessed free of charge through our website as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the SEC.  The address of that website is http://www.dishnetwork.com.

We have adopted a written code of ethics that applies to all of our directors, officers and employees, including our principal executive officer and senior financial officers, in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and the rules of the Securities and Exchange Commission promulgated thereunder.  Our code of ethics is available on our corporate website at http://www.dishnetwork.com.  In the event that we make changes in, or provide waivers of, the provisions of this code of ethics that the SEC requires us to disclose, we intend to disclose these events on our website.


EXECUTIVE OFFICERS OF THE REGISTRANT
(furnished in accordance with Item 401 (b) of Regulation S-K, pursuant to General Instruction G(3) of Form 10-K)

The following table sets forth the name, age and offices with DISH Network of each of our executive officers, the period during which each executive officer has served as such, and each executive officer’s business experience during the past five years:

Name
 
Age
 
Position
         
Charles W. Ergen
 
54
 
Chairman, Chief Executive Officer, President and Director
W. Erik Carlson
 
38
 
Executive Vice President, Operations
Thomas A. Cullen
 
48
 
Executive Vice President, Corporate Development
James DeFranco
 
55
 
Executive Vice President, Sales & Distribution, Travel/Events and Marketing, and Director
R. Stanton Dodge
 
40
 
Executive Vice President, General Counsel and Secretary
Bernard L. Han
 
43
 
Executive Vice President and Chief Financial Officer
Michael Kelly
 
46
 
Executive Vice President, Commercial and Business Services
Carl E. Vogel
 
50
 
Vice Chairman and Director
Stephen W. Wood
 
49
 
Executive Vice President, Chief Human Resources Officer

Charles W. Ergen.  Mr. Ergen has been Chairman of the Board of Directors and Chief Executive Officer of DISH Network since its formation and, during the past five years, has held various executive officer and director positions with DISH Network’s subsidiaries.  Mr. Ergen was appointed President of DISH Network in February 2008.  Mr. Ergen, along with his spouse and James DeFranco, was a co-founder of DISH Network in 1980.

W. Erik Carlson.  Mr. Carlson was named Executive Vice President, Operations in February 2008 and is responsible for overseeing our home and commercial installations, customer service centers, internal customer billing and equipment retrieval and refurbishment operations.  Mr. Carlson previously was Senior Vice President of Retail Services, a position he held since mid-2006.  He joined DISH Network in 1995 and has held progressively larger operating roles over the years.

Thomas A. Cullen.  Mr. Cullen joined DISH Network in December 2006 as the Executive Vice President, Corporate Development.  Before joining DISH Network, Cullen served as President of TensorComm, a venture-backed wireless technology company.  From August 2003 to April 2005, Mr. Cullen was with Charter Communications Inc. (“Charter”), serving as Senior Vice President, Advanced Services and Business Development from August 2003 until he was promoted to Executive Vice President in August 2004.  From January 2001 to October 2002, Mr. Cullen was General Partner of Lone Tree Capital, a private equity partnership focused on investment opportunities in the technology and communications sector.

James DeFranco.  Mr. DeFranco is currently our Executive Vice President, Sales & Distribution, Travel/Events and Marketing and has held various executive officer and director positions with DISH Network since its formation.  Mr. DeFranco, along with Mr. Ergen and Mr. Ergen’s spouse, was a co-founder of DISH Network in 1980.

R. Stanton Dodge.  Mr. Dodge is currently the Executive Vice President, General Counsel and Secretary of DISH Network and is responsible for all legal affairs for DISH Network and its subsidiaries.  Since joining DISH Network in November 1996, he has held various positions in DISH Network’s legal department.

Bernard L. Han. Mr. Han was named Executive Vice President and Chief Financial Officer of DISH Network in September 2006 and is responsible for all accounting, finance and information technology functions of the Company.  From October 2002 to May 2005, Mr. Han served as Executive Vice President and Chief Financial Officer of Northwest Airlines, Inc.  Prior to October 2002, he held positions as Executive Vice President and Chief Financial Officer and Senior Vice President and Chief Marketing Officer at America West Airlines, Inc.

Michael Kelly.  Mr. Kelly is currently the Executive Vice President, Commercial and Business Services.  Mr. Kelly served as the Executive Vice President of DISH Network Service LLC and Customer Service from February 2004 until December 2005 and as Senior Vice President of DISH Network Service L.L.C. from March 2001 until February 2004.  Mr. Kelly joined DISH Network in March 2000 as Senior Vice President of International Programming following our acquisition of Kelly Broadcasting Systems, Inc.


Carl E. Vogel.  Mr. Vogel is currently serving as our Vice Chairman.  Mr. Vogel served as our President from September 2006 until February 2008 and has served on the Board of Directors and as Vice Chairman in charge of all financial and strategic initiatives since 2005.  From 2001 until 2005, Mr. Vogel served as the President and CEO of Charter, a publicly-traded company providing cable television and broadband services to approximately six million customers.  Mr. Vogel was one of our executive officers from 1994 until 1997, including serving as our President from 1995 until 1997 and was a key member of the executive team that created and launched DISH Network in 1996.  Mr. Vogel is also currently serving on the Board of Directors and the Audit Committee of Shaw Communications, Inc.

Stephen W. Wood.  Mr. Wood has served as our Executive Vice President and Chief Human Resources Officer since May 2006 and is responsible for all human resource functions of DISH Network and its subsidiaries.  Prior to joining DISH Network, Mr. Wood served as an Executive Vice President for Gate Gourmet International from 2004 to 2006 and practiced employment and labor law in Richmond, Virginia with McGuire Woods LLP, as well as held executive and directorial Human Resources positions at Cigna Healthcare from 2001 to 2004.

There are no arrangements or understandings between any executive officer and any other person pursuant to which any executive officer was selected as such.  Pursuant to the Bylaws of DISH Network, executive officers serve at the discretion of the Board of Directors.

Mr. Ergen also serves as Chairman and Chief Executive Officer of EchoStar.  Pursuant to a management services agreement with EchoStar entered into in connection with the Spin-off, DISH Network has agreed to make certain of its key officers, including Mr. Dodge and Mr. Han, available to provide services to EchoStar.


Item 1A.                 RISK FACTORS

The risks and uncertainties described below are not the only ones facing us.  Additional risks and uncertainties that we are unaware of or that we currently believe to be immaterial also may become important factors that affect us.
 
If any of the following events occur, our business, financial condition or results of operations could be materially and adversely affected.
 
We compete with other subscription television service providers and traditional broadcasters, which could affect our ability to grow and increase our earnings and other operating metrics.

We compete in the subscription television service industry against other DBS television providers, cable television and other system operators offering video, audio and data programming and entertainment services.  We compete with these providers and operators on a number of fronts, including programming, price, ancillary features and services such as availability and quality of HD programming, VOD services, DVR functionality and customer services, as well as subscriber acquisition and retention programs and promotions.  Many of our competitors have substantially greater financial, marketing and other resources than we have.  Our earnings and other operating metrics could be materially and adversely affected if we are unable to compete successfully with these and other new providers of multi-channel video programming services.

We believe that the availability and extent of HD programming has become and will continue to be a significant factor in consumer’s choice among multi-channel video providers.  Although we believe we currently offer consumers a compelling amount of HD programming content, other multi-channel video providers may have more successfully marketed and promoted their HD programming packages and may also be better equipped to increase their HD offerings to respond to increasing consumer demand for this content.  For example, cable companies are able to offer local network channels in HD in more markets than we can, and DirecTV could offer over 150 channels of HD programming by satellite in the near future.  We could be further disadvantaged to the extent a significant number of local broadcasters begin offering local channels in HD because we will not initially be in a position to offer local networks in HD in all of the markets that we serve.  We may be required to make substantial additional investments in infrastructure to respond to competitive pressure to deliver additional HD programming, and there can be no assurance that we will be able to compete effectively with HD program offerings from other video providers.


Cable television operators have a large, established customer base, and many cable operators have made significant investments in programming.  Cable television operators continue to leverage their incumbency advantages relative to satellite operators by, among other things, bundling their video service with 2-way high speed Internet access and telephone services.  Cable television operators are also able to provide local and other programming in a larger number of geographic areas.  As a result of these and other factors, we may not be able to continue to expand our subscriber base or compete effectively against cable television operators.

Some digital cable platforms currently offer a VOD service that enables subscribers to choose from an extensive library of programming selections for viewing at their convenience.  We are continuing to develop our own VOD service experience through automatic video downloads to hard drives in certain of our satellite receivers, the inclusion of broadband connectivity components in certain of our satellite receivers, and other technologies.  There can be no assurance that our VOD services will successfully compare with offerings from other video providers.

News Corporation owns an approximately 40% controlling interest in the DirecTV Group, Inc. (“DirecTV”).  In December 2006, Liberty Media Corporation (“Liberty”) agreed to exchange its 16.3% stake in News Corporation for News Corporation’s stake in DirecTV, together with regional sports networks in Denver, Pittsburg and Seattle.  Although the deal is currently delayed by regulatory approvals, it is expected to be completed in 2008.  News Corporation and Liberty each have ownership interests in diverse world-wide programming content and other related businesses.  These assets provide competitive advantages to DirecTV with respect to the acquisition of programming, content and other valuable business opportunities.

In addition, DirecTV’s satellite receivers and services are offered through a significantly greater number of consumer electronics stores than ours.  As a result of this and other factors, our services are less well known to consumers than those of DirecTV.  Due to this relative lack of consumer awareness and other factors, we are at a competitive marketing disadvantage compared to DirecTV.  DirecTV also offers exclusive programming that may be attractive to prospective subscribers, and may have access to discounts on programming not available to us.  DirecTV launched a satellite in July 2007 with plans to launch another satellite in early 2008 in order to offer local and national programming in HD to most of the U.S. population.  Although we have launched our own HD initiatives, if DirecTV fully implements these plans, it may have an additional competitive advantage.

New entrants in the subscription satellite services business may also have a competitive advantage over us in deploying some new products and technologies because of the substantial costs we may be required to incur to make new products or technologies available across our installed base of over 13 million subscribers.

Most areas of the United States can receive between three and 10 free over-the-air broadcast channels, including local content most consumers consider important.  The FCC has allocated additional digital spectrum to these broadcasters, which can be used to transmit multiple additional programming channels.  Our business could be adversely affected by increased program offerings by traditional over-the-air broadcasters.

New technologies could also have an adverse effect on the demand for our DBS services.  For example, we face an increasingly significant competitive threat from the build-out of advanced fiber optic networks by companies such as Verizon Communications, Inc. (“Verizon”) and AT&T that allows them to offer video services bundled with traditional phone and high speed Internet directly to millions of homes.  In addition, telephone companies and other entities are implementing and supporting digital video compression over existing telephone lines which may allow them to offer video services without having to build new infrastructure.  We also expect to face increasing competition from content and other providers who distribute video services directly to consumers over the Internet.

With the large increase in the number of consumers with broadband service, a significant amount of video content has become available on the Internet for users to download and view on their personal computers and other devices.  In addition, there are several initiatives by companies to make it easier to view Internet-based video on television and personal computer screens.  We also could face competition from content and other providers who distribute video services directly to consumers via digital air waves.


Mergers, joint ventures, and alliances among franchise, wireless or private cable television operators, telephone companies and others also may result in providers capable of offering television services in competition with us.

Increased subscriber turnover could harm our financial performance.

Our future subscriber churn may be negatively impacted by a number of factors, including but not limited to, an increase in competition from existing competitors and new entrants offering more compelling promotions, customer satisfaction with our products and services including our customer service performance, whether we are able to offer promotions that customers view as compelling on cost effective terms, as well as our ability to successfully introduce new advanced products and services.  Competitor bundling of video services with 2-way high speed Internet access and telephone services may also contribute more significantly to churn over time.  There can be no assurance that these and other factors will not contribute to relatively higher churn than we have experienced historically.  Additionally, certain of our promotions allow consumers with relatively lower credit scores to become subscribers and these subscribers typically churn at a higher rate.  In addition, if adverse conditions in the economy continue or conditions worsen, we would expect that our subscriber churn would increase.  In particular, subscriber churn may increase with respect to subscribers who purchase our lower tier programming packages and who may be more sensitive to deteriorating economic conditions.

Additionally, as the size of our subscriber base increases, even if our churn percentage remains constant or declines, increasing numbers of gross new DISH Network subscribers are required to sustain our net subscriber growth rates.

Increases in theft of our signal, or our competitors’ signals, also could cause subscriber churn to increase in future periods.  There can be no assurance that our existing security measures will not be further compromised or that any future security measures we may implement will be effective in reducing theft of our programming signals.

Increased subscriber acquisition and retention costs could adversely affect our financial performance.

In addition to leasing receivers, we generally subsidize installation and all or a portion of the cost of receiver systems in order to attract new DISH Network subscribers.  Our costs to acquire subscribers, and to a lesser extent our subscriber retention costs, can vary significantly from period to period and can cause material variability to our net income (loss) and free cash flow.

In addition to new subscriber acquisition costs, we incur costs to retain existing subscribers.  In an effort to reduce subscriber turnover, we offer existing subscribers a variety of options for upgraded and add on equipment.  We generally lease receivers and subsidize installation of receiver systems under these subscriber retention programs.  We also upgrade or replace subscriber equipment periodically as technology changes.  As a consequence, our retention and our capital expenditures related to our equipment lease program for existing subscribers will increase, at least in the short term, to the extent we subsidize the costs of those upgrades and replacements.  Our capital expenditures related to subscriber retention programs could also increase in the future to the extent we increase penetration of our equipment lease program for existing subscribers, if we introduce other more aggressive promotions, if we offer existing subscribers more aggressive promotions for HD receivers or receivers with other enhanced technologies, or for other reasons.

Cash necessary to fund retention programs and total subscriber acquisition costs are expected to be satisfied from existing cash and marketable investment securities balances and cash generated from operations to the extent available.  We may, however, decide to raise additional capital in the future to meet these requirements.  There can be no assurance that additional financing will be available on acceptable terms, or at all, if needed in the future.

In particular, current dislocations in the credit markets, which have significantly impacted the availability and pricing of financing, particularly in the high yield debt and leveraged credit markets, may significantly constrain our ability to obtain financing to support our growth initiatives.  These developments in the credit markets may have a significant effect on our cost of financing and our liquidity position and may, as a result, cause us to defer or abandon profitable business strategies that we would otherwise pursue if financing were available on acceptable terms.


In addition, any material increase in subscriber acquisition or retention costs from current levels could have a material adverse effect on our business, financial condition and results of operations.

Satellite programming signals have been subject to theft, and we are vulnerable to subscriber fraud, which could cause us to lose subscribers and revenue.
 
Increases in theft of our signal, or our competitors’ signals, could also limit subscriber growth and cause subscriber churn to increase.  We use microchips embedded in credit card-sized access cards, called “smart cards,” or security chips in our receiver systems to control access to authorized programming content.  However, our signal encryption has been compromised by theft of service, and even though we continue to respond to compromises of our encryption system with security measures intended to make signal theft of our programming more difficult, theft of our signal is increasing.  We cannot assure you that we will be successful in reducing or controlling theft of our service.

During 2005, we replaced our smart cards in order to reduce theft of our service.  However, the smart card replacement did not fully secure our system, and we have since implemented software patches and other security measures to help protect our service.  Nevertheless, these security measures are short-term fixes and we remain susceptible to additional signal theft.  Therefore, we have developed a plan to replace our existing smart cards and/or security chips to re-secure our signals for a longer term which will commence later this year and is expected to take approximately nine to twelve months to complete.  While our existing smart cards installed in 2005 remain under warranty, we could incur operational costs in excess of $50 million in connection with our smart card replacement program.

We are also vulnerable to fraud, particularly in the acquisition of new subscribers.  While we are addressing the impact of subscriber fraud through a number of actions, including eliminating certain payment options for subscribers, such as the use of pre-paid debit cards, there can be no assurance that we will not continue to experience fraud which could impact our subscriber growth and churn.

Our local programming strategy faces uncertainty.

SHVIA generally gives satellite companies a statutory copyright license to retransmit local broadcast channels by satellite back into the market from which they originated, subject to obtaining the retransmission consent of the local network station.  If we fail to reach retransmission consent agreements with broadcasters we cannot carry their signals.  This could have an adverse effect on our strategy to compete with cable and other satellite companies which provide local signals.  While we have been able to reach retransmission consent agreements with most local network stations in markets where we currently offer local channels by satellite, roll-out of local channels in additional cities will require that we obtain additional retransmission agreements.  We cannot be sure that we will secure these agreements or that we will secure new agreements upon the expiration of our current retransmission consent agreements, some of which are short term.

We depend on the Cable Act for access to others’ programming.

We purchase a large percentage of our programming from cable-affiliated programmers.  The Cable Act’s provisions prohibiting exclusive contracting practices with cable affiliated programmers were extended for another five-year period in September 2007.  Cable companies have appealed the FCC’s decision.  We cannot predict the outcome or timing of that litigation.  Any change in the Cable Act and the FCC’s rules that permit the cable industry or cable-affiliated programmers to discriminate against competing businesses, such as ours, in the sale of programming could adversely affect our ability to acquire cable-affiliated programming at all or to acquire programming on a cost-effective basis.  Further, the FCC generally has not shown a willingness to enforce the program access rules aggressively.  As a result, we may be limited in our ability to obtain access (or nondiscriminatory access) to programming from programmers that are affiliated with the cable system operators.

In addition, affiliates of certain cable providers have denied us access to sports programming they feed to their cable systems terrestrially, rather than by satellite.  To the extent that cable operators deliver additional programming terrestrially in the future, they may assert that this additional programming is also exempt from the program access laws.  These restrictions on our access to programming could materially and adversely affect our ability to compete in regions serviced by these cable providers.


We depend on others to produce programming.

We depend on third parties to provide us with programming services.  Unlike our larger cable and satellite competitors, we have not made significant investments in programming providers.  Our programming agreements have remaining terms ranging from less than one to up to ten years and contain various renewal and cancellation provisions.  We may not be able to renew these agreements on favorable terms or at all, and these agreements may be canceled prior to expiration of their original term.  If we are unable to renew any of these agreements or the other parties cancel the agreements, we cannot assure you that we would be able to obtain substitute programming, or that such substitute programming would be comparable in quality or cost to our existing programming.  In addition, we expect programming costs to continue to increase.  We may be unable to pass programming costs on to our customers, which could have a material adverse effect on our business, financial condition and results of operations.

We face increasing competition from other distributors of foreign language programming.

We face increasing competition from other distributors of foreign language programming, including programming distributed over the Internet.  There can be no assurance that we will continue to experience growth in subscribers to our foreign-language programming services.  In addition, the increasing availability of foreign language programming from our competitors, which in certain cases has resulted from our inability to renew programming agreements on an exclusive basis or at all, could contribute to an increase in our subscriber churn.  Our agreements with distributors of foreign language programming have varying expiration dates, and some agreements are on a month-to-month basis.  There can be no assurance that we will be able to renew these agreements on acceptable terms or at all.

We are subject to significant regulatory oversight and changes in applicable regulatory requirements could adversely affect our business.

DBS operators are subject to significant government regulation, primarily by the FCC and, to a certain extent, by Congress, other federal agencies and international, state and local authorities.  Depending upon the circumstances, noncompliance with legislation or regulations promulgated by these entities could result in the suspension or revocation of our licenses or registrations, the termination or loss of contracts or the imposition of contractual damages, civil fines or criminal penalties any of which could have a material adverse effect on our business, financial condition and results of operations.  You should review the regulatory disclosures under the caption “Item 1.  Business — Government Regulation — FCC Regulation under the Communication Act” of this Annual Report on Form 10-K.

During January 2008, the U.S. Court of Appeals upheld a Texas jury verdict that certain of our digital video recorders, or DVRs, infringed a patent held by Tivo.

If we are unsuccessful in subsequent appeals or in defending against claims that our alternate technology infringes Tivo’s patent, we could be prohibited from distributing DVRs or be required to modify or eliminate certain user-friendly DVR features that we currently offer to consumers.  In that event, we would be at a significant disadvantage to our competitors who could offer this functionality and, while we would attempt to provide that functionality through other manufacturers, the adverse affect on our business could be material.  We could also have to pay substantial additional damages.

We currently have no commercial insurance coverage on the satellites we own.

We do not use commercial insurance to mitigate the potential financial impact of in-orbit failures because we believe that the cost of insurance premiums is uneconomical relative to the risk of satellite failure.  We believe we generally have in-orbit satellite capacity sufficient to recover, in a relatively short time frame, transmission of most of our critical programming in the event one of our in-orbit satellites fails.  We could not, however, recover certain local markets, international and other niche programming.  Further, programming continuity cannot be assured in the event of multiple satellite losses.


We currently do not have adequate backup satellite capacity to recover all of the local network channels broadcast from our EchoStar X satellite in the event of a complete failure of that satellite.  Therefore, our ability to deliver local channels in many markets, as well as our ability to comply with SHVERA requirements without incurring significant additional costs, depends on, among other things, the continued successful commercial operation of EchoStar X.

We also depend on EchoStar VIII, which we now lease from EchoStar, to provide service for us in the continental United States at least until such time as our EchoStar XI satellite has commenced commercial operation, which is currently expected to occur in mid-year 2008.  Otherwise in the event that EchoStar VIII experienced a total or substantial failure, we could transmit many, but not all, of those channels from other in-orbit satellites.

Our satellites are subject to risks related to launch.

Satellite launches are subject to significant risks, including launch failure, incorrect orbital placement or improper commercial operation.  Certain launch vehicles that may be used by us have either unproven track records or have experienced launch failures in the past.  The risks of launch delay and failure are usually greater when the launch vehicle does not have a track record of previous successful flights.  Launch failures result in significant delays in the deployment of satellites because of the need both to construct replacement satellites, which can take more than two years, and to obtain other launch opportunities.  Such significant delays could materially and adversely affect our ability to generate revenues.  If we were unable to obtain launch insurance, or obtain launch insurance at rates we deem commercially reasonable, and a significant launch failure were to occur, it could have a material adverse effect on our ability to generate revenues and fund future satellite procurement and launch opportunities.

In addition, the occurrence of future launch failures may materially and adversely affect our ability to insure the launch of our satellites at commercially reasonable premiums, if at all.  Please see further discussion under the caption “We currently have no commercial insurance coverage on the satellites we own” above.

Our satellites are subject to significant operational risks.

Satellites are subject to significant operational risks while in orbit.  These risks include malfunctions, commonly referred to as anomalies, that have occurred in our satellites and the satellites of other operators as a result of various factors, such as satellite manufacturers’ errors, problems with the power systems or control systems of the satellites and general failures resulting from operating satellites in the harsh environment of space.

Although we work closely with the satellite manufacturers to determine and eliminate the cause of anomalies in new satellites and provide for redundancies of many critical components in the satellites, we may experience anomalies in the future, whether of the types described above or arising from the failure of other systems or components.

Any single anomaly or series of anomalies could materially and adversely affect our operations and revenues and our relationship with current customers, as well as our ability to attract new customers for our multi-channel video services.  In particular, future anomalies may result in the loss of individual transponders on a satellite, a group of transponders on that satellite or the entire satellite, depending on the nature of the anomaly.  Anomalies may also reduce the expected useful life of a satellite, thereby reducing the channels that could be offered using that satellite, or create additional expenses due to the need to provide replacement or back-up satellites.  You should review the disclosures relating to satellite anomalies set forth under Note 4 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.

Meteoroid events pose a potential threat to all in-orbit satellites.  The probability that meteoroids will damage those satellites increases significantly when the Earth passes through the particulate stream left behind by comets.  Occasionally, increased solar activity also poses a potential threat to all in-orbit satellites.

Some decommissioned spacecraft are in uncontrolled orbits which pass through the geostationary belt at various points, and present hazards to operational spacecraft, including our satellites.  We may be required to perform maneuvers to avoid collisions and these maneuvers may prove unsuccessful or could reduce the useful life of the satellite through the expenditure of fuel to perform these maneuvers.  The loss, damage or destruction of any of our satellites as a result of an electrostatic storm, collision with space debris, malfunction or other event could have a material adverse effect on our business, financial condition and results of operations.


Our satellites have minimum design lives of 12 years, but could fail or suffer reduced capacity before then.

Our ability to earn revenue depends on the usefulness of our satellites, each of which has a limited useful life.  A number of factors affect the useful lives of the satellites, including, among other things, the quality of their construction, the durability of their component parts, the ability to continue to maintain proper orbit and control over the satellite’s functions, the efficiency of the launch vehicle used, and the remaining on-board fuel following orbit insertion.  Generally, the minimum design life of each of our satellites is 12 years.  We can provide no assurance, however, as to the actual useful lives of the satellites.

In the event of a failure or loss of any of our satellites, we may need to acquire or lease additional satellite capacity or relocate one of our other satellites and use it as a replacement for the failed or lost satellite, any of which could have a material adverse effect on our business, financial condition and results of operations.   A relocation would require FCC approval and, among other things, a showing to the FCC that the replacement satellite would not cause additional interference compared to the failed or lost satellite.  We cannot be certain that we could obtain such FCC approval.  If we choose to use a satellite in this manner, this use could adversely affect our ability to meet the operation deadlines associated with our authorizations.  Failure to meet those deadlines could result in the loss of such authorizations, which would have an adverse effect on our ability to generate revenues.

Complex technology used in our business could become obsolete.

Our operating results are dependent to a significant extent upon our ability to continue to introduce new products and services on a timely basis and to reduce costs of our existing products and services.  We may not be able to successfully identify new product or service opportunities or develop and market these opportunities in a timely or cost-effective manner.  The success of new product development depends on many factors, including proper identification of customer need, cost, timely completion and introduction, differentiation from offerings of competitors and market acceptance.

Technology in the multi-channel video programming industry changes rapidly as new technologies are developed, which could cause our services and products to become obsolete.  We and our suppliers may not be able to keep pace with technological developments.  If the new technologies on which we intend to focus our research and development investments fail to achieve acceptance in the marketplace, our competitive position could be impaired causing a reduction in our revenues and earnings.  We may also be at a competitive disadvantage in developing and introducing complex new products and technologies because of the substantial costs we may incur in making these products or technologies available across our installed base of over 13 million subscribers.  For example, our competitors could be the first to obtain proprietary technologies that are perceived by the market as being superior.  Further, after we have incurred substantial research and development costs, one or more of the technologies under our development, or under development by one or more of our strategic partners, could become obsolete prior to its introduction.  In addition, delays in the delivery of components or other unforeseen problems in our DBS system may occur that could materially and adversely affect our ability to generate revenue, offer new services and remain competitive.

Technological innovation is important to our success and depends, to a significant degree, on the work of technically skilled employees.  Competition for the services of these types of employees is vigorous.  We may not be able to attract and retain these employees.  If we are unable to attract and retain appropriately technically skilled employees, our competitive position could be materially and adversely affected.


We may have potential conflicts of interest with EchoStar.
 
Questions relating to conflicts of interest may arise between EchoStar and us in a number of areas relating to our past and ongoing relationships. Areas in which conflicts of interest between EchoStar and us could arise include, but are not limited to, the following:

·
Cross officerships, directorships and stock ownership. We have significant overlap in directors and executive officers with EchoStar, which may lead to conflicting interests.  For instance, certain of our executive officers, including Charles W. Ergen, our Chairman and Chief Executive Officer, serve as executive officers of EchoStar.  Three of our executive officers provide management services to EchoStar pursuant to a management services agreement between EchoStar and us.  These individuals may have actual or apparent conflicts of interest with respect to matters involving or affecting each company.  Furthermore, our board of directors includes persons who are members of the board of directors of EchoStar, including Mr. Ergen, who serves as the Chairman of EchoStar and us.  The executive officers and the members of our board of directors who overlap with EchoStar will have fiduciary duties to EchoStar’s shareholders.  For example, there will be the potential for a conflict of interest when we or EchoStar look at acquisitions and other corporate opportunities that may be suitable for both companies.  In addition, our directors and officers own EchoStar stock and options to purchase EchoStar stock, which they acquired or were granted prior to the Spin-off of EchoStar from us, including Mr. Ergen, who owns approximately 50.0% of the total equity and controls approximately 80.0% of the voting power of each of EchoStar and us.  These ownership interests could create actual, apparent or potential conflicts of interest when these individuals are faced with decisions that could have different implications for us and EchoStar.

·
Intercompany agreements related to the Spin-off. We have entered into certain agreements with EchoStar pursuant to which we will provide EchoStar with certain management, administrative, accounting, tax, legal and other services, for which EchoStar will pay us our cost plus an additional amount that is equal to a fixed percentage of our cost.  In addition, we have entered into a number of intercompany agreements covering matters such as tax sharing and EchoStar’s responsibility for certain liabilities previously undertaken by us for certain of EchoStar’s businesses.  We have also entered into certain commercial agreements with EchoStar pursuant to which EchoStar will, among other things, be obligated to sell to us at specified prices, set-top boxes and related equipment.  The terms of these agreements were established while EchoStar was a wholly-owned subsidiary of us and were not the result of arm’s length negotiations.  In addition, conflicts could arise between us and EchoStar in the interpretation or any extension or renegotiation of these existing agreements.

·
Future intercompany transactions. In the future, EchoStar or its affiliates may enter into transactions with us or our subsidiaries or other affiliates.  Although the terms of any such transactions will be established based upon negotiations between EchoStar and us and, when appropriate, subject to the approval of the disinterested directors on our board or a committee of disinterested directors, there can be no assurance that the terms of any such transactions will be as favorable to us or our subsidiaries or affiliates as may otherwise be obtained in arm’s length negotiations.

·
Business Opportunities.  We have retained interests in various U.S. and international companies that have subsidiaries or controlled affiliates that own or operate domestic or foreign services that may compete with services offered by EchoStar.  We may also compete with EchoStar when we participate in auctions for spectrum or orbital slots for our satellites.  In addition, EchoStar may in the future use its satellites, uplink and transmission assets to compete directly against us in the subscription television business.

We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.

We do not have any agreements with EchoStar that restrict us from selling our products to competitors of EchoStar. We also do not have any agreements with EchoStar that would prevent either company from competing with the other.


Our agreements with EchoStar may not reflect what two unaffiliated parties might have agreed to.
 
The allocation of assets, liabilities, rights, indemnifications and other obligations between EchoStar and us under the separation and other intercompany agreements we entered into with EchoStar in connection with the Spin-off of EchoStar from us do not necessarily reflect what two unaffiliated parties might have agreed to.  Had these agreements been negotiated with unaffiliated third parties, their terms may have been more favorable, or less favorable, to us.

We depend on EchoStar for many services, including the design, manufacture and supply of digital set-top boxes.

EchoStar is our sole supplier of digital set-top boxes.  In addition, EchoStar is a key supplier of uplink, satellite transmission and other services to us.  Because purchases from DISH Network are made pursuant to contracts that generally expire on January 1, 2010, EchoStar will have no obligation to supply digital set-top boxes and satellite services to us after that date.  Therefore, if we are unable to extend these contracts with EchoStar, or we are unable to obtain digital set-top boxes and satellite services from third parties after that date, there could be a significant adverse effect on our business, results of operations and financial position.

Furthermore, any transition to a new supplier of set-top boxes could result in increased costs, resources and development and customer qualification time. Any reduction in our supply of set-top boxes could significantly delay our ability to ship set-top boxes to our subscribers and potentially damage our relationships with our subscribers.

We rely on key personnel.

We believe that our future success will depend to a significant extent upon the performance of Charles W. Ergen, our Chairman and Chief Executive Officer and certain other executives.  The loss of Mr. Ergen or of certain other key executives could have a material adverse effect on our business, financial condition and results of operations.  Although all of our executives have executed agreements limiting their ability to work for or consult with competitors if they leave us, we do not have employment agreements with any of them.  Pursuant to a management services agreement with EchoStar entered into at the time of the Spin-off, we have agreed to make certain of our key officers available to provide services to EchoStar.  In addition Mr. Ergen also serves as Chairman and Chief Executive Officer of EchoStar.  To the extent Mr. Ergen and such other officers are performing services for EchoStar, this may divert their time and attention away from our business and may therefore adversely affect our business.

We are controlled by one principal stockholder.

Charles W. Ergen, our Chairman and Chief Executive Officer, currently beneficially owns approximately 50.0% of our total equity securities and possesses approximately 80.0% of the total voting power.  Thus, Mr. Ergen has the ability to elect a majority of our directors and to control all other matters requiring the approval of our stockholders.  As a result of Mr. Ergen’s voting power, DISH Network is a “controlled company” as defined in the Nasdaq listing rules and is, therefore, not subject to Nasdaq requirements that would otherwise require us to have (i)  a majority of independent directors; (ii) a nominating committee composed solely of independent directors; (iii) compensation of our executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors; and (iv) director nominees selected, or recommended for the Board’s selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors.

We may pursue new acquisitions, joint ventures and other transactions to complement or expand our business which may not be successful.
 
Our future success may depend on opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. We may not be able to complete such transactions and such transactions, if executed, pose significant risks and could have a negative effect on our operations. Any transactions that we are able to identify and complete may involve a number of risks, including:


·
the diversion of our management’s attention from our existing business to integrate the operations and personnel of the acquired or combined business or joint venture;
·
possible adverse effects on our operating results during the integration process; and
·
our possible inability to achieve the intended objectives of the transaction.

In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or employees. We may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies.

New acquisitions, joint ventures and other transactions may require the commitment of significant capital that would otherwise be directed to investments in our existing businesses or be distributed to shareholders. Commitment of this capital may cause us to defer or suspend any share repurchases that we otherwise may have made.

Our business depends substantially on FCC licenses that can expire or be revoked or modified and applications that may not be granted.
 
If the FCC were to cancel, revoke, suspend or fail to renew any of our licenses or authorizations, it could have a material adverse effect on our financial condition, profitability and cash flows.  Specifically, loss of a frequency authorization would reduce the amount of spectrum available to us, potentially reducing the amount of programming and other services available to our subscribers.  The materiality of such a loss of authorizations would vary based upon, among other things, the location of the frequency used or the availability of replacement spectrum.  In addition, Congress often considers and enacts legislation that could affect us, and FCC proceedings to implement the Communications Act and enforce its regulations are ongoing.  We cannot predict the outcomes of these legislative or regulatory proceedings or their effect on our business.

Our business relies on intellectual property, some of which is owned by third parties, and we may inadvertently infringe their patents and proprietary rights.
 
Many entities, including some of our competitors, have or may in the future obtain patents and other intellectual property rights that cover or affect products or services related to those that we offer.  In general, if a court determines that one or more of our products infringes on intellectual property held by others, we may be required to cease developing or marketing those products, to obtain licenses from the holders of the intellectual property at a material cost, or to redesign those products in such a way as to avoid infringing the patent claims.  If those intellectual property rights are held by a competitor, we may be unable to obtain the intellectual property at any price, which could adversely affect our competitive position.  Please see further discussion under Item 1. Business — Patents and Trademarks of this Annual Report on Form 10-K.

We depend on other telecommunications providers, independent retailers and others to solicit orders for DISH Network services.

While we offer receiver systems and programming directly, a majority of our new subscriber acquisitions are generated by independent businesses offering our products and services, including small satellite retailers, direct marketing groups, local and regional consumer electronics stores, nationwide retailers, telecommunications providers and others.  If we are unable to continue our arrangements with these resellers, we cannot guarantee that we would be able to obtain other sales agents, thus adversely affecting our business.

Certain of these resellers also offer the products and services of our competition and may favor our competitors products and services over ours based on the relative financial arrangements associated with selling our products and those of our competitors.


We have substantial debt outstanding and may incur additional debt

As of December 31, 2007, our total debt, including the debt of our subsidiaries, was $6.126 billion.  Our debt levels could have significant consequences, including:

 
·
making it more difficult to satisfy our obligations;

 
·
increasing our vulnerability to general adverse economic conditions, including changes in interest rates;

 
·
limiting our ability to obtain additional financing;

 
·
requiring us to devote a substantial portion of our available cash and cash flow to make interest and principal payments on our debt, thereby reducing the amount of available cash for other purposes;

 
·
limiting our financial and operating flexibility in responding to changing economic and competitive conditions; and

 
·
placing us at a disadvantage compared to our competitors that have less debt.

In addition, we may incur substantial additional debt in the future.  The terms of the indentures relating to our senior notes permit us to incur additional debt.  If new debt is added to our current debt levels, the risks we now face could intensify.

We may need additional capital, which may not be available, in order to continue growing, to increase earnings and to make payments on our debt.

Our ability to increase earnings and to make interest and principal payments on our debt will depend in part on our ability to continue growing our business by maintaining and increasing our subscriber base.  This may require significant additional capital that may not be available to us or may only be available on terms that are not attractive to us.

Funds necessary to meet subscriber acquisition and retention costs are expected to be satisfied from existing cash and marketable investment securities balances and cash generated from operations to the extent available.  We may, however, decide to raise additional capital in the future to meet these requirements.  There can be no assurance that additional financing will be available on acceptable terms, or at all, if needed in the future.

In particular, current dislocations in the credit markets, which have significantly impacted the availability and pricing of financing, particularly in the high yield debt and leveraged credit markets, may significantly constrain our ability to obtain financing to support our growth initiatives.  These developments in the credit markets may have a significant effect on our cost of financing and our liquidity position and may, as a result, cause us to defer or abandon profitable business strategies that we would otherwise pursue if financing were available on acceptable terms.

We may need to raise additional capital to construct, launch, and insure satellites and complete these systems and other satellites we may in the future apply to operate.  We also periodically evaluate various strategic initiatives, the pursuit of which also could require us to raise significant additional capital.  There can be no assurance that additional financing will be available on acceptable terms, or at all.
 
We may be unable to manage rapidly expanding operations.

If we are unable to manage our growth effectively, it could have a material adverse effect on our business, financial condition and results of operations.  To manage our growth effectively, we must, among other things, continue to develop our internal and external sales forces, installation capability, customer service operations and information systems, and maintain our relationships with third party vendors.  We also need to continue to expand, train and manage our employee base, and our management personnel must assume even greater levels of responsibility.  If we are unable to continue to manage growth effectively, we may experience a decrease in subscriber growth and an increase in churn, which could have a material adverse effect on our business, financial condition and results of operations.


We cannot be certain that we will sustain profitability.

Due to the substantial expenditures necessary to complete construction, launch and deployment of our DBS system and to obtain and service DISH Network customers, we have in the past sustained significant losses.  If we do not have sufficient income or other sources of cash, our ability to service our debt and pay our other obligations could be affected.  While we had net income of $756 million, $608 million and $1.515 billion for the years ended December 31, 2007, 2006 and 2005, respectively, we may not be able to sustain this profitability.  Improvements in our results of operations will depend largely upon our ability to increase our customer base while maintaining our price structure, effectively managing our costs and controlling churn.  We cannot assure you that we will be effective with regard to these matters.

We depend on few manufacturers, and in some cases a single manufacturer, for many components of consumer premises equipment; we may be adversely affected by product shortages.

We depend on relatively few sources, and in some cases a single source, for many components of the consumer premises equipment that we provide to subscribers in order to deliver our digital television services.  Following the Spin-off, we will depend solely on EchoStar for all of the set top boxes we sell or lease to subscribers.  Product shortages and resulting installation delays could cause us to lose potential future subscribers to our DISH Network service.
 
We cannot assure you that there will not be deficiencies leading to material weaknesses in our internal control over financial reporting.
 
We periodically evaluate and test our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act.  This evaluation and testing of internal control over financial reporting includes internal control over financial reporting relating to our operations.  Although our management has concluded that our internal control over financial reporting was effective as of December 31, 2007, if in the future we are unable to report that our internal control over financial reporting is effective (or if our auditors do not agree with our assessment of the effectiveness of, or are unable to express an opinion on, our internal control over financial reporting), investors, customers and business partners could lose confidence in the accuracy of our financial reports, which could in turn have a material adverse effect on our business.

Item 1B.
UNRESOLVED STAFF COMMENTS

None.


Item 2.
PROPERTIES

The following table sets forth certain information concerning our principal properties
Description/Use/Location
Segment(s)
Using
Property
 
Approximate
Square
Footage
 
Owned
or
Leased
           
Corporate headquarters, Englewood, Colorado*
All
    476,000  
Owned
EchoStar Technologies Corporation engineering offices and service center,  Englewood, Colorado*
ETC
    144,000  
Owned
EchoStar Technologies Corporation engineering offices, Englewood, Colorado*
ETC
    124,000  
Owned
EchoStar Data Networks engineering offices, Atlanta, Georgia
ETC
    50,000  
Leased
Digital broadcast operations center, Cheyenne, Wyoming*
DISH Network
    143,000  
Owned
Digital broadcast operations center, Gilbert, Arizona*
DISH Network
    124,000  
Owned
Regional digital broadcast operations center, Monee, Illinois*
DISH Network
    45,000  
Owned
Regional digital broadcast operations center, New Braunsfels, Texas*
DISH Network
    35,000  
Owned
Regional digital broadcast operations center, Quicksberg, Virginia*
DISH Network
    35,000  
Owned
Regional digital broadcast operations center, Spokane, Washington*
DISH Network
    35,000  
Owned
Regional digital broadcast operations center, Orange, New Jersey
DISH Network
    8,800  
Owned
Customer call center and data center, Littleton, Colorado*
DISH Network
    202,000  
Owned
Service center, Spartanburg, South Carolina
DISH Network
    316,000  
Leased
Customer call center, warehouse and service center, El Paso, Texas
DISH Network
    171,000  
Owned
Customer call center, McKeesport, Pennsylvania
DISH Network
    106,000  
Leased
Customer call center, Christiansburg, Virginia
DISH Network
    103,000  
Owned
Customer call center and general offices, Tulsa, Oklahoma
DISH Network
    79,000  
Leased
Customer call center and general offices, Pine Brook, New Jersey
DISH Network
    67,000  
Leased
Customer call center, Alvin, Texas
DISH Network
    60,000  
Leased
Customer call center, Thornton, Colorado
DISH Network
    55,000  
Owned
Customer call center, Harlingen, Texas
DISH Network
    54,000  
Owned
Customer call center, Bluefield, West Virginia
DISH Network
    50,000  
Owned
Customer call center, Hilliard, Ohio
DISH Network
    31,000  
Leased
Warehouse, distribution and service center, Atlanta, Georgia
DISH Network
    250,000  
Leased
Warehouse and distribution center, Denver, Colorado
DISH Network
    209,000  
Leased
Warehouse and distribution center, Sacramento, California
DISH Network
    82,000  
Owned
Warehouse center, Denver, Colorado
DISH Network
    44,000  
Owned
Engineering offices and warehouse, Almelo, The Netherlands*
All Other
    55,000  
Owned
Engineering offices, Steeton, England*
All Other
    43,000  
Owned
 
*  As of January 1, 2008, these principal properties were transferred to EchoStar in connection with the Spin-off.  Following the Spin-off, we will lease certain of these properties back from EchoStar at what we believe are market rates.

In addition to the principal properties listed above, we operate several DISH Network service centers strategically located in regions throughout the United States.


Item 3.     LEGAL PROCEEDINGS

Acacia

During 2004, Acacia Media Technologies (“Acacia”) filed a lawsuit against us in the United States District Court for the Northern District of California.  The suit also named DirecTV, Comcast, Charter, Cox and a number of smaller cable companies as defendants.  Acacia is an intellectual property holding company which seeks to license the patent portfolio that it has acquired.  The suit alleges infringement of United States Patent Nos. 5,132,992 (the ‘992 patent), 5,253,275 (the ‘275 patent), 5,550,863 (the ‘863 patent), 6,002,720 (the ‘720 patent) and 6,144,702 (the ‘702 patent). The ‘992, ‘863, ‘720 and ‘702 patents have been asserted against us.

The patents relate to various systems and methods related to the transmission of digital data.  The ‘992 and ‘702 patents have also been asserted against several Internet content providers in the United States District Court for the Central District of California.  During 2004 and 2005, the Court issued Markman rulings which found that the ‘992 and ‘702 patents were not as broad as Acacia had contended, and that certain terms in the ‘702 patent were indefinite.  In April 2006, DISH Network and other defendants asked the Court to rule that the claims of the ‘702 patent are invalid and not infringed.  That motion is pending.  In June and September 2006, the Court held Markman hearings on the ‘992, ‘863 and ‘720 patents, and issued a ruling during December 2006.

Acacia’s various patent infringement cases have been consolidated for pre-trial purposes in the United States District Court for the Northern District of California.  We intend to vigorously defend this case.  In the event that a Court ultimately determines that we infringe any of the patents, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.
 
Broadcast Innovation, L.L.C.

In 2001, Broadcast Innovation, L.L.C. (“Broadcast Innovation”) filed a lawsuit against us, DirecTV, Thomson Consumer Electronics and others in Federal District Court in Denver, Colorado.  The suit alleges infringement of United States Patent Nos. 6,076,094 (the ‘094 patent) and 4,992,066 (the ‘066 patent).  The ‘094 patent relates to certain methods and devices for transmitting and receiving data along with specific formatting information for the data.  The ‘066 patent relates to certain methods and devices for providing the scrambling circuitry for a pay television system on removable cards.  We examined these patents and believe that they are not infringed by any of our products or services.  Subsequently, DirecTV and Thomson settled with Broadcast Innovation leaving us as the only defendant.
 
During 2004, the judge issued an order finding the ‘066 patent invalid.  Also in 2004, the Court ruled the ‘094 patent invalid in a parallel case filed by Broadcast Innovation against Charter and Comcast.  In 2005, the United States Court of Appeals for the Federal Circuit overturned the ‘094 patent finding of invalidity and remanded the case back to the District Court.  During June 2006, Charter filed a reexamination request with the United States Patent and Trademark Office.  The Court has stayed the case pending reexamination.  Our case remains stayed pending resolution of the Charter case.
 
We intend to vigorously defend this case.  In the event that a Court ultimately determines that we infringe any of the patents, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.
 
Channel Bundling Class Action

On September 21, 2007, a purported class of cable and satellite subscribers filed an antitrust action against us in the United States District Court for the Central District of California.  The suit also names as defendants DirecTV, Comcast, Cablevision, Cox, Charter, Time Warner, Inc., Time Warner Cable, NBC Universal, Viacom, Fox Entertainment Group, and Walt Disney Company.  The suit alleges, among other things, that the defendants engaged in a conspiracy to provide customers with access only to bundled channel offerings as opposed to giving customers the ability to purchase channels on an “a la carte” basis.  We filed a motion to dismiss, which the court has not yet ruled upon.  We intend to vigorously defend this case.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.


Distant Network Litigation

During October 2006, a District Court in Florida entered a permanent nationwide injunction prohibiting us from offering distant network channels to consumers effective December 1, 2006.  Distant networks are ABC, NBC, CBS and Fox network channels which originate outside the community where the consumer who wants to view them, lives.  We have turned off all of our distant network channels and are no longer in the distant network business.  Termination of these channels resulted in, among other things, a small reduction in average monthly revenue per subscriber and free cash flow, and a temporary increase in subscriber churn.  The plaintiffs in that litigation allege that we are in violation of the Court’s injunction and have appealed a District Court decision finding that we are not in violation.  We intend to vigorously defend this case.  We cannot predict with any degree of certainty the outcome of the appeal or determine the extent of any potential liability or damages.

Enron Commercial Paper Investment

During October 2001, we received approximately $40 million from the sale of Enron commercial paper to a third party broker.  That commercial paper was ultimately purchased by Enron.  During November 2003, an action was commenced in the United States Bankruptcy Court for the Southern District of New York against approximately 100 defendants, including us, who invested in Enron’s commercial paper.  The complaint alleges that Enron’s October 2001 purchase of its commercial paper was a fraudulent conveyance and voidable preference under bankruptcy laws.  We dispute these allegations.  We typically invest in commercial paper and notes which are rated in one of the four highest rating categories by at least two nationally recognized statistical rating organizations.  At the time of our investment in Enron commercial paper, it was considered to be high quality and low risk.  We intend to vigorously defend this case.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Finisar Corporation

Finisar Corporation (“Finisar”) obtained a $100 million verdict in the United States District Court for the Eastern District of Texas against DirecTV for patent infringement.  Finisar alleged that DirecTV’s electronic program guide and other elements of its system infringe United States Patent No. 5,404,505 (the ‘505 patent).

In July 2006, we, together with NagraStar LLC, filed a Complaint for Declaratory Judgment in the United States District Court for the District of Delaware against Finisar that asks the Court to declare that they and we do not infringe, and have not infringed, any valid claim of the ‘505 patent.  Trial is not currently scheduled.  The District Court has stayed our action until the Federal Circuit has resolved DirecTV’s appeal.

We intend to vigorously prosecute this case.  In the event that a Court ultimately determines that we infringe this patent, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to modify our system architecture.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Forgent

During 2005, Forgent Networks, Inc. (“Forgent”) filed a lawsuit against us in the United States District Court for the Eastern District of Texas.  The suit also named DirecTV, Charter, Comcast, Time Warner Cable, Cable One and Cox as defendants.  The suit alleged infringement of United States Patent No. 6,285,746 (the ‘746 patent).  The ‘746 patent discloses, among other things, a video teleconferencing system which utilizes digital telephone lines.  Prior to trial, all of the other defendants settled with Forgent.  Forgent sought over $200 million in damages from DISH Network.  On May 21, 2007, the jury unanimously ruled in favor of DISH Network, finding the ‘746 patent invalid.  Forgent filed a motion for a new trial, which the District Court denied.   Forgent did not appeal, so the District Court’s finding of invalidity is now final.


Global Communications

On April 19, 2007, Global Communications, Inc. (“Global”) filed a patent infringement action against us in the United States District Court for the Eastern District of Texas.  The suit alleges infringement of United States Patent No. 6,947,702 (the ‘702 patent).  This patent, which involves satellite reception, was issued in September 2005.  On October 24, 2007, the United States Patent and Trademark Office granted our request for reexamination of the ‘702 patent and issued an Office Action finding that all of the claims of the ‘702 patent were invalid.  Based on the PTO’s decision, we have asked the District Court to stay the litigation until the reexamination proceeding is concluded.  We intend to vigorously defend this case.  In the event that a Court ultimately determines that we infringe the ‘702 patent, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Katz Communications

On June 21, 2007, Ronald A. Katz Technology Licensing, L.P. (“Katz”) filed a patent infringement action against us in the United States District Court for the Northern District of California.  The suit alleges infringement of 19 patents owned by Katz.  The patents relate to interactive voice response, or IVR, technology.  We intend to vigorously defend this case.  In the event that a Court ultimately determines that we infringe any of the asserted patents, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Retailer Class Actions

During 2000, lawsuits were filed by retailers in Colorado state and federal court attempting to certify nationwide classes on behalf of certain of our retailers.  The plaintiffs are requesting the Courts declare certain provisions of, and changes to, alleged agreements between us and the retailers invalid and unenforceable, and to award damages for lost incentives and payments, charge backs, and other compensation.  We are vigorously defending against the suits and have asserted a variety of counterclaims.  The federal court action has been stayed during the pendency of the state court action.  We filed a motion for summary judgment on all counts and against all plaintiffs.  The plaintiffs filed a motion for additional time to conduct discovery to enable them to respond to our motion.  The Court granted limited discovery which ended during 2004.  The plaintiffs claimed we did not provide adequate disclosure during the discovery process.  The Court agreed, and recently denied our motion for summary judgment as a result.  The final impact of the Court’s ruling cannot be fully assessed at this time.  Trial has been set for August 2008.  We intend to vigorously defend this case.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Superguide

During 2000, Superguide Corp. (“Superguide”) filed suit against us, DirecTV, Thomson and others in the United States District Court for the Western District of North Carolina, Asheville Division, alleging infringement of United States Patent Nos. 5,038,211 (the ‘211 patent), 5,293,357 (the ‘357 patent) and 4,751,578 (the ‘578 patent) which relate to certain electronic program guide functions, including the use of electronic program guides to control VCRs.  Superguide sought injunctive and declaratory relief and damages in an unspecified amount.

On summary judgment, the District Court ruled that none of the asserted patents were infringed by us.  These rulings were appealed to the United States Court of Appeals for the Federal Circuit.  During 2004, the Federal Circuit affirmed in part and reversed in part the District Court’s findings and remanded the case back to the District Court for further proceedings.  In 2005, Superguide indicated that it would no longer pursue infringement allegations with respect to the ‘211 and ‘357 patents and those patents have now been dismissed from the suit.  The District Court subsequently entered judgment of non-infringement in favor of all defendants as to the ‘211 and ‘357 patents and ordered briefing on Thomson’s license defense as to the ‘578 patent.  During December 2006, the District Court found that there were disputed issues of fact regarding Thomson’s license defense, and ordered a trial solely addressed to that issue.  That trial took place in March 2007.  In July 2007, the District Court ruled in favor of Superguide.  As a result, Superguide will be able to proceed with its infringement action against us, DirecTV and Thomson.


We intend to vigorously defend this case.  In the event that a Court ultimately determines that we infringe the ‘578 patent, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain user-friendly electronic programming guide and related features that we currently offer to consumers.  We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Tivo Inc.

On January 31, 2008, the U.S. Court of Appeals for the Federal Circuit affirmed in part and reversed in part the April 2006 jury verdict concluding that certain of our digital video recorders, or DVRs, infringed a patent held by Tivo.  In its decision, the Federal Circuit affirmed the jury’s verdict of infringement on Tivo’s “software claims,” upheld the award of damages from the district court, and ordered that the stay of the district court’s injunction against us, which was issued pending appeal, will dissolve when the appeal becomes final.  The Federal Circuit, however, found that we did not literally infringe Tivo’s “hardware claims,” and remanded such claims back to the district court for further proceedings.  We are appealing the Federal Circuit’s ruling.
 
In addition, we have developed and deployed ‘next-generation’ DVR software to our customers’ DVRs.  This improved software is fully operational and has been automatically downloaded to current customers (the “Design-Around”).  We have formal legal opinions from outside counsel that conclude that our Design-Around does not infringe, literally or under the doctrine of equivalents, either the hardware or software claims of Tivo’s patent.
 
In accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS 5”), we recorded a total reserve of $128 million in “Litigation expense” on our Consolidated Balance Sheets to reflect the jury verdict, supplemental damages and pre-judgment interest awarded by the Texas court.  This amount also includes the estimated cost of any software infringement prior to the Design-Around, plus interest subsequent to the jury verdict.
 
If the Federal Circuit’s decision is upheld and Tivo decides to challenge the Design-Around, we will mount a vigorous defense.  If we are unsuccessful in subsequent appeals or in defending against claims that the Design-Around infringes Tivo’s patent, we could be prohibited from distributing DVRs, or be required to modify or eliminate certain user-friendly DVR features that we currently offer to consumers.  In that event we would be at a significant disadvantage to our competitors who could offer this functionality and, while we would attempt to provide that functionality through other manufacturers, the adverse affect on our business could be material.  We could also have to pay substantial additional damages.

Trans Video

In August 2006, Trans Video Electronic, Ltd. (“Trans Video”) filed a patent infringement action against us in the United States District Court for the Northern District of California.  The suit alleges infringement of United States Patent Nos. 5,903,621 (the ‘621 patent) and 5,991,801 (the ‘801 patent).  The patents relate to various methods related to the transmission of digital data by satellite.  On May 14, 2007, we reached a settlement with Trans Video which did not have a material impact on our results of operations.
 
Other

In addition to the above actions, we are subject to various other legal proceedings and claims which arise in the ordinary course of business.  In our opinion, the amount of ultimate liability with respect to any of these actions is unlikely to materially affect our financial position, results of operations or liquidity.


Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No items were submitted to a vote of security holders during the fourth quarter of 2007.

PART II

Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

Market Information.  Our Class A common stock is quoted on the Nasdaq Global Select Market under the symbol “DISH.”  The sale prices shown below reflect inter-dealer quotations and do not include retail markups, markdowns, or commissions and may not necessarily represent actual transactions.  The high and low closing sale prices of our Class A common stock during 2007 and 2006 on the Nasdaq Global Select Market (as reported by Nasdaq) are set forth below.  The sales prices of our Class A common stock reported below are not adjusted to reflect the Spin-off.


2007
 
High
   
Low
 
First Quarter
  $ 44.43     $ 38.21  
Second Quarter
    49.56       42.89  
Third Quarter
    46.81       38.00  
Fourth Quarter
    51.08       36.77  
                 
2006
 
High
   
Low
 
First Quarter
  $ 29.98     $ 27.20  
Second Quarter
    32.25       29.85  
Third Quarter
    35.44       30.02  
Fourth Quarter
    38.45       32.07  

As of February 19, 2008, there were approximately 11,435 holders of record of our Class A common stock, not including stockholders who beneficially own Class A common stock held in nominee or street name.  As of February 19, 2008, 208,059,154 of the 238,435,208 outstanding shares of our Class B common stock were held by Charles W. Ergen, our Chairman and Chief Executive Officer and the remaining 30,376,054 were held in a trust for members of Mr. Ergen’s family. There is currently no trading market for our Class B common stock.

Spin-off.  On January 1, 2008, DISH Network spun off EchoStar as a separate publicly-traded company in the form of a stock dividend distributed to DISH Network shareholders.  DISH Network stockholders received for each share of common stock held on the record date for the Spin-off, 0.20 of a share of the same class of common stock of EchoStar.  On February 19, 2008, the closing sale price per share of our common stock on the Nasdaq Global Select Market was $30.33.

We currently do not intend to declare additional dividends on our common stock.  Payment of any future dividends will depend upon our earnings and capital requirements, restrictions in our debt facilities, and other factors the Board of Directors considers appropriate.  We currently intend to retain our earnings, if any, to support future growth and expansion although we expect to repurchase shares of our common stock from time to time.  See “Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

Securities Authorized for Issuance Under Equity Compensation Plans.  See Item 12 – Security Ownership of Certain Beneficial Owners and Management.


Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information regarding purchases of our Class A common stock made by us for the period from October 1, 2007 through December 31, 2007.

Period
 
Total
Number of
Shares
Purchased
(a)
   
Average
Price Paid
per Share
   
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
   
Maximum Approximate
Dollar Value of Shares
that May Yet be
Purchased Under the
Plans or Programs (b)
 
   
(In thousands, except share data)
 
October 1 - October 31, 2007
    -     $ -       -     $ 625,811  
November 1 - November 30, 2007
    -     $ -       -     $ 1,000,000  
December 1 - December 31, 2007
    -     $ -       -     $ 1,000,000  
Total
    -     $ -       -     $ 1,000,000  

(a)
During the period from October 1, 2007 through December 31, 2007, we did not repurchase any of our Class A common stock pursuant to our repurchase program.

(b)
During November 2007, our Board of Directors authorized an increase in the maximum dollar value of shares that may be repurchased under our stock repurchase program, such that we are currently authorized to repurchase up to an aggregate of $1.0 billion of our outstanding shares through and including December 31, 2008.  Purchases under our repurchase program may be made through open market purchases, privately negotiated transactions, or Rule 10b5-1 trading plans, subject to market conditions and other factors.  We may elect not to purchase the maximum amount of shares allowable under this program and we may also enter into additional share repurchase programs authorized by our Board of Directors.

Item 6.
SELECTED FINANCIAL DATA

The selected consolidated financial data as of and for each of the five years ended December 31, 2007 have been derived from, and are qualified by reference to our Consolidated Financial Statements.  Certain prior year amounts have been reclassified to conform to the current year presentation.  See further discussion under Item 7. – “Explanation of Key Metrics and Other Items.”  This data should be read in conjunction with our Consolidated Financial Statements and related Notes thereto for the three years ended December 31, 2007, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report.


   
For the Years Ended December 31,
 
Statements of Operations Data
 
2007
   
2006
   
2005
   
2004
   
2003
 
   
(In thousands, except per share data)
 
Revenue:
                             
Subscriber-related revenue
  $ 10,690,976     $ 9,422,274     $ 8,027,664     $ 6,724,757     $ 5,439,638  
Equipment sales
    362,185       362,098       367,968       364,929       285,551  
Other
    37,214       34,114       51,543       68,785       14,107  
Total revenue
    11,090,375       9,818,486       8,447,175       7,158,471       5,739,296  
Costs and Expenses:
                                       
 Subscriber-related expenses (exclusive of depreciation shown below
    5,496,579       4,807,872       4,095,986       3,618,259       2,738,821  
Satellite and transmission expenses (exclusive of depreciation shown below
    180,687       147,450       134,545       112,238       79,322  
Cost of sales – equipment
    270,389       282,420       271,697       259,058       161,724  
Cost of sales – other
    11,333       7,260       23,339       33,265       3,496  
Subscriber acquisition costs
    1,570,415       1,596,303       1,492,581       1,527,887       1,312,068  
General and administrative
    624,251       551,547       456,206       398,898       336,267  
Litigation expense
    33,907       93,969       -       -       -  
Depreciation and amortization
    1,329,410       1,114,294       805,573       505,561       400,050  
Total costs and expenses
    9,516,971       8,601,115       7,279,927       6,455,166       5,031,748  
Operating income (loss)
  $ 1,573,404     $ 1,217,371     $ 1,167,248     $ 703,305     $ 707,548  
                                         
Net income (loss)
  $ 756,054     $ 608,272     $ 1,514,540 (1)   $ 214,769     $ 224,506  
                                         
Basic net income (loss) available to common stockholders
  $ 756,054     $ 608,272     $ 1,514,540     $ 214,769     $ 224,506  
Diluted net income (loss) available to common stockholders
  $ 765,571     $ 618,106     $ 1,560,688 (1)   $ 214,769     $ 224,506  
Basic weighted-average common shares outstanding
    447,302       444,743       452,118       464,053       483,098  
Diluted weighted-average common shares outstanding
    456,834       452,685       484,131       467,598       488,314  
Basic net income (loss) per share
  $ 1.69     $ 1.37     $ 3.35     $ 0.46     $ 0.46  
Diluted net income (loss) per share
  $ 1.68     $ 1.37     $ 3.22     $ 0.46     $ 0.46  
Cash dividend per common share
  $ -     $ -     $ -     $ 1.00     $ -  


   
As of December 31,
 
Balance Sheet Data
 
2007
   
2006
   
2005
   
2004
   
2003
 
   
(In thousands)
 
Cash, cash equivalents and marketable investment securities
  $ 2,788,196     $ 3,032,570     $ 1,181,361     $ 1,155,633     $ 3,972,974  
Restricted cash and marketable investment securities
    172,520       172,941       67,120       57,552       19,974  
Cash reserved for satellite insurance
    -       -       -       -       176,843  
Total assets
    10,086,529       9,768,696       7,410,210       6,029,277       7,585,018  
Long-term debt and capital lease obligations (including current portion)
    6,125,704       6,967,321       5,935,301       5,791,561       6,937,673  
Total stockholders' equity (deficit)
    639,989       (219,383 )     (866,624 )     (2,078,212 )     (1,032,524 )


   
For the Years Ended December 31,
 
Other Data
 
2007
   
2006
   
2005
   
2004
   
2003
 
DISH Network subscribers, as of period end (in millions)
    13.780       13.105       12.040       10.905       9.425  
DISH Network subscriber additions, gross (in millions)
    3.434       3.516       3.397       3.441       2.894  
DISH Network subscriber additions, net (in millions)
    0.675       1.065       1.135       1.480       1.245  
Average monthly subscriber churn rate
    1.70 %     1.64 %     1.65 %     1.62 %     1.57 %
Average monthly revenue per subscriber  ("ARPU")
  $ 65.83     $ 62.78     $ 58.34     $ 55.26     $ 51.30  
Average subscriber acquisition costs per subscriber ("SAC")
  $ 656     $ 686     $ 693     $ 611     $ 491  
Net cash flows from (in thousands):
                                       
Operating activities
  $ 2,616,721     $ 2,279,242     $ 1,774,074     $ 1,001,442     $ 575,581  
Investing activities
  $ (2,382,992 )   $ (1,993,953 )   $ (1,460,342 )   $ 1,078,281     $ (1,761,870 )
Financing activities
  $ (976,016 )   $ 1,022,147     $ (402,623 )   $ (2,666,022 )   $ 994,070  
 
(1)
Net income in 2005 includes $593 million and $322 million resulting from the reversal and current year activity, respectively, of our recorded valuation allowance for those net deferred tax assets that we believe are more likely than not to be realized in the future (see Note 6 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K).


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

Overview

We have historically positioned the DISH Network as the leading low-cost provider of multi-channel pay TV principally by offering lower cost programming packages.  At the same time we have sought to offer high quality programming, equipment and customer service.

We invest significant amounts in subscriber acquisition and retention programs based on our expectation that long-term subscribers will be profitable.  To attract subscribers, we subsidize the cost of equipment and installation and may also from time to time offer promotional pricing on programming and other services to increase our subscriber base.  We also seek to differentiate DISH Network through the quality of the equipment we provide to our subscribers, including our highly rated digital video recorder (“DVR”) and high definition (“HD”) equipment which we promote to drive subscriber growth and retention.  Subscriber growth is also impacted, positively and negatively, by customer service and customer experience in order, installation and troubleshooting interactions.

During 2007, our subscriber base continued to grow, but at a slower pace than in previous periods.  We believe that our slower subscriber growth was driven in part by competitive factors including the effectiveness of certain competitors’ promotional offers, the number of markets in which competitors offer local HD channels, and their aggressive marketing of such advantages.  Satellite launch delays at DISH Network have slowed its growth of local HD markets which in turn has delayed its own aggressive retention marketing efforts.   Subscriber growth was also affected by worsening economic conditions which included a slowdown in new housing starts.  Additional impacts to subscriber growth included operational inefficiencies at DISH Network and piracy and other forms of fraud.   Most of the factors described above have affected both the growth of new subscribers and the churn of existing customers.

Slower subscriber growth rates continued in the fourth quarter of 2007, during which we added 85,000 net new DISH Network subscribers.  This rate of growth was substantially lower than we have historically experienced on a quarterly basis for the reasons mentioned above, and was particularly slow given that we typically record relatively higher net subscriber growth rates in the fourth fiscal quarter of each year. 

We believe opportunities exist to continue growing our subscriber base but whether we will be able to achieve net subscriber growth is subject to a number of risks and uncertainties, including those described elsewhere in this annual report.

The Spin-off.  Effective January 1, 2008, we completed the separation of the assets and businesses we owned and operated historically into two companies (the “Spin-off”):

 
·
DISH Network, through which we retain our pay-TV business, and

 
·
EchoStar Corporation (“EchoStar”), formerly known as EchoStar Holding Corporation, which holds the digital set top box business, certain satellites, uplink and satellite transmission assets, real estate and other assets and related liabilities formerly held by DISH Network.

DISH Network and EchoStar now operate separately, and neither entity has any ownership interest in the other.  In connection with the Spin-off, DISH Network entered into certain agreements with EchoStar to define responsibility for obligations relating to, among other things, set-top box sales, transition services, taxes, employees and intellectual property which will have an impact in the future on several of our key operating metrics.

We believe that the Spin-off will enable us to focus more directly on the business strategies relevant to subscription television business, but we recognize that, particularly during 2008, we may experience disruptions and loss of synergies in our business due to the separation of the two businesses, which could in turn increase our costs.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Operational Results and Goals

Adding new subscribers.  During 2007, DISH Network added 675,000 net new subscribers ending the year with approximately 13.780 million subscribers compared to approximately 13.105 million subscribers at December 31, 2006, an increase of 5.2%.  Although this growth rate was slower than in prior years and this deceleration continued in the fourth quarter, we intend to continue to seek to add new subscribers by offering compelling value-based consumer promotions in a disciplined manner.  These promotions include offers of free or low cost advanced consumer electronics products, such as receivers with multiple tuners, HD receivers, DVRs, HD DVRs and place shifting technology (“Slingbox”), as well as programming packages which we position to have a better “price-to-value” relationship than packages offered by our competitors.

However, there are many reasons we may not be able to maintain subscriber growth, which will depend in part on general economic conditions affecting demand for multi-channel video programming generally.  In addition, many of our competitors are better equipped than we are to offer video services bundled with broadband and other telecommunications services that may be attractive to prospective subscribers.  Our subscriber growth would also be negatively impacted to the extent our competitors offer more attractive consumer promotions or are perceived in the market as offering more compelling services, such as a broader range of HD programming or exclusive programming packages.

Minimize existing customer churn.  In order to continue growing our subscriber base, we must minimize our rate of customer turnover, or “churn.”  Our average monthly subscriber churn for the year ended December 31, 2007 was approximately 1.70%, a rate greater than we’ve experienced in recent years due mostly to high churn in the second half of 2007.  We attempt to contain churn by tailoring our promotions towards DVRs, HD, and other advanced products which attract customers who tend to churn at slower rates.  We continue to require and have lengthened service commitments from subscribers and have strengthened credit requirements.   Beyond these efforts, the competitive environment may require us to increase promotional spending substantially or accept lower subscriber acquisitions.  Moreover, given the increasing customer demand for advanced products such as DVRs and HD, it may not be possible to reduce churn without significantly increasing our spending on customer retention, which would have a negative effect on our earnings and free cash flow.

Reduce costs.  We believe that our low cost structure is one of our key competitive advantages and we continue to work aggressively to retain this position.  We are attempting to control costs by improving the quality of the initial installation of subscriber equipment, improving the reliability of our equipment, providing better subscriber education in the use of our products and services, and enhancing our training and quality assurance programs for our in-home service and call center representatives, all of which should reduce the number of in-home installation and service calls.  We believe that further standardization of our receiver systems, introduction of new installation technology and the migration away from relatively expensive and complex subscriber equipment installations may also reduce in-home service and customer service calls.  In addition, we hope to further reduce our customer service calls by simplifying processes such as billing and non-technical equipment issues.  However, these initiatives may not be sufficient to maintain or increase our operational efficiencies and we may not be able to continue to grow our operations cost effectively.

We also attempt to reduce subscriber acquisition and retention costs by lowering the overall cost of subsidized equipment we provide to new and existing customers and improving the cost effectiveness of our sales efforts.  Our principal method for reducing the cost of subscriber equipment is to lease our receiver systems to new and existing subscribers rather than selling systems to them at little or no cost.  Leasing enables us to, among other things, reduce our future subscriber acquisition costs by redeploying equipment returned by disconnected lease subscribers.  We are further reducing the cost of subscriber equipment through our design and deployment of receivers with multiple tuners that allow the subscriber to receive our DISH Network services in multiple rooms using a single receiver, thereby reducing the number of receivers we deploy to each subscriber household.  Additionally, we continue to re-engineer our equipment to reduce the manufacturing costs.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

However, our overall costs to retain existing subscribers and acquire new subscribers, including amounts expensed and capitalized, both in the aggregate and on a per subscriber basis, may materially increase in the future to the extent that we respond to the competitive environment by introducing more aggressive promotions or newer, more expensive consumer electronics products.  In addition, expanded use of new compression technologies, such as MPEG-4 and 8PSK, will inevitably render some portion of our current and future receivers obsolete, and we will incur additional costs, which may be substantial, to upgrade or replace these receivers.  While we may be able to generate increased revenue from such conversions, the deployment of equipment including new technologies will increase the cost of our consumer equipment, at least in the short term.  Our subscriber acquisition and retention costs will increase to the extent we subsidize those costs for new and existing subscribers.

Prior to the Spin-off, our set-top boxes and other customer equipment and satellite, uplink and transmission services were recorded at cost.  Following the Spin-off, we will purchase set-top boxes from EchoStar at its cost plus an additional incremental amount that is equal to a fixed percentage of its cost.  The specific amounts that we pay for set-top boxes will depend on a variety of factors including the types of set-top boxes that we purchase.  In addition, we will purchase and/or lease satellite, uplink and transmission services from EchoStar at higher rates than we have traditionally paid.  The prices that we pay for these services will depend upon the nature of the services that we obtain from EchoStar and the competitive market for these services.  Furthermore, as part of the Spin-off, certain real estate was contributed to EchoStar and leased back to us and we will incur additional costs in the form of rent paid on these leases.  These additional anticipated costs are not reflected in our historical consolidated financial statements for periods prior to January 1, 2008.

Pursue growth initiatives.  Our ability to achieve future growth and success may require that we seek out opportunities to acquire other businesses or technologies to complement, enhance or expand our current business or products, or offer us other growth opportunities or that we make other significant investments in technologies or in alternative or expanded means of distributing our programming.  Any of these acquisitions, investments or other transactions may require that we commit significant capital that would otherwise be directed to investments in our existing businesses or available for distribution to our shareholders

Current dislocations in the credit markets, which have significantly impacted the availability and pricing of financing, particularly in the high yield debt and leveraged credit markets, may limit our ability to obtain financing to support our growth initiatives.  These developments in the credit markets may have a significant effect on our cost of financing and may, as a result, cause us to defer or abandon profitable business strategies that we would otherwise pursue if financing were available on acceptable terms

The FCC announced on January 14, 2008 that we were qualified to participate in the FCC auction of the 700 MHz band.  The 700 MHz spectrum is being returned by television broadcasters as they move to digital from analog signals in early 2009.  The spectrum has significant commercial value because 700 MHz signals can travel long distances and penetrate thick walls.  Under the FCC’s anti-collusion and anonymous bidding rules for this auction, we are not permitted to disclose publicly our interest level or activity level in the auction, if any, at this time.  Based on published reports, however, we believe that any successful bidders will be required to expend significant amounts to secure and commercialize these licenses.  In particular if we were to participate and be successful in this auction we could be required to raise additional capital in order to secure and commercialize these licenses, which may not be available to us on attractive terms in the current credit market environment.  Moreover, there can be no assurance that successful bidders will be able to achieve a return on their investments in the 700MHz spectrum or to raise all the capital required to develop these licenses. 


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

EXPLANATION OF KEY METRICS AND OTHER ITEMS

Subscriber-related revenue.  “Subscriber-related revenue” consists principally of revenue from basic, movie, local, pay-per-view, and international subscription television services, equipment rental fees, additional outlet fees from subscribers with multiple receivers, DVR fees, advertising sales, fees earned from our DishHOME Protection Plan, equipment upgrade fees, HD programming and other subscriber revenue.  Therefore, not all of the amounts we include in “Subscriber-related revenue” are recurring on a monthly basis.

Effective the third quarter of 2007, we reclassified certain revenue from programmers from “Other” sales to “Subscriber-related revenue.”  All prior period amounts were reclassified to conform to the current period presentation.

Equipment sales. “Equipment sales” include sales of non-DISH Network digital receivers and related components to an international DBS service provider and to other international customers.  “Equipment sales” also includes unsubsidized sales of DBS accessories to retailers and other distributors of our equipment domestically and to DISH Network subscribers.  Following the Spin-off, our set-top box business, consisting of sales of non-DISH Network digital receivers and related components to an international DBS service provider and to other international customers, is being operated by EchoStar, a separate, publicly-traded company.

“Other” sales. “Other” sales consist principally of satellite transmission revenue.

Effective in the third quarter of 2007, we reclassified certain revenue from programmers from “Other” sales to “Subscriber-related revenue.”  All prior period amounts were reclassified to conform to the current period presentation.

Subscriber-related expenses.  “Subscriber-related expenses” principally include programming expenses, costs incurred in connection with our in-home service and call center operations, copyright royalties, billing costs, residual commissions paid to our distributors, refurbishment and repair costs related to receiver systems, subscriber retention and other variable subscriber expenses.  All prior period amounts were reclassified to conform to the current period presentation.

Satellite and transmission expenses.  “Satellite and transmission expenses” include costs associated with the operation of our digital broadcast centers, the transmission of local channels, satellite telemetry, tracking and control services, satellite and transponder leases, and other related services.  Following the Spin-off, we lease satellite and transponder capacity on several satellites that we formerly owned, and we will incur higher satellite and transmission expenses with respect to that leased capacity.

Cost of sales – equipment.  “Cost of sales – equipment” principally includes costs associated with non-DISH Network digital receivers and related components sold to an international DBS service provider and to other international customers.  “Cost of sales – equipment” also includes unsubsidized sales of DBS accessories to retailers and other distributors of our equipment domestically and to DISH Network subscribers.  Following the Spin-off, our set-top box business, consisting of sales of non-DISH Network digital receivers and related components to an international DBS service provider and to other international customers, is being operated by EchoStar.

Cost of sales – other.  “Cost of sales – other” principally includes costs related to satellite transmission services.

Subscriber acquisition costs. In addition to leasing receivers, we generally subsidize installation and all or a portion of the cost of our receiver systems in order to attract new DISH Network subscribers.  Our “Subscriber acquisition costs” include the cost of our receiver systems sold to retailers and other distributors of our equipment, the cost of receiver systems sold directly by us to subscribers, net costs related to our promotional incentives, and costs related to installation and acquisition advertising.  We exclude the value of equipment capitalized under our lease program for new subscribers from “Subscriber acquisition costs.”

SAC.  Management believes subscriber acquisition cost measures are commonly used by those evaluating companies in the multi-channel video programming distribution industry.  We are not aware of any uniform standards for calculating the “average subscriber acquisition costs per new subscriber activation,” or SAC, and we believe presentations of SAC may not be calculated consistently by different companies in the same or similar businesses.  Our SAC is calculated as “Subscriber acquisition costs,” plus the value of equipment capitalized under our lease program for new subscribers, divided by gross subscriber additions.  We include all the costs of acquiring subscribers (i.e. subsidized and capitalized equipment) as our management believes it is a more comprehensive measure of how much we are spending to acquire subscribers.  We also include all new DISH Network subscribers in our calculation, including DISH Network subscribers added with little or no subscriber acquisition costs.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

General and administrative expenses.  “General and administrative expenses” consists primarily of employee-related costs associated with administrative services such as legal, information systems, accounting and finance, including  non-cash, stock-based compensation expense.  It also includes outside professional fees (i.e. legal, information systems and accounting services) and other items associated with facilities and administration.  Following the Spin-off, the general and administrative expenses associated with our set-top box business and certain infrastructure assets now held by EchoStar, including in particular research and development expenses for those businesses, will be incurred by EchoStar.

Interest expense. “Interest expense” primarily includes interest expense, prepayment premiums and amortization of debt issuance costs associated with our senior debt and convertible subordinated debt securities (net of capitalized interest) and interest expense associated with our capital lease obligations.

“Other” income (expense). The main components of “Other” income and expense are unrealized gains and losses from changes in fair value of non-marketable strategic investments accounted for at fair value, equity in earnings and losses of our affiliates, gains and losses realized on the sale of investments, and impairment of marketable and non-marketable investment securities.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”).  EBITDA is defined as “Net income (loss)” plus “Interest expense” net of “Interest income,” “Taxes” and “Depreciation and amortization.”

DISH Network subscribers.  We include customers obtained through direct sales, and through our retail networks and other distribution relationships, in our DISH Network subscriber count. We also provide DISH Network service to hotels, motels and other commercial accounts.  For certain of these commercial accounts, we divide our total revenue for these commercial accounts by an amount approximately equal to the retail price of our most widely distributed programming package, America’s Top 100 (but taking into account, periodically, price changes and other factors), and include the resulting number, which is substantially smaller than the actual number of commercial units served, in our DISH Network subscriber count.

Average monthly revenue per subscriber (“ARPU”).  We are not aware of any uniform standards for calculating ARPU and believe presentations of ARPU may not be calculated consistently by other companies in the same or similar businesses.  We calculate average monthly revenue per subscriber, or ARPU, by dividing average monthly “Subscriber-related revenues” for the period (total “Subscriber-related revenue” during the period divided by the number of months in the period) by our average DISH Network subscribers for the period.  Average DISH Network subscribers are calculated for the period by adding the average DISH Network subscribers for each month and dividing by the number of months in the period.  Average DISH Network subscribers for each month are calculated by adding the beginning and ending DISH Network subscribers for the month and dividing by two.

Subscriber churn rate/subscriber turnover. We are not aware of any uniform standards for calculating subscriber churn rate and believe presentations of subscriber churn rates may not be calculated consistently by different companies in the same or similar businesses.  We calculate percentage monthly subscriber churn by dividing the number of DISH Network subscribers who terminate service during each month by total DISH Network subscribers as of the beginning of that month.  We calculate average subscriber churn rate for any period by dividing the number of DISH Network subscribers who terminated service during that period by the average number of DISH Network subscribers subject to churn during the period, and further dividing by the number of months in the period.  Average DISH Network subscribers subject to churn during the period are calculated by adding the DISH Network subscribers as of the beginning of each month in the period and dividing by the total number of months in the period.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Free cash flow.  We define free cash flow as “Net cash flows from operating activities” less “Purchases of property and equipment,” as shown on our Consolidated Statements of Cash Flows.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

RESULTS OF OPERATIONS

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006.

   
For the Years Ended December 31,
   
Variance
 
Statements of Operations Data
 
2007
   
2006
   
Amount
   
%
 
   
(In thousands)
 
Revenue:
                       
Subscriber-related revenue
  $ 10,690,976       9,422,274     $ 1,268,702       13.5  
Equipment sales
    362,185       362,098       87    
NM
 
Other
    37,214       34,114       3,100       9.1  
Total revenue
    11,090,375       9,818,486       1,271,889       13.0  
                                 
Costs and Expenses:
                               
Subscriber-related expenses
    5,496,579       4,807,872       688,707       14.3  
% of Subscriber-related revenue
    51.4 %     51.0 %                
Satellite and transmission expenses
    180,687       147,450       33,237       22.5  
% of Subscriber-related revenue
    1.7 %     1.6 %                
Cost of sales - equipment
    270,389       282,420       (12,031 )     (4.3 )
% of Equipment sales
    74.7 %     78.0 %                
Cost of sales - other
    11,333       7,260       4,073       56.1  
Subscriber acquisition costs
    1,570,415       1,596,303       (25,888 )     (1.6 )
General and administrative
    624,251       551,547       72,704       13.2  
% of Total revenue
    5.6 %     5.6 %                
Litigation expense
    33,907       93,969       (60,062 )     (63.9 )
Depreciation and amortization
    1,329,410       1,114,294       215,116       19.3  
Total costs and expenses
    9,516,971       8,601,115       915,856       10.6  
                                 
Operating income (loss)
    1,573,404       1,217,371       356,033       29.2  
                                 
Other income (expense):
                               
Interest income
    137,872       126,401       11,471       9.1  
Interest expense, net of amounts capitalized
    (405,319 )     (458,150 )     52,831       11.5  
Other
    (55,804 )     37,393       (93,197 )  
NM
 
Total other income (expense)
    (323,251 )     (294,356 )     (28,895 )     (9.8 )
                                 
Income (loss) before income taxes
    1,250,153       923,015       327,138       35.4  
Income tax benefit (provision), net
    (494,099 )     (314,743 )     (179,356 )     (57.0 )
Net income (loss)
  $ 756,054     $ 608,272     $ 147,782       24.3  
                                 
Other Data:
                               
DISH Network subscribers, as of period end (in millions)
    13.780       13.105       0.675       5.2  
DISH Network subscriber additions, gross (in millions)
    3.434       3.516       (0.082 )     (2.3 )
DISH Network subscriber additions, net (in millions)
    0.675       1.065       (0.390 )     (36.6 )
Average monthly subscriber churn rate
    1.70 %     1.64 %     0.06 %     3.7  
Average monthly revenue per subscriber  ("ARPU")
  $ 65.83     $ 62.78     $ 3.05       4.9  
Average subscriber acquisition costs per subscriber ("SAC")
  $ 656     $ 686     $ (30 )     (4.4 )
EBITDA
  $ 2,847,010     $ 2,369,058     $ 477,952       20.2  


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

DISH Network subscribers. As of December 31, 2007, we had approximately 13.780 million DISH Network subscribers compared to approximately 13.105 million subscribers at December 31, 2006, an increase of 5.2%.  DISH Network added approximately 3.434 million gross new subscribers for the year ended December 31, 2007, compared to approximately 3.516 million gross new subscribers during 2006, a decrease of approximately 82,000 gross new subscribers.  We believe our gross new subscriber additions have been and are likely to continue to be negatively impacted by increased competition, including the relative attractiveness of promotions and market perceptions of the availability of attractive programming, particularly the relative quantity of HD programming offered, operational inefficiencies which resulted in lower customer satisfaction with our products and services and adverse economic conditions.

DISH Network added approximately 675,000 net new subscribers for the year ended December 31, 2007, compared to approximately 1.065 million net new subscribers during 2006, a decrease of 36.6%.  This decrease primarily resulted from an increase in our subscriber churn rate, churn on a larger subscriber base, and the decrease in gross new subscribers discussed above.  Our percentage monthly subscriber churn for the year ended December 31, 2007 was 1.70%, compared to 1.64% for the same period in 2006.  We believe our subscriber churn rate has been and is likely to continue to be negatively impacted by a number of factors, including, but not limited to, increased competition, an increase in non-pay disconnects primarily resulting from adverse economic conditions, continuing effects of customer commitment expirations, and increases in the theft of our signal or our competitors’ signals.  In addition, we also believe that churn was adversely affected by a number of operational inefficiencies which, among other things, impacted our customer service and overall customer experience.

We cannot assure you that we will be able to lower our subscriber churn rate, or that our subscriber churn rate will not increase.  We believe we can reduce churn by improving customer service and other areas of our operations in which have recently experienced operational inefficiencies.  However, given the increasingly competitive nature of our industry, it may not be possible to reduce churn without significantly increasing our spending on customer retention, which would have a negative effect on our earnings and free cash flow.

Our gross new subscribers, our net new subscriber additions, and our entire subscriber base are negatively impacted when existing and new competitors offer attractive promotions or attractive product and service alternatives, including, among other things, video services bundled with broadband and other telecommunications services, better priced or more attractive programming packages and more compelling consumer electronic products and services, including DVRs, video on demand services, receivers with multiple tuners, HD programming, and HD and standard definition local channels.  We also expect to face increasing competition from content and other providers who distribute video services directly to consumers over the Internet.

As the size of our subscriber base increases, even if our subscriber churn rate remains constant or declines, increasing numbers of gross new DISH Network subscribers are required to sustain net subscriber growth.

AT&T and other telecommunications providers offer DISH Network programming bundled with broadband, telephony and other services.  Our net new subscriber additions and certain of our other key operating metrics could be adversely affected if AT&T or other telecommunication providers de-emphasize or discontinue selling our services and we are not able to develop comparable alternative distribution channels.

Subscriber-related revenue.  DISH Network “Subscriber-related revenue” totaled $10.691 billion for the year ended December 31, 2007, an increase of $1.269 billion or 13.5% compared to 2006.  This increase was directly attributable to continued DISH Network subscriber growth and the increase in “ARPU” discussed below.

ARPU.  Monthly average revenue per subscriber was $65.83 during the year ended December 31, 2007 versus $62.78 during the same period in 2006.  The $3.05 or 4.9% increase in ARPU is primarily attributable to price increases in February 2007 and 2006 on some of our most popular programming packages, increased penetration of HD programming, higher equipment rental fees resulting from increased penetration of our equipment leasing programs, other hardware related fees, fees for DVRs, and revenue from increased availability of standard definition and HD local channels by satellite.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued

Equipment sales.  “Equipment sales” totaled $362 million during each of the years ended December 31, 2007 and 2006.  During 2007, we experienced a slight increase in sales of non-DISH Network digital receivers and related components to international customers, offset by a decrease in domestic sales of DBS accessories.  A substantial portion of our “Equipment sales” in 2007 consisted of sales of non-DISH Network digital receivers and related components to an international DBS service provider and to other international customers.  This set-top box business is, following the Spin-off, operated by EchoStar.  As a result, our “Equipment sales” are likely to be substantially lower in 2008 than those recorded in 2007.

Subscriber-related expenses.  “Subscriber-related expenses” totaled $5.497 billion during the year ended December 31, 2007, an increase of $689 million or 14.3% compared to 2006.  The increase in “Subscriber-related expenses” was primarily attributable to the increase in the number of DISH Network subscribers and the items discussed below that contributed to the increase in the expense to revenue ratio.  “Subscriber-related expenses” as a percentage of “Subscriber-related revenue” increased to 51.4% from 51.0% in the year ended December 31, 2007 compared to 2006.  The increase in this expense to revenue ratio primarily resulted from increases in:  (i) programming costs, (ii) in-home service, refurbishment and repair costs for our receiver systems associated with increased penetration of our equipment lease programs, and (iii) bad debt expense resulting from an increase in the number of subscribers who we deactivated for non-payment of their bill. These increases were partially offset by a decline in costs associated with our call center operations and in costs associated with our previous co-branding arrangement with AT&T.

In the normal course of business, we enter into various contracts with programmers to provide content.  Our programming contracts generally require us to make payments based on the number of subscribers to which the respective content is provided.  Consequently, our programming expenses will continue to increase to the extent we are successful in growing our subscriber base.  In addition, because programmers continue to raise the price of content, our “Subscriber-related expenses” as a percentage of “Subscriber-related revenue” could materially increase absent corresponding price increases in our DISH Network programming packages.

Satellite and transmission expenses.  “Satellite and transmission expenses” totaled $181 million during the year ended December 31, 2007, an increase of $33 million or 22.5% compared to 2006.  This increase primarily resulted from higher operational costs associated with our capital lease of Anik F3 which commenced commercial operations in April 2007 and the higher costs associated with our enhanced content platform including a broader distribution of more extensive HD programming.  “Satellite and transmission expenses” as a percentage of “Subscriber-related revenue” increased to 1.7% from 1.6% in the year ended December 31, 2007 compared to 2006.

Following the Spin-off, we are leasing satellite and transponder capacity on several satellites that we formerly owned.  As a result, we will, beginning January 1, 2008, record higher satellite and transmission expenses for this leased satellite capacity.  This will be offset to some extent by lower depreciation expense as we will no longer record depreciation on these satellites which are now owned by EchoStar.  Satellite and transmission expenses are likely to increase further in the future to the extent we increase the size of our owned and leased satellite fleet, obtain in-orbit satellite insurance, increase our uplinking capacity and launch additional HD local markets and other programming services.

Cost of sales – equipment.  “Cost of sales – equipment” totaled $270 million during the year ended December 31, 2007, a decrease of $12 million or 4.3% compared to 2006.  This decrease primarily resulted from a decline in charges for defective, slow moving and obsolete inventory and in the cost of non-DISH Network digital receivers and related components sold to international customers. These decreases were partially offset by an increase in the cost of domestic sales of DBS accessories.  “Cost of sales – equipment” as a percentage of “Equipment sales” decreased to 74.7% from 78.0% in the year ended December 31, 2007 compared to 2006. The decrease in the expense to revenue ratio is principally related to lower 2007 charges for defective, slow moving and obsolete inventory and an increase in margins on sales of non-DISH Network digital receivers and related components sold to international customers, partially offset by the decrease in margins on domestic sales of DBS accessories.  A substantial portion of our “Cost of sales – equipment” in 2007 consisted of sales of non-DISH Network digital receivers and related components to an international DBS service provider and to other international customers.  This set-top box business is, following the Spin-off, operated by EchoStar.  As a result, our “Cost of sales – equipment” are likely to be substantially lower in 2008 than those recorded in 2007.
 
Subscriber acquisition costs. “Subscriber acquisition costs” totaled $1.570 billion for the year ended December 31, 2007, a decrease of $26 million or 1.6% compared to 2006.  The decrease in “Subscriber acquisition costs” was attributable to a decrease in gross new subscribers, a decrease in SAC discussed below and a higher number of DISH Network subscribers participating in our equipment lease program for new subscribers.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

SAC. SAC was $656 during the year ended December 31, 2007 compared to $686 during 2006, a decrease of $30, or 4.4%.  This decrease was primarily attributable to the redeployment benefits of our equipment lease program for new subscribers and lower average equipment costs, partially offset by higher acquisition advertising.  As a result of the Spin-off, we are likely to incur higher SAC as we will be acquiring equipment, particularly digital receivers, from third parties.  This equipment was historically designed in-house and procured at our cost.  We initially expect to acquire this equipment from EchoStar at its cost, plus an additional amount representing an agreed margin on that cost.

During the years ended December 31, 2007 and 2006, the amount of equipment capitalized under our lease program for new subscribers totaled approximately $682 million and $817 million, respectively.  This decrease in capital expenditures under our lease program for new subscribers resulted primarily from an increase in redeployment of equipment returned by disconnecting lease program subscribers, decreased subscriber growth, fewer receivers per installation as the number of dual tuner receivers we install continues to increase, lower average equipment costs and a reduction in accessory costs.

Capital expenditures resulting from our equipment lease program for new subscribers have been, and we expect will continue to be, partially mitigated by, among other things, the redeployment of equipment returned by disconnecting lease program subscribers.  However, to remain competitive we will have to upgrade or replace subscriber equipment periodically as technology changes, and the associated costs may be substantial.  To the extent technological changes render a portion of our existing equipment obsolete, we would be unable to redeploy all returned equipment and would realize less benefit from the SAC reduction associated with redeployment of that returned lease equipment.

Our SAC calculation does not include the benefit of payments we received in connection with equipment not returned to us from disconnecting lease subscribers and returned equipment that is made available for sale rather than being redeployed through our lease program.  During the years ended December 31, 2007 and 2006, these amounts totaled approximately $87 million and $121 million, respectively.

Our “Subscriber acquisition costs,” both in aggregate and on a per new subscriber activation basis, may materially increase in the future to the extent that we introduce more aggressive promotions if we determine that they are necessary to respond to competition, or for other reasons.  See further discussion under “Liquidity and Capital Resources – Subscriber Retention and Acquisition Costs.”

Litigation expense.  During the years ended December 31, 2007 and 2006, we recorded “Litigation expense” in the Tivo case of $34 million and $94 million, respectively. The $94 million reflects the jury verdict, supplemental damages and pre-judgment interest awarded by the Texas court.  The $34 million additional expense in 2007 represents the estimated cost of any software infringement prior to the implementation of the alternative technology, plus interest subsequent to the jury verdict.  See Note 9 in the Notes to our Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K for further discussion.
 
General and administrative expenses.  “General and administrative expenses” totaled $624 million during the year ended December 31, 2007, an increase of $73 million or 13.2% compared to 2006.  This increase was primarily attributable to an increase in administrative costs to support the growth of the DISH Network and outside professional fees.  In addition, this increase primarily related to the expensing of the in-process research and development costs associated with the acquisition of Sling Media. “General and administrative expenses” represented 5.6% of “Total revenue” during each of the years ended December 31, 2007 and 2006. Following the Spin-off, we anticipate that “General and administrative expenses” should decline as overhead and other expenses, particularly research and development expenses, associated with the set-top box and certain infrastructure assets, are incurred at EchoStar.

Depreciation and amortization.  “Depreciation and amortization” expense totaled $1.329 billion during the year ended December 31, 2007, an increase of $215 million or 19.3% compared to 2006.  The increase in “Depreciation and amortization” expense was primarily attributable to depreciation on equipment leased to subscribers resulting from increased penetration of our equipment lease programs, additional depreciation related to satellites and other depreciable assets placed in service to support the DISH Network, and the write-off of costs associated with obsolete fixed assets.  Several satellites and other infrastructure assets formerly owned by us were contributed to EchoStar in the Spin-off and, as a result, we will no longer record depreciation expense related to these assets.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Interest expense, net of amounts capitalized. “Interest expense” totaled $405 million during the year ended December 31, 2007, a decrease of $53 million or 11.5% compared to 2006.  This decrease primarily resulted from a net decrease in interest expense related to redemptions and issuances of debt during 2006 and 2007.

Other. “Other” expense totaled $56 million during the year ended December 31, 2007, a decrease of $93 million compared to “Other” income of $37 million during 2006.  The decrease in “Other” primarily resulted from $56 million in charges to earnings for other than temporary declines in fair value of our common stock investment in a foreign public company and a non-marketable investment security during 2007.  In addition, we had a decrease in net unrealized and realized gains during 2007 compared to 2006.

Earnings before interest, taxes, depreciation and amortization.  EBITDA was $2.847 billion during the year ended December 31, 2007, an increase of $478 million or 20.2% compared to 2006.  The following table reconciles EBITDA to the accompanying financial statements:

   
For the Years Ended
 
   
December 31,
 
   
2007
   
2006
 
   
(In thousands)
 
EBITDA
  $ 2,847,010     $ 2,369,058  
Less:
               
Interest expense, net
    267,447       331,749  
Income tax provision (benefit), net
    494,099       314,743  
Depreciation and amortization
    1,329,410       1,114,294  
Net income (loss
  $ 756,054     $ 608,272  

EBITDA is not a measure determined in accordance with accounting principles generally accepted in the United States, or GAAP, and should not be considered a substitute for operating income, net income or any other measure determined in accordance with GAAP.  EBITDA is used as a measurement of operating efficiency and overall financial performance and we believe it to be a helpful measure for those evaluating companies in the multi-channel video programming distribution industry.  Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures.  EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Income tax (provision) benefit, net.  Our income tax provision was $494 million during the year ended December 31, 2007, an increase of $179 million or 57.0% compared to during the same period in 2006. The increase in the provision was primarily related to the improvement in “Income (loss) before income taxes” and an increase in the effective state tax rate due to changes in state apportionment percentages.  The year ended December 31, 2007 includes a deferred tax liability of $16 million related to the conversion of one of our subsidiaries to a limited liability company from a corporation in connection with the Spin-off.  In addition, the year ended December 31, 2007, includes a reversal of $4 million related to state tax valuation allowances.  The year ended December 31, 2006 includes a credit of $13 million related to the recognition of state net operating loss carry forwards ("NOLs") for prior periods.  During 2008, we expect our income tax provision to reflect statutory Federal and state tax rates.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

   
For the Years
 
   
Ended December 31,
 
   
2007
   
2006
 
   
(In thousands)
       
Adjusted income tax benefit (provision), net
  $ (474,581 )   $ (338,514 )
Less:
               
Current year valuation allowance activity
    3,845       (7,324 )
Deferred tax liability corporate restructuring
    15,673       -  
Deferred tax asset for filed returns
    -       5,319  
Prior period adjustments to state NOLs
    -       (13,461 )
Amended state filings
    -       (8,305 )
Income tax benefit (provision), net
  $ (494,099 )   $ (314,743 )

Net income (loss). Net income was $756 million during the year ended December 31, 2007, an increase of $148 million compared to $608 million in 2006.  The increase was primarily attributable to the changes in revenue and expenses discussed above.


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005.

   
For the Years Ended December 31,
   
Variance
 
Statements of Operations Data
 
2006
   
2005
   
Amount
   
%
 
   
(In thousands)
 
Revenue:
                       
Subscriber-related revenue
  $ 9,422,274     $ 8,027,664     $ 1,394,610       17.4  
Equipment sales
    362,098       367,968       (5,870 )     (1.6 )
Other
    34,114       51,543       (17,429 )     (33.8 )
Total revenue
    9,818,486       8,447,175       1,371,311       16.2  
                                 
Costs and Expenses:
                               
Subscriber-related expenses
    4,807,872       4,095,986       711,886       17.4  
% of Subscriber-related revenue
    51.0 %     51.0 %                
Satellite and transmission expenses
    147,450       134,545       12,905       9.6  
% of Subscriber-related revenue
    1.6 %     1.7 %                
Cost of sales - equipment
    282,420       271,697       10,723       3.9  
% of Equipment sales
    78.0 %     73.8 %                
Cost of sales - other
    7,260       23,339       (16,079 )     (68.9 )
Subscriber acquisition costs
    1,596,303       1,492,581       103,722       6.9  
General and administrative
    551,547       456,206       95,341       20.9  
% of Total revenue
    5.6 %     5.4 %                
Litigation expense
    93,969       -       93,969    
NM
 
Depreciation and amortization
    1,114,294       805,573       308,721       38.3  
Total costs and expenses
    8,601,115       7,279,927       1,321,188       18.1  
                                 
Operating income (loss)