Mar 3, 2009
Executives
Jason Kiser – IR Stanton Dodge – EVP, General Counsel & Secretary Charlie Ergen – Chairman, President & CEO Bernie Han – EVP and CFO Mark Jackson – President, EchoStar Technologies
Analysts
Veronica Silverberg [ph] Adam Ritzer David Woodbill [ph] Matthew Harrigan Tim Rupert [ph] Chris Sommers Bryan Duran [ph] Jaycee Tauris [ph] Jason Bazinet Gerard Halleran [ph] Daniel Schuman [ph] Michael Pearson [ph] Brian Gutzie [ph]
Operator
Good afternoon. My name is Molly and I will be your conference operator today.
At this time, I would like to welcome everyone to the EchoStar Corporation Q4 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. (Operator instructions).
Thank you. Mr.
Kiser, you may begin your conference.
Jason Kiser
Great. Thanks, Molly.
Well, thanks for joining us. This is Jason Kiser.
I am joined today by Charlie Ergen, our Chairman and CEO; Bernie Han, our CFO; Mark Jackson, President of EchoStar Technologies; Dave Rayner, our Chief Administrative Officer; and Stan Dodge, our General Counsel. Before we open up for Q&A, we do need to do our Safe Harbor disclosures.
So for that, we’ll turn it over to Stanton.
Stanton Dodge
Thanks, Jason. Good morning, everyone and thank you for joining us.
We invite media to participate in listen-only mode on the call and ask that you do not identify the participants or their firms in your reports. We also do not allow audio taping and ask that you respect that.
All statements we make during this call that are not statements of historical facts constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by such forward-looking statements. For a list of those factors, please refer to the Form of our 10-K.
All cautionary statements we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place undue reliance on any forward-looking statements.
We assume no responsibility for updating any of our forward-looking statements. With that out of the way, I'll turn it back over to Jason.
Jason Kiser
Great. Thanks, Stan.
Molly, I think you can open up the lines for Q&A.
Operator
(Operator instructions). Your first question comes from the line of Veronica Silverberg [ph].
Veronica Silverberg
Hi, how are you?
Charlie Ergen
Good.
Veronica Silverberg
Thanks for taking my question. Looking at the cash balance from September 30 to end of December, it looks like about a $300 million reduction in cash and investments.
Is that correct?
Charlie Ergen
Are you saying for quarter-over-quarter?
Veronica Silverberg
Yes quarter end-to-quarter end.
Charlie Ergen
Yes, I don’t have first quarter right in front of me. But I’m sure in all parts…
Veronica Silverberg
Just wanted to get a sense for in terms of the cash balance sheet we got a little over 900 million in terms of the running rate of reduction, how long you think the cash flow last?
Charlie Ergen
I think the cash balance went down about a $140 million.
Veronica Silverberg
Okay. I was actually looking at cash and investments.
Charlie Ergen
That probably, as we write some stuff down?
Bernie Han
Right.
Charlie Ergen
Yes, so maybe let's walk through that. Bernie will take in the investment portion that was written down so she's looking at cash investments, she would be correct.
Bernie Han
Correct. During the fourth quarter, we listed it out in our earnings release that we wrote down $216 million during the fourth quarter related to investments.
A piece of that was related to certain investments that we account for on a fair value basis. And every single quarter, we either mark up or mark down based on what those assets are worth.
And then a piece of that are other assets that we review for impairment from time-to-time. But in total that was $216 million related to investments in the fourth quarter.
Charlie Ergen
And then how long will the cash balance that we have, you know last us? Hopefully, the cash balance will last us.
Hopefully, we can grow the business into a positive cash flow business and the cash that we have will last us forever, right. Certainly, until credit conditions were to change but we don't believe we could adequately get it go into the debt markets today, so at least at rates that we would want to pay.
So we, obviously, look at our cash and feel like we have enough cash to grow our business. We are a bit capital intensive in this side of our business, but we think we've adequate cash.
Veronica Silverberg
Thank you.
Charlie Ergen
We wish our investments have done better, last quarter.
Bernie Han
Well, part of it is the $300 million I think you're looking at…
Charlie Ergen
Okay. Next question?
Operator
Your next question comes from the line of Adam Ritzer.
Adam Ritzer
Hey, guys, how are you? Just could you give us some more clarity on what you are expecting for CapEx in '09?
Bernie Han
We don't disclose that.
Charlie Ergen
It's not our practice to give forward-looking guidance on CapEx.
Adam Ritzer
But what was our CapEx last year? You got total amount?
Bernie Han
Yes I think it was $240 million
Charlie Ergen
$230 million. $230 million in total.
Bernie Han
230 in total. I think there is a close correlation between our depreciation and our CapEx.
Adam Ritzer
Okay, because most of that, I guess, is for the satellites and they have a useful life. And you have to buy new ones so it should be somewhat close, is that the thinking?
Charlie Ergen
No. I think close correlation doesn't mean that it wouldn't be more or less than any given year –
Adam Ritzer
Right.
Charlie Ergen
But it's a close correlation. And yes, the biggest capital expense that we have is for replacement satellite construction or for perhaps for new satellite construction if we saw a good business opportunity
Adam Ritzer
Got you.
Stanton Dodge
And from our 10-K, there is a schedule showing future obligations. I think you can see our current satellite obligations year-over-year.
I think for '09, it says just a little bit under $200 million for the satellite contract especially.
Adam Ritzer
Okay.
Charlie Ergen
And any other FX we have is typically in the IT side and satellite uplink side and that kind of stuff.
Adam Ritzer
Got you. So, between the two of them, I get a good idea.
I appreciate it. Can you walk me through the reason for writing down the value of Sling, where you guys have just announced a new Sling box on the satellite side, the new Sling HD Pro from what I can hear is getting very good traction.
Just wondering why you're writing it down just as the new Sling products are starting to ramp.
Charlie Ergen
Well, I mean, the technical answer is when we acquired Sling, we put about $250 million of goodwill on our books and –
Bernie Han
And the total acquisition price was about $350 million. Correct?
Charlie Ergen
380.
Adam Ritzer
380, I thought.
Charlie Ergen
380
Stanton Dodge
380. And then the rules related to goodwill are companies need to evaluate goodwill for impairment on a periodic basis.
We do that at year end. When you go through our cash flows, our cash flow models, obviously, the environment that supports our set-top box models while we still feel good about the prospects for this business with what's happened at year end our cash flows do get impacted and our forecast of cash flows do get impacted.
And what they showed us is that the entire set-top box part of our business wasn't able to support all of the other assets, plus the goodwill amount on our balance sheet. And as a result of that, and you have to look at cash flows on a discounted basis as well, which is a higher hurdle when you're looking at goodwill for impairment versus other assets or even other intangibles, where you can use undiscounted cash flows.
It's much harder to not support the asset values in that case.
Adam Ritzer
Okay, I understand. So it's not directly on sling, it's just a goodwill write-off.
Charlie Ergen
Yes. This is Charlie.
Adam Ritzer
Okay.
Charlie Ergen
The goodwill kind of impairments are pretty technical. And there's obviously a lot of companies, and the SEC is looking at that and giving us a lot of guidelines on that in terms of how we might look at that.
It becomes a very technical analysis on goodwill. Having said that, from a business perspective, we still feel good about sling and its value to us irregardless of how technically we're required to account for it.
Adam Ritzer
Okay. Can you talk a little bit about, now that you actually have a sling product on the satellite side, I think right now you're at some cost plus margin on the set-top box sales to DISH, with the new sling technology is that going to be the same under the existing contract that expires the end of this year or is there some other relationships that you get better margins with sling?
Charlie Ergen
We're in a variety of discussions with DISH and others as to what the economic model is, what we're looking at? In general, we're looking at a licensing model.
And that licensing model could take a lot of different forms, but we think that sling is a product that at least we believe the best thing probably for our customers and for us at EchoStar probably is some kind of license and that would be a license per piece.
Adam Ritzer
Okay, a license per box?
Stanton Dodge
Yes.
Adam Ritzer
Are the discussions under way with DirecTV as well or can you talk about if you would sell to them since I would assume you also want the DISH subscribers to start ramping and there could be some competitive things there. How do you look at that?
Charlie Ergen
I think Mark Jackson who is the President of Our Technology Group –
Mark Jackson
As we showed our new product to open new doors for us. Today, we would be very happy to sell to DirecTV, US cable guys that are national cable guys and we're making every effort to do so, but we can't guarantee any success there, but we are really trying hard.
And like you said, the sling is opening some doors for us to do so.
Adam Ritzer
Okay.
Charlie Ergen
I think there's a natural skepticism on peoples' parts because of the shareholder interaction between the two companies.
Mark Jackson
But it is a fundamental technology that I think the consumers are going to demand and so –
Adam Ritzer
Okay. If consumers demand it and only DISH has it, other people are going to want it as well.
Charlie Ergen
That would be a good theory. But first, I mean obviously, if only one company had a DVR today…
Adam Ritzer
Right.
Charlie Ergen
…that would be an interesting proposition in the video field.
Adam Ritzer
Right. So I was going to ask you about that.
Could you go back and tell us what the ramp in the DVR space was and if you think it could be comparable to the ramp on the sling place shifting technology?
Charlie Ergen
Well, I'm going to give you a general answer because we built our first DVRs in 1998, right?
Mark Jackson
Well, the first one certainly pointed out to the consumer…
Charlie Ergen
And I would say we probably sold a hundred thousand the first year as an industry.
Adam Ritzer
Great.
Charlie Ergen
And probably ramped to probably a million by 2000 as an industry. And it's got to be in the over 10 million DVR is going to go out this year.
Adam Ritzer
Okay.
Charlie Ergen
I think sling might go a little slower just because it's a more complicated product to explain. It requires more installation.
There's other technologies that have to catch up with sling, there is other broadband, you need a broadband connection.
Adam Ritzer
Right.
Charlie Ergen
So, any home can put a DVR in, only a broadband home could put sling in. So call it 50% kind of ramp over DVR, but still a fundamental technology.
So may belong term, sling kind of technology has more implications than a DVR.
Adam Ritzer
Okay. And a last question and I'll jump off.
What about the cable side? I've heard rumblings that there may be a cable sling box where you get a particular cable customer.
Can you talk about that at all?
Charlie Ergen
There's actually two products we're developing for cable. We have an integrated sling into a cable modem so we call that sling modem.
And we also have a DVR Hi-Definition set-top box that sling embedded in it code named (inaudible) that we're talking to other US cable companies about.
Adam Ritzer
Okay.
Charlie Ergen
And international, too, yes.
Adam Ritzer
Okay. Is that available for sale just yet?
Charlie Ergen
By the way, the other piece of sling, is most of you know that the sling product that actually takes any video product and converts it to IP, so it’s a big business there potentially for as home security for example, where you take in security cameras and converting to IP, so you could watch multiple, you could watch your vacation home from a home security point of view as an example. But there's other businesses besides just the cable and satellite and phone industry.
The second thing is Sling is developing other products. Quite a good website, quite a good way to search for products and record them remotely and also Sling Catcher, which has several features but probably the biggest which is to take anything off your computer and put it on your TV set.
So they continue to develop additional products that have perhaps as much upside or more than the original products.
Adam Ritzer
When might the cable product be announced? Is it ready for sale yet or is it still in beta testing?
Charlie Ergen
It's under development right now and we're showing it to US cable companies, international cable companies but we definitely need a partner to rollout a lot of the advanced features that we find…
Adam Ritzer
Okay.
Bernie Han
… get in with one of the major US cable guys.
Charlie Ergen
Well, the cable architecture is obviously materially different than the satellite architecture so it takes a lot of development work. And you have to have a customer who wants to place an order before you're going to spend the ultimate amount of money to do it.
Adam Ritzer
Got you. Okay.
Thanks very much. I appreciate it.
Operator
Your next question comes from the line of David Woodbill [ph].
David Woodbill
Hello, gentlemen. Thank you for taking my question.
I cover Gilbert, Arizona, (inaudible) Community of Phoenix and home to one obviously of course to one of your uplink centers. I'm interested if you have anything you could share regarding expansion plans of the center.
Specifically, can you offer an approximate timeframe as to when this expansion is likely to occur and will it include…?
Jason Kiser
Operator, we only take questions from analysts on this call, not media so we answer the next question, please?
Operator
Your next question comes from the line of Matthew Harrigan.
Matthew Harrigan
Good morning. Can you talk about the mechanics of your venture with Multivision down in Mexico?
They're a fairly significant player, but obviously you got Televisa involved in both the satellite and cable side with a lot of content. And is there anything you might be able to replicate there for some additional markets?
Are you still comfortable with Mexico, given everything that transpired with currency and broadly in emerging markets over the last few months?
Charlie Ergen
Okay, well, the relationship in Mexico of course is one that we think we can build a bigger business with Multivision. We already had a video home product to over 600,000 subscribers terrestrially and by partnering with them, we freed up some other terrestrial spectrum.
And then we can do that by taking those customers and putting them on via satellite. So that's and it just started.
It's going very well in terms of converting those customers and of course the real success will be if we can get additional customers beyond the customers they already had and whether that product can compete with other video providers in Mexico. The state of the economy in Mexico is a concern.
The currency is still under pressure and certainly their economy is just like everywhere else in the world, it has come under pressure. But we think that our product saves customers money, vis-à-vis what they are paying today.
In that framework, we think that the business can do pretty well. There's really three potential sources of revenue from the venture.
One is the actual investment in the business itself and hopefully, we'll build value there. Second is in set-top box design and engineering services and maybe sale of set-top boxes, particularly more advanced set-top boxes in the future.
And the third is the actual leasing of satellite capacity to Mexico, because as you know, we're using the Mexican slot at 77 degrees. And if we can grow the business, perhaps they will need additional capacity in the future, but they are already leasing some capacity.
So it is a classic example of taking many of the lessons that we've learned in United States and much of our digital technology and exporting that to Mexico and we have a strong partner in MVS, and then obviously, as you mentioned, Televisa, not Televisa, Telemax [ph] and others are our customers. So, it's off to a good start, but time will tell.
Matthew Harrigan
Thank you.
Operator
Your next question comes from the line of Tim Rupert [ph].
Tim Rupert
Hi. Just a follow-up question on the CapEx, could you describe a little bit more about the replacement cycle for the IT and uplink equipment?
Charlie Ergen
Most everything follows a depreciation pattern, not accelerated depreciation but the straight line depreciation. So, Mark you probably know the business a little better than me, but your decoders are five years?
Mark Jackson
That decoders can be three to five years depending on what we're doing, and as our customer at DISH Network wants to get more and more high-def, we'll replace some of the older standard def encoders with new high-def encoders as they grow their business in high definition. The IT infrastructure, by and large, we're just now building out our IT infrastructure at EchoStar and so we've got a little bit of CapEx we need to spend on that, but it's not anything material.
Charlie Ergen
So a little bit extra in IT CapEx only because they will be weaned off. I think by the end of this year, they will be weaned off the DISH Network system.
Tim Rupert
Thank you.
Operator
Your next question comes from a line of Chris Sommers.
Chris Sommers
Hello. Sorry about that, I was on mute.
You guys may have already addressed this, but I wanted to hear your 2010 CapEx budget is and what the CapEx budget would be absent for two new satellites you are building out?
Bernie Han
We did answer this earlier and I think the other things we quoted out were the CapEx amounts for '08 was $230 million roughly. There is also a table of future commitments filed in our 10-K and it gives an idea, there is a mix in that table of operating expense and capital expense.
But one of the categories there is satellites and I think there is a number there roughly $185 million or so for the satellite. And beyond that I think Charlie alluded to CapEx generally is just a cash form of depreciation expense.
Over the long run, you'd expect those two to be fairly constituted.
Charlie Ergen
Alright. There is a correlation between our depreciation and what we would spend in CapEx.
Having said that, obviously to the extent that we saw business opportunities and could grow our businesses in significant way, you may spend CapEx and category beyond that. If you are just maintaining your business, you could expect those correlations to be pretty equal.
Chris Sommers
Right. And then on schedule, when you out at 2014 you still have these large satellites related committed expenditures, I guess what is you already committed to that far out since I think the satellites are all built by 2011 at the latest and who are the counterparties that receives those monies?
Charlie Ergen
That’s good question. Ben, correct if I am wrong one of our financial guys, but we lease capacity from SES Americom.
We lease two satellites from them and those satellites leases I believe are 10-year leases and so they will go up beyond 2040.
Chris Sommers
Great.
Charlie Ergen
And so, I think those 2014 commitments are probably SES Americom and also Canadian satellite typically. And then we, in turn, sublease one of those satellites for DISH Network and then the other ones are part of our fixed satellite service business that we are trying to grow.
Chris Sommers
Got it. So then what the capital lease obligations in 2014 and the satellite related expenditures, those would both be related to leasing of satellites?
Charlie Ergen
Everything in 2014 would be leased of three satellites, existing satellites, and what's that number?
Chris Sommers
Under that capital loan?
Charlie Ergen
Excuse me, four satellites that we'll release in 2014.
Mark Jackson
I think under capital lease obligations are the satellites that we currently lease, namely AMC-15 and 16 and the future obligation, satellites that we're building and future payments for satellites that aren't in operations yet, i.e., gets those fall in the satellite-related category.
Charlie Ergen
So those two satellites that haven’t launched yet but we will be leasing in 2014.
Chris Sommers
Got it. And then my final question is the $7 million allowance you have on our third party receivable, what that's from, single or large, that’s over 20% of the receivables are now in doubt.
I was just wondering what the counterparty might be?
Charlie Ergen
I don't think we release specific names, but it's an international receivable.
Bernie Han
That reserve we created for some international receivables. We actually received a little bit this quarter, but the remaining amount, it is still on our balance sheet as a bad debt reserve right now.
Chris Sommers
Is that on the satellite side or set-top box side?
Charlie Ergen
Equivalent side.
Chris Sommers
Got it. Alright, that’s it.
Thanks you guys.
Operator
Your next question comes from the line of Bryan Duran [ph].
Bryan Duran
Hi guys, how are you?
Charlie Ergen
Good.
Bryan Duran
Can you comment on the performance of your investment portfolio year to date 2009?
Charlie Ergen
Hasn’t been very good. And we don’t disclose all of the pieces of that, but I would say a couple of general things.
Most of our investments that we have made can go into couple of different buckets, but typically they are somewhat strategic. And we have to mark-to-market, so while we may write them down in a mark-to-market.
We make a better (inaudible) from strategic point of view. The one that we have probably disclosed, that is probably disclosed I believe we made an investment in TerreStar, which is a satellite company doing some things in the S-band field.
And we made an equity investment and I can’t (inaudible) piece of debt and that one has been written down and this is part of that write-down. So, timing is everything and maybe a little bit of ahead of our schemes in some of our investments, given where the market is today, but we still think the underlying reasons to invest are good.
Bryan Duran
Okay. So presumably if there are material negative change relative to 12/31/08 you will disclose that?
Bernie Han
Since 12/31/08 if we had to present it in immaterial, we would have disclosed it.
Bryan Duran
Okay. In terms of the Bell TV expansion, if there are material change in the half revision margin per box that you are going to be getting, what percent they will be...
Bernie Han
Okay. I don’t think they were material, but we are taking a lower margin to get exclusivity in the tying up for the next three years.
But at the same time they are switching the more MPEG4 boxes, so our overall net revenue would be (inaudible) the margin hit that we’ve got.
Charlie Ergen
But I think it is suffice to say that our products came under pricing pressure like everybody else’s that (inaudible) deal will be less margin than it has been passed.
Bryan Duran
Okay. But well with the uptick in revenue from the more best offers offset most of the price decline.
Or the margin percentage decline rather?
Bernie Han
Well those all dollars we believe will even out...
Bryan Duran
Okay.
Charlie Ergen
If the industry moves towards MPEG4 boxes that’s the positive for us, because people will have to replace their MPEG2 boxes, so to the extent that we build cost efficient MPEG4 boxes, that is not defending for us, but that’s the positive the negative is that margins have been, everybody is under pressure for margins today.
Bryan Duran
Okay. Thank you.
Operator
Your next question comes from the line of Jaycee Tauris [ph].
Jaycee Tauris
Yes. Hi.
Could you guys provide an update on some of the Eastern European ventures that you announced earlier in the year, specifically where you can quantify your progress and put the sales, satellites capacity sales, et cetera please?
Mark Jackson
We are not for sure which Eastern European ventures you are talking about, but we built an engineering office in Ukraine. We are still growing our business in Poland, and hope to go off into other markets in Eastern Europe, to get going as they want new satellite service, and we would look at any venture around the world, where we can get down, I mean in general I think it’s fair to say that with the advent of high-definition TV, there is (inaudible) to launch services around the world where we can challenge the incumbent provider who is not in high-definition.
Charlie Ergen
In terms of set-top box, our main customers still grosses DISH Network and, second biggest customer ExpressVu in Canada and the rest of our customers combined does make up that big part of the opportunity. We have room to grow on the opportunity is there around the world.
But we think things like sling technology and our MPEG4 expertise and also our expertise to actually do things that save the operator money, like we have the ability to know what the signal strength is on the set-top box, or the health of the set-top box and we have the ability to poll the box in terms of viewer measurement. So some of these features that we’re developing, even if our set-top boxes a little bit more expensive the actual savings to the operator would more than make up in efficiencies that they would have in customer service, would more than make up for the cost differential.
So we’ve got a number of angles that we are working, but again in today’s environment a lot of people are looking just at their initial price and for– in lot of markets we would be competitive on very low end boxes there.
Jaycee Tauris
Alright. Okay.
And what’s the remaining authorization on the buy back?
Charlie Ergen
I think we have a 500 million authorization, I don’t know whether, everybody trying on, looks like we have, I keep my glasses under EBIT. We have 470 million?
Bernie Han
Yes.
Jaycee Tauris
Okay. And then my last question was the proposed transaction with XM, was that done on behalf of DISH or was it EchoStar?
Charlie Ergen
That proposal came from DISH.
Jaycee Tauris
Thank you.
Operator
Your next question comes from the line of Jason Bazinet.
Jason Bazinet
Thank you. I left of the call for this question, but I'm going to ask it anyway.
Given how mature the PayTV industry is, and given how high the relative ARPUs are. Is there any chance that there is a potential change of strategic production for SAPs to be in the offer low and video offers to cannibalize the – or steal customers from any encumbrance.
In other words is there a potential for a shift in strategy of that?
Charlie Ergen
It's (inaudible).
Jason Bazinet
At (inaudible) yes.
Charlie Ergen
That's an interesting question. I guess, I'd answer it this way.
I think the marketplace is going to shift pretty fundamentally over the next three or four years in a lot of ways and the PayTV business is probably not going to be immune from that and whether there's an opportunity for SATS to be in a sense a little different than what we did today, remains to be seen. But we think we are an entrepreneurial company, we think this is the spin-off and get us to focus in our business a little bit more and we do see opportunity.
I think you would see may be not to mention that in our video business that other people are already in, but probably more in the technology business or more in the international rounds, international side of the business. Where we think, you know may be other countries where the economy and the and maybe less government intervention in other countries may actually be a more or actually maybe a healthier business climate than there maybe any non-state going forward for a few years so its all that I can see.
We are looking everywhere for business opportunity and there is a lot out there. In our corporate development people are pretty busy looking at, it's time that we go through its just in priorities that makes sense for us or we think we not only get to return on our capital but, perhaps to enhance our value statically as well.
Jason Bazinet
And it could be on the retail side not on the wholesaler of the set-top box or…
Mark Jackson
Well, we would never take anything of this, but I would say this that we see that as a wholesale business.
Jason Bazinet
Okay.
Mark Jackson
Whereas DISH is a retail business and so, that’s almost the dividing line, when we spend more. That doesn't mean that either one can get the wholesale retail business just.
That retail business would not be our focus like that today.
Jason Bazinet
Thank you.
Operator
Your next question comes from the line of Gerard Halleran [ph].
Gerard Halleran
Good morning, again, gentlemen.
Charlie Ergen
Good morning.
Gerard Halleran
This is Gerard Halleran from JRPG and I have a number of questions. I know that DISH has the TiVo viability, I am wondering if that created problems for you overseas in selling set-top boxes?
Charlie Ergen
I don’t think TiVo has international patent selling.
Bernie Han
They do.
Charlie Ergen
They do.
Bernie Han
But it's also, you know, Steven is partially correct. DISH is the liability prior to this demand as its going forward.
Gerard Halleran
Right. How much of an issue is that among carriers who are considering buying new set-top boxes?
Bernie Han
I think it just comes down to what the price is at the end of the day, and we don't know what that's going to be if anything. We hope it's nothing.
Gerard Halleran
Okay.
Bernie Han
We hope it's nothing, so.
Charlie Ergen
Well, I think that we don’t necessarily take a lot really of that. But I think in the next couple of months we'll finally answer that.
Gerard Halleran
Okay.
Charlie Ergen
Then I mean let me put it this way. I think TiVo is both a rest and a opportunity for us.
Obviously to the extent that we are found not to infringe from a contempt point of view, TiVo that opens up competition to TiVo. While other people have, TiVo obviously has licensed quite a few big players, so they are certainly well positioned.
But it would open up competition to the extent that we were not to be successful for any reason, then TiVo obviously would have a monopoly in the DVR space. We don't believe in violating people’s intellectual property, so obviously we would have to work a business arrangement with them.
Gerard Halleran
Okay. You don't believe that there is a reasonable work around that will not violate at this time?
Charlie Ergen
No.
Gerard Halleran
Depending on what the judge says?
Charlie Ergen
We believe that we'll get the benefit of going to trial and TiVo explaining how their system works. Obviously it's hard to know how somebody's software works until they explain it, both in their patent application and also the detail that they explained at trial to the judge and jury.
Based on that, we have been very innovative and have worked around their intellectual property. That's what the subject of the contempt order is, right?
We said and in fact, we filed in Delaware a declaratory judgment so that, you know to say that we don't violate the intellectual property. In the meantime, TiVo sued us for contempt or brought its contempt charge against us and that's why we are in front of the judge in Texas today, is whether we violate or are in contempt of the injunction.
And we believe that we do not, there are design around is materially different and does not violate their patent or violate their intellectual property. So the judge has to rule that.
Gerard Halleran
Okay.
Charlie Ergen
Again, I can say that is a risk and a reward, right. TiVo maybe monopoly or nobody can do a DVR without TiVo or perhaps there is a second entry into the marketplace which is EchoStar.
That would be obviously possible.
Gerard Halleran
Okay. So for now, it probably is a factor and hopefully it won't be in the much distinct future?
Charlie Ergen
We expect a ruling in the next several months.
Gerard Halleran
Okay. My next question relates to digital broadcast TV boxes.
We talked a lot about them a year ago, more than a year ago. And I've seen a few but I've never seen one for, I've seen a few advertise but I have never seen one in the store or where I could buy it.
Could you update us on the status of that business, or are you waiting for the coupon program to and to do HD boxes or maybe both?
Charlie Ergen
We manufactured a fair number of digital set-up boxes. We sold all those to DISH Network and they DISH Networks sold them under the brand DTV Pal.
And based on the facts, we thought the digital transition was going to take place in February, we currently do not have any more production set of those basic set-top boxes that qualify for the coupon program.
Gerard Halleran
Okay.
Charlie Ergen
Having said that, in conjunction with that, we developed a digital set-top box with a DVR in it and that box is still in production and that is a box that we sell through DISH Network and we would also sell our private label to others. And that is a box that we think has lifespan beyond just a digital conversion, because it allows you to get rid of your old VCR, right, and get rid of the 12 boxes, the blinking 12.
So for the kind of customer who still doesn’t pay for TV, he still maybe interested in the digital DVR.
Gerard Halleran
Alright.
Charlie Ergen
That’s a product that hopefully we can get. That DISH Network sells to their customer but that hopefully others will be interested in that product and that might as well and that one continues in production today.
Gerard Halleran
Okay. And what do you think the retail price point of that would be?
Charlie Ergen
Yes. The retail price is $249 and that has 240 hours of storage, what it is.
What's your hard drive?
Bernie Han
160 gig.
Charlie Ergen
160. So, 160 hours of storage.
Gerard Halleran
Okay. That is an HD box, correct?
Charlie Ergen
That is HD MPEG-4.
Gerard Halleran
Okay. I am not sure what that means.
Charlie Ergen
Any of the works they are receiving now. So assuming whether you have an old analog TV or you have the latest Sony 70-inch High-Definition screen, it will work on either one of those two.
Gerard Halleran
Okay. Thank you very much on those two questions.
My last question, you've heard once before, is about China. I understand that the satellite has been written down by $85 million, you probably have more than into it and likely can redeploy it.
What about operating network on behalf of China for satellite TV? Where does that stand?
Charlie Ergen
Okay. I am sorry we couldn't answer your question last time.
The satellite was developed for China in their mobile television business. They ultimately so far have not honored their contract, and therefore we have a satellite that’s a bit of a custom satellite that we ceased production on.
We've already down by $85 million, which gives us on our balance sheet approximately what we could salvage that satellite or else if we were to redeploy it to another customer, it could cost us up to $85 million to redeploy it, maybe less but may be up to $85 million. So, we think we have a fairly, fairly valued on our balance sheet.
As far as the video business in China, that's best control really by the government and as a foreign company, in fact we were just going to be a wholesale. We didn’t participate in actual video.
It's difficult for western company to participate in any kind of western or in any kind of direct-to-home video business in China.
Gerard Halleran
Sure.
Charlie Ergen
And that’s not to say it's not impossible long term but today the regulatory environment doesn’t allow that.
Gerard Halleran
Yes. And so my understanding was, you’re going to be wholesaler and operate that network on behalf of the Chinese government which would then do its own programming and what not.
I'm just wondering has that that contract done completely by the boards?
Charlie Ergen
Well, we still have that contract and we don’t and so they haven’t met their payment obligations and so we don’t want to launch the satellites because it would be a custom satellite and custom more than a slot and we have to incur additional cost for the launch vehicle. So until they honor their portion of the contract, it wouldn’t make sense to proceed forward.
That doesn't mean that they would have the ability to honor the contract and we could continue construction on the satellite. They have that ability, but there's no indication they are doing so.
Gerard Halleran
So they haven't gone somewhere else to get a satellite and they seem not to be proceeding with the mobile TV?
Charlie Ergen
That we don't know, but we have the contractual right to the overall slot and the technology. In China is different and they play by a different set of rules so I can't say that I'm an expert there.
But historically, we've launched on the Chinese satellite. Historically through all of the trials and tribulations, at least our experience with China is that at the end of the day, they have honored everything they say they are going to do.
In this particular case, they are in the same world financial crisis that everybody else is and their own inter-government agencies don't always fund things in a way that make sense in the Western world, but make perfect sense within China. So patience is necessary in that part of the world.
Gerard Halleran
Great. Thank you very much.
Operator
Your next question comes from the line of Daniel Schuman [ph].
Daniel Schuman
Hi, Daniel Schuman and Michael Pearson is here as well. Gentlemen good morning good afternoon.
Couple of quick questions on a variety of subjects. First in the 10-K, in the footnotes, you have a section on current marketable investment securities, the strategic variety as you call them.
And you refer to a single issuer security that you own which had a face value of $199 million on December 31 and was carried at $88 million on that date. Is it fair to say that that is serious?
Charlie Ergen
I actually don’t know. We don’t disclose individual companies in that side.
Daniel Schuman
Is EchoStar an investor in serious securities? It's been widely reported that EchoStar was the vehicle that through which you made that investment.
You both on this call and the DISH call seem to carefully say that the offer, “came from DISH”. I mean does that mean that any economic interests in these securities was also exclusively a DISH or were they at both companies?
Charlie Ergen
It's a good point you've made. The offer did come from DISH, but we don't disclose on the EchoStar side, what our strategic investments are in individual securities.
I can't give you enough information where you could infer one way or the other, but there is a distinction between making an offer obviously and what you would invest in.
Daniel Schuman
Understood. Well, let me ask you a quick question about TiVo situation, which you've talked about on both calls a little bit.
As you've stated, and as your disclosure states, “We, EchoStar, are indemnified through the spin-off date for any damages there.” If you look at the legal proceedings, it's clear that EchoStar and I think a couple of our subsidiaries, as well as DISH and some of their subsidiaries are all defendants here.
To the extent that there was a legal judgment adverse to you, meaning the DISH/EchoStar complex if you will, and/or you entered into some kind of licensing deal or other business arrangement with TiVo, is it your view that as a matter of legality or corporate governance or otherwise, the costs or benefits of that should be allocated among the family?
Charlie Ergen
It's this way. Obviously, EchoStar, if we were not to prevail and TiVo were to prevail and again, we can only guess what's going to happen, but if that's what would happen then TiVo would be in a situation where it might make sense for an EchoStar perspective to license from TiVo and therefore DISH would be covered or any customer from EchoStar or it might be individual license, as opposed to the amount of the manufacturing side, but on the sales side.
We haven't had those kinds of discussions where I could give you any color on how that might operate. Since the spin, we don't believe there's any infringing hardware that EchoStar has deployed.
EchoStar engineers spent a great deal of time designing around the patent in the case.
Daniel Schuman
I mean the trade as far as we're seeing is to the extent of the licensing deals is that the– some of those are paying those, Motorolas or Scientific Atlantas don't seem to be involved there.
Charlie Ergen
Again it depends on how you structure a business arrangement with TiVo.
Daniel Schuman
Great.
Charlie Ergen
Alright. And then it goes beyond that, because there are other things like in viewer management and advertising.
Things that we do that TiVo also does, but that we’re not, it's not – where there customers are added to our customers its not a zero sum gain, like it would be in intellectual property. And if were to enter in those kind of negotiations, this kind of business deal on that side of the business, some of that revenue might very well come to EchoStar as opposed to DISH or vice versa or some combination, depending on how TiVo might want to structure that.
Daniel Schuman
Got you.
Charlie Ergen
There's a lot of possibilities. Again, I would say at some point hopefully, we're doing something with TiVo regardless of intellectual property, because I think there's something that could be mutually beneficial to both companies, right?
But I think there's an honest disagreement about the intellectual property. Somebody has said that we're in contempt of court and that's a serious charge.
We take that seriously and that goes to our integrity as a company and I think that's something we have to defend. We'll have an answer in the next couple months.
Daniel Schuman
Mike, you had a question?
Michael Pearson
Right, I think I will ask just a quick question. We noticed on AMC 15 and 16, you had taken write-downs of $138 million and $80 million respectively, which I think that's pretty sizeable write-down given the overall costs of the satellite.
I wonder if you could just give a little more color, a little more discussion around your kind of view of the prospects for the non-DISH FSS side of the business? And any kind of developments or kind of marketplace commentary, you could provide around that since we haven't discussed it much yet on this call.
Charlie Ergen
That's a good question, Mike. In general, we have the right to put those satellites back to SES.
Those values are more indicative of what our liability would be based on the business that we have today and based on what our total exposure might be, and based on what the SEC GAAP rules would be when you have all of those numbers, right?
Michael Pearson
Right.
Charlie Ergen
And the lead times and selling capacity on satellites are relatively long, so it's not typically you are working on contacts and satellites today that might be next year or year after because people have long-term contracts, right? So we've tried to reflect most accurately we possibly can on what those values were based on the rules that out there.
Having said that, that doesn't prevent us to go execute and build that business that would eliminate or reduce those write-downs in the future. And that's what our challenge is to our team, but we're trying to give the best snapshot of where we are today.
Michael Pearson
So you guys still basically the lease, and I guess as it kind of stands right now, if you determine at some point, well it doesn’t make sense to try to keep quiet at this time, you could just turn them back over to SES?
Charlie Ergen
I guess I would say that's the kind of exposure we have today.
Michael Pearson
Understand. That’s very helpful.
Bernie Han
What about Mike's broader question about just the business building initiatives at the SES?
Charlie Ergen
Well, if you look at the core business of just leasing transponder capacity, right and you just were going to excel in a lease capacity that is a very soft market in the United States today. In fact, I'd say extreme soft market in the United States today.
The trick in my opinion and the strategy always is at EchoStar is that we've got some value-added things. We have an installation network.
We have the business TV network. We have the ability to do encryption.
We have other value-added that we could do. And hopefully, we are innovative enough where other people could – that we can build a business that maybe is not out there today and utilize some of that creativity to create demand, either that we can sell in the form of a different products or create demand where we can offer things that other people can't offer, who just sell a commodity as satellite space.
That's really what we're working on. That's really what the team is working on could be able to do.
So far, we're very disappointed we haven't been very successful, but we have things we're trying and certain things that we're have in the pipe. We have a relatively low bar now with the write downs, put it that way.
Michael Pearson
Very quick final question if I may. You were alluding earlier on the set-top box discussions to some of the initiatives you've been pursuing there.
And you said well you kind of need a partner before you kind of take it to another level of investment. Were you implying that you kind of need in effect an MSO partner to sign up with you?
Is that something that you think is a realistic possibility in the foreseeable future?
Mark Jackson
I think it’s fair to say that in any of the cable industries with the planning structure that we do need a cable guy to help us out to give a platform launch on a cable side. We're talking to everybody that will let us come in and talk to them.
Charlie Ergen
Basically, at some point, it would be significant capital investment in inventive technology that goes on or to reformat the technology. It's certainly doable, but to go into cable platform so you need an order to go do it, you are just not going to go do it.
Each platform is a little different. Each cable company operates a little differently so you have to have them, you have to work with them so that it operates on their platform efficiently.
And I would say that there are a couple domestic providers that I think are very interested. I think there are some international customers, but we have a more expensive product.
And because it does things like sling that other products can't do, so I think it's going to be a (inaudible).
Michael Pearson
Fair enough. Thank you very much.
Charlie Ergen
I think we may have time for one more question.
Operator
Okay, your last question comes from the line of Brian Gutzie [ph].
Brian Gutzie
Hey, guys. Want to know if you can talk about where you are in the MPEG4 transition with DISH and what kind of other cost or price premium is associated with MPEG4 over MPEG2?
Charlie Ergen
Let me answer it. We can't speak for DISH, right?
But I can tell you that we're only producing MPEG4 products manufacturing for – we only manufacture I think MPEG4 product today. It just doesn't make sense to build MPEG2 product.
Is that correct? We're only building MPEG4 product.
An MPEG4 product, there is a higher cost of MPEG4 product, primarily because a chipset is a bit more expensive and so our – given the same margin, we would make a little bit more money, total dollars, but the margin would be the same. We would rather sell MPEG4 product than MPEG2 product, all things being equal.
On the other hand if people are reusing their MPEG2 product because they've been leasing them and then redeploy them, then we have less new MPEG4 product they might need.
Brian Gutzie
Okay. Thank you.
Charlie Ergen
So, I think with that, we'll be back again in May, so thanks for joining us today.
Operator
Thank you. This does conclude today's conference call.
You may now disconnect.