Salomon Smith Barney Analysis

EchoStar Communications Corp. [DISH] announced changes in its pricing structure last week that hold significant competitive implications. The move was interpreted broadly as a rate increase and the stock rose as concerns eased among investors about a possible price war in the multichannel television business.

However, the change was not an outright rate increase. EchoStar announced rate hikes on some of its packages and decreases on others. The packages with increased rates will be frozen at the higher levels for two years.

Taken together, these “increases” are much lower than the 2 percent annual average price increase over the next two years that we had anticipated. The EchoStar announcement suggests that the multichannel television industry is facing increased pricing pressure.

The rate decreases on some of the DISH Network’s higher-end packages indicate that EchoStar may be expanding its well-publicized aggressive price strategy from the low-end to higher-end subscribers to combat the growth of digital cable. Moreover, DISH is guaranteeing the price of its America’s Top 50 programming package for both new and existing customers at $24.99 per month until January 2005.

We believe this price freeze will ensure that DISH has the lowest priced multichannel digital TV offering in the United States. We think a price war has begun.

Armand Musey is a satellite communications analyst at Salomon Smith Barney (SSB). Part of the information provided herein includes excerpts, abstracts, and other summary material derived from research reports or notes published by Armand Musey as a member of the firm’s Global Equity Research Department. For a copy of the full research reports or notes or to view the research-report disclosure required by the NYSE and NASD rules relating to analyst independence and conflicts of interests, please visit http://www.ssbaccess.com or contact a SSB financial consultant. Valuation methodologies and associated risks pertaining to price targets, as well as other important disclosures, are contained in research reports and notes published on or after July 8,2002. Salomon Smith Barney or its affiliates beneficially owns 1% or more of any class of common equity of EchoStar Communications Corp.