Dish Network wonders if it’s too cheap

Monday, March 1, 2010, 2:34pm MST | Modified: Monday, March 1, 2010, 2:37pm

Being cheapest appears to have been a good marketing strategy for Dish Network, but the company’s executives believe the company may have taken cheapness too far.
Charlie Ergen — CEO and cofounder of the Douglas County-based satellite TV company — said he hopes the company can stop discounting as much.
Dish Network CEO Charlie Ergen

Some customers bills have already gone up as Dish Network reverses policies that unintentionally made its set-top boxes and multiple-TV setups lower than competitors.
“We really gave too good a deal, which was something our customers weren’t aware of,” Ergen said.
Dish Network, which reported earnings Monday, exceeded expectations for customer growth in 2009, growing its subscriber base by 249,000 to top 14.1 million customers. DirecTV has more than 18.6 million subscribers.
Dish Network’s average customers pays nearly $70 per month, or $22 less than what El Segundo, Calif.-based DirecTV customers pay.
That spread creates room to raise rates, Dish Network executives said on a conference call with Wall Street analysts Monday.
It has already begun increasing hardware fees charged to some customers who were given breaks on set-top box fees in older promotions. Dish Network is also changing policies that didn’t charge customers the hardware cost of adding a second television to their account.
The cost increases won’t end there.
Programming carried by satellite broadcasters and cable companies has grown markedly more expensive in recent months, too.
As a result, Dish Network may increase programming fees later this year.
One thing that isn’t likely to get added to customers bills, however, is the expense Dish Network may incur as a result of its long-running patent battle with TiVo.
Federal courts are expected to rule this spring whether digital video recorder technology made for Dish Network by its sister company EchoStar violated a TiVo patent. If courts side with TiVo, Dish Network may owe TiVo tens of millions of dollars in annual license fees for its set-top DVRs.
Dish Network is unlikely to pass that cost onto customers, Ergen said, and it would see its margins shrink instead.
Dish Network is beginning to test a mobile video service in a single, unidentified market, making use of 700 megahertz spectrum it spent $712 million buying in 2008.
The test will let the company know how well its technology for video-to-mobile phones works and what it would take to roll out such a service broadly.
The spectrum is part of what television stations freed up by switching from analog to digital broadcasts. Dish Network acquired spectrum covering markets nationwide outside Los Angeles, San Francisco, Philadelphia, New York City and Boston.
San Diego-based Qualcomm is offering mobile video using 700 megahertz it owns in those large metropolitan areas.
Dish Network said it’s watching that closely and being patient.
The frequencies could be good for number of other uses — Ergen mentioned electronic book downloads — and Dish Network is also waiting to see what comes out of federal government discussions of changing how radio frequency is governed.
Whatever the future, the frequencies Dish Network bought are a valuable asset.
“There’s a lot of things you can do with that spectrum,” Ergen said. “What we don’t want to do is spend a lot of money ... and then discover that the model doesn’t work.”

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