Fitch Initiates Coverage of Echostar Communications Corporation.

CHICAGO -- Fitch Ratings has initiated coverage of Echostar Communications Corporation (DISH) and its wholly-owned subsidiary, Echostar DBS Corporation (EDBS), by assigning a 'B' rating to DISH's convertible subordinated notes and a 'BB-' rating to EDBS' senior notes. The Rating Outlook is Stable. Fitch's rating action effects approximately $5.5 billion of debt as of the end of the second quarter 2004.

Fitch's ratings reflects DISH's size and scale as the fourth largest multichannel video programming distributor in the U.S., solid liquidity position, and Fitch's expectation for EBITDA growth and free cash flow generation. Fitch's ratings also consider the intense competition for subscriber market share with cable multiple system operators and other direct broadcast satellite (DBS) providers, DISH's lack of revenue diversity and narrow product offering relative to cable MSOs, and the high cost to acquire and retain subscribers. The ratings also consider the competitive disadvantages inherent in DISH's infrastructure relative to the upgraded cable plant and the continued requirement for the company to invest and update its satellite infrastructure.

Key to Fitch's expectation of EBITDA and free cash flow growth will be how the company balances its strong subscriber growth momentum with controlling subscriber acquisition and retention costs and subscriber cash flow. Fitch anticipates an elevated level of competition from the cable companies during the balance of 2004 and 2005 as the MSOs continue to focus on marketing their product bundle, including a voice over Internet protocol (VoIP) service roll out, to retain and grow its basic subscriber base. The competitive pressure will likely result in higher subscriber acquisition costs and higher churn for direct satellite broadcasters including DISH, which in Fitch's estimation will erode subscriber profitability.

The company's subscriber acquisition costs (SAC) have increased on both an aggregate and per subscriber basis, negatively affecting EBITDA and margins. Fitch adjusts the company's reported SAC and EBITDA to account for SAC that the company capitalizes. EBITDA (adjusted for capitalized SAC) during the second quarter of 2004 declined 45% relative to the same period last year and EBITDA margin (adjusted for capitalized SAC) decreased to 7.9% from 20.7% last year. SAC in aggregate during the second quarter of 2004 was 62% higher than the second quarter of 2003 while SAC per gross addition of $645 was 17.6% higher than the second quarter of 2003, pointing out that the growth in gross additions is driving most of the year-over-year growth in SAC. Fitch believes that the increase in SAC per gross addition is largely attributable to higher subscriber equipment subsidies connected with the company's various marketing promotions.

DISH's liquidity position is supported by cash and marketable securities on hand. The company recently announced a $1 billion common stock repurchase program. Fitch expects that a significant portion of expected free cash flow will be utilized to fund the stock repurchase and not for debt reduction. Fitch anticipates that during 2004 the company will generate free cash flow levels consistent with 2003 free cash flow levels. Looking ahead free cash flow may be pressured somewhat during 2005 as higher levels of capital expenditures related to subscriber acquisition costs and satellite expenditures weigh down free cash flow generation. Fitch expects leverage (adjusted for capitalized SAC) to improve to approximately 6.35 times (x) by year-end 2004 and reduce to 5.5x by the end of 2005.

DISH has nominal amounts of scheduled debt maturities during 2005 through 2007, however $2.5 billion is scheduled to mature in 2008 presenting refinancing risk. Fitch believes that risk is magnified given the company's common stock repurchase plans.

Fitch's 'B' rating for DISH's subordinated convertible notes reflects the structural subordination of the notes to the senior notes issued by EDBS and the diminished recovery prospects of the convertible notes relative to the senior notes.

Fitch's Stable Rating Outlook reflects the consistent subscriber economic trends as well as the positive EBITDA and free cash flow prospects expected during 2005 and 2006 balanced with the very competitive operating environment.

These ratings are based on existing public information and are provided as a service to investors.