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SkyREPORT 08/09/2006 - DirecTV's 2Q: Less is More, More is Good

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Today's Headlines:
DirecTV's 2Q: Less is More, More is Good
Loral Reports 2Q and 2006 Mid-Way Results
FEMA Grabs More Satcom Equipment
Irdeto Lands Chinese SmartCard Deal
News Briefs: FCC's AWS Auction Today


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DirecTV's 2Q: Less is More, More is Good


As DirecTV announced second quarter results yesterday, strong financial outcomes  somewhat overshadowed the fact that maybe the company's business model is starting to show chinks in its armor. The company experienced lower-than-expected subscriber additions producing slower subscriber growth, but along with decreased churn rates DirecTV said its gaining higher quality subscribers.


Less is More.


DirecTV's 2Q revenues increased 10 percent to $3.52 billion and operating profit nearly doubled to $977 million compared to the same period last year. The company reported its operating profit and net income both more than doubled to $741 million and $459 million, respectfully, when compared to 2Q05 while earning $.36 per share.


But despite the strong financial showing, analysts are having a difficult time getting over the weaker results in terms of net subscriber growth. DirecTV recorded net subscriber additions of 125,000 and gross additions of 863,000- the lowest quarterly results in at least six years.


Bernstein's Craig Moffett said the weak numbers - particularly in the context of continued strength in basic subscriber growth among the company's pay-TV rivals - speaks to satellite's challenge of competing with cable's triple-play bundle. "With Comcast and Charter and others just now ramping up their VoIP 'triple-play' marketing, these results paint a sobering picture of things to come," the analyst said.


Moffett said the company's lower churn likely reflects DirecTV's continuing (and successful) effort to attract "higher quality" subs. Despite the company's year-to-year gross subscriber decline of 10 percent, lower-than-expected subscriber acquisition cost (SAC - $642 vs. $668 estimate) speaks to DirecTV's restraint in pursuing growth at any cost, he said.


"We aren't worried about the fundamentals," Bank of America's Doug Shapiro said about DirecTV's mixed results. The research firm is "more concerned about the company's efforts to find a broadband solution." 

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Loral Reports 2Q and 2006 Mid-Way Results


Robust new awards for satellite construction contracts has helped to boost total consolidated revenues for Loral Space and Communications to $193 million during the company's second quarter. The increase represents a 41 percent jump over the $137 million the company recorded for the same period in 2005.


For the first half of 2006, Loral's revenue totaled $365 million, a 36 percent increase over the company's $269 million generated in the first six months of the previous year. As of June 30, Loral had $342 million in cash and cash equivalents, the company said.


"Loral's progress continues to be reflected  in our improved results, notably our satellite manufacturing business," said Loral CEO Michael Targoff.


Loral's second quarter Adjusted EBITDA was $17 million, a 66 percent improvement over last year's second quarter, driven primarily by increased sales  and lower expenses at the company's fixed satellite services (FSS) unit, Loral Skynet. First half 2006 Adjusted EBITDA totaled $28 million, a 79 percent increase over first half 2005 Adjusted EBITDA of $16 million.

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FEMA Grabs More Satcom Equipment


The country has been lucky in regards to tropical storms this year, but that isn't stopping one government agency from stocking up on satellite technology. The Federal Emergency Management Agency (FEMA) is buying more satellite equipment in order to better communications abilities, improve supply shipments and increase situational awareness during the hurricane season.


Recently FEMA Director David Paulison said the agency is focusing on satellite communications because the technology is going to help save lives in times of emergency weather conditions.


According to FEMA, Paulison - who took over the agency during harsh criticism - admitted the government seriously screwed everything up during Hurricane Katrina. Now, the new director is confirming what many in the industry and out in the field already knew: satellite communications makes life easier for first repsonders.


Paulison said one of the first tasks the agency is trying to tackle is the improvement of communications between federal departments, state agencies and local governments to assist battered populations. FEMA is now saying that one of the pieces it missed during the Katrina debacle was not providing enough satellite equipment.


Preventing the loss of goods in transit is another area FEMA dropped the ball- forcing the agency to purchase a $20 million satellite-based system for its 800-plus supply trailers. The director also said FEMA bought a satellite-based video streaming system to improve its "situational awareness" instead of relying on local newscasts.


What a concept.

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Irdeto Lands Chinese SmartCard Deal


Content security provider Irdeto is set to provide one million smart cards to Shaanxi Broadcasting and TV Information Network Co. to secure the migration to digital TV of China's first unified provincial network. The agreement marks the single largest contract for smart cards awarded to any content protection vendor in the country to date, the company said.


According to the contract, Irdeto will provide its Epsilon smart cards - the company's 5th generation security device - to Shaanxi, China's largest digitalization project covering 4 million TV households. Irdeto will be the exclusive content security provider for the first phase of Shaanxi's digitalization.


Irdeto's Epsilon Card, using an advanced microchip technology, employs the company's new FlexiFlash, a technology allowing smart card software to be securely updated over the air after cards have already been deployed. The tech enables security and functionality changes to the software without the operational costs associated with a physical smart card swap, the company said.


Shaanxi's cable network was developed and integrated into a high-speed, two-way broadband network covering 11 cities, 106 counties and 920 townships totaling 4 million users in all. The network supports multi-media applications including voice, data and video.









News Briefs: FCC's AWS Auction Today


GOVERNMENT -- The Federal Communications Commission will begin its AWS (advanced wireless service) spectrum auction today. The spectrum promises to deliver advanced mobile communications and wireless broadband. Companies set to participate in the auction include Verizon and Comcast, which is working with Time Warner and Sprint, as well as the Dolan family, which controls Cablevision. Also, DirecTV and EchoStar have partnered to jointly bid for AWS licenses.


INDUSTRY -- Globalstar, a provider of enterprise mobile satellite voice and data services, has received approval from the government to export its eight spare satellites to Europe for continued pre-launch preparations. The satellites will soon be shipped to an Alcatel Alenia Space facility in Italy to undergo additional testing, the company said.


PERSONNEL -- Turner Media Group named former RadioShack Chief Corporate Development and Strategy Officer Mark Hill as president of TMG. According to the company, Hill will develop TMG's corporate management and help implement a strategic planning and resource allocation process.

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