EchoStar Communications [DISH] won praise from Wall Street satellite analysts and may well have caught the attention of cable TV operators by netting approximately 400,000 new subscribers during the fourth quarter.

Littleton, Colo.-based EchoStar had amassed 8.18-million subscribers by the end of 2002 with the addition of 1.35 million new customers for the entire year.

The “exceptional” fourth-quarter 2002 results will be difficult to sustain this year when subscriber acquisition costs and churn are expected to rise as cable becomes a more formidable competitor, wrote Marc Nabi, a satellite and broadcasting analyst with Merrill Lynch.

William Kidd, satellite analyst at Lehman Brothers, agreed that EchoStar’s fourth-quarter results were “well above” expectations. The “bold and brash” demeanor of EchoStar Chairman and CEO Charlie Ergen during last week’s earnings conference call also impressed Kidd, who noted that it contrasted with Ergen’s toned-down comments last year. Ergen had expressed less confidence about the company’s ability to compete with cable as it sought U.S. government approval to buy Hughes Electronics Corp. [GMH] and its satellite TV unit DirecTV, Kidd explained.

EchoStar improved its sales performance during the fourth quarter by posting revenues of $1.32 billion, up 15 percent from $1.15 billion during the same period in 2001. Pre- marketing cash flow – another important indicator of financial firepower — grew 27 percent to $548 million during the quarter, compared to $432 million during the same period in 2001.

Fourth-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $193 million, an improvement of $22 million compared to $171 million for the same period in 2001.

The biggest negative for EchoStar may have been its net loss of $716 million for the fourth quarter, compared to a net loss of $43 million during the corresponding period in 2001. The deterioration mostly was due to a charge of $690 million taken during quarter to terminate its proposed merger with Hughes.

Guidance issued by EchoStar’s management for 2003 projects only 1 million new subscribers this year to mark a 23 percent drop compared to 2002, Nabi noted. On that basis, Merrill Lynch likely will lift its previous forecast of 820,000 net new EchoStar subscribers for 2003.

Karim Zia, a cable and satellite analyst with Deutsche Bank Securities, foresees 1.1 million net new subscribers for EchoStar in 2003. He also is among the industry analysts that are expecting continued strong free cash flow from EchoStar that should reach at least $300 million for the full-year.

–Paul Dykewicz

(William Kidd, Lehman Brothers, 212/526-4849; Marc Nabi, Merrill Lynch, 212/449-2468; Karim Zia, Deutsche Bank Securities, 212/469-7591)