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EchoStar Corp  (NASDAQ:SATS)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 11:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Hello and welcome everyone to the EchoStar Fourth Quarter 2018 Earnings 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. I would now like to turn the call over to VP, Investor Relations, Deepak Dutt.

Deepak Dutt -- Vice President, Treasurer and Investor Relations Officer

Okay, thank you, operator and good morning everybody. Welcome to our earnings call for the fourth quarter and full-year 2018. I'm joined today by Mike Dugan, our CEO; Dave Rayner, COO and CFO; Pradman Kaul, President of Hughes; Anders Johnson, Chief Strategy Officer and President of EchoStar Satellite Services; and Dean Manson, General Counsel. As usual, we invite media to participate in a listen-only mode on the call and ask that you not identify participants or their firms in your report. We also do not allow audio recording, which we ask that you respect. So let me now turn this over to Dean for the Safe Harbor disclosure.

Dean A. Manson -- Executive Vice President, General Counsel, Secretary

Thank you, Deepak. All statements we make during this call other than statements of historical fact, constitute forward-looking statements that 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 the forward-looking statements. For a list of those factors and risks, please refer to our Annual Report on Form 10-K filed with the SEC. All cautionary statements we make during the 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 any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements. I'll now turn the call over to Mike Dugan.

Michael T. Dugan -- President, Chief Executive Officer, Director

Thank you, Dean. Good morning everyone and welcome to our earnings call. 2018 was another good year for EchoStar although our solid financial results are somewhat masked by a couple of non-cash items in the fourth quarter. Dave Rayner will discuss these items in more detail during his comments. I'm convinced that we are well-positioned to take advantage of the sweeping changes taking place in the satellite industry. We intend to be the leading global connectivity provider for people, enterprises and things. We have already made great progress in enabling connectivity for people and their enterprises and believe that we are best positioned to provide connectivity for the evolving Internet of Things. Let me now turn it over to the management team to expand on their specific business segments and before closing, as usual, we'll have questions and answers. So here Anders, please take over for ESS.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Thanks, Mike, good morning. ESS fourth quarter revenue was $82 million compared to the $96 million last year. EBITDA was $69 million versus $73 million last year. ESS 2018 revenue was $358 million compared to $392 million last year and EBITDA was $308 million compared to $315 million last year. As we mentioned last quarter, the year-over-year revenue decline that ESS experienced is primarily based on the previously disclosed termination by DISH of the lease for the EchoStar VII satellite. We expect a difficult environment for our commercial FSS business and pressure on rates for US government service opportunities will continue through 2019.

On the EchoStar Mobile front, the team continues to make good progress in bringing innovative MSS products to market and in preparing to build out our next-generation hybrid network for IoT and 5G services in the European Union. With the primary focus on expanding MSS operations in the EU, over the last year, we have grown the EML commercial team, broadened the MSS distribution relationships, and evolved our MSS products and services including the development of a new lower cost mobile terminal optimized for M2M and IoT services that we will launch later this year.

We are also making significant progress in the development of new platforms and services to empower our distribution partners to rapidly expand their offerings in the mobile M2M and IoT verticals. Looking further down the road, we are hard at work in developing new technologies to integrate S-band satellite services into 5G networks and dramatically reduce the cost of satellite IoT services. We also plan to leverage technology developed by our affiliate DISH Network to enable exciting new hybrid services utilizing our complementary ground component authorizations. Over time, we expect that EML products and services will be integrated into new global hybrid networks leveraging multiple satellite and terrestrial technologies. I'll now turn it over to Pradman.

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Thank you, Anders. I'm delighted to say that financially, Hughes had a solid fourth quarter and fiscal year 2018. Q4 revenue was up 10% and EBITDA was up 12% over the same quarter last year. In full-year 2018, revenue grew 16% and EBITDA was up 27% over 2017. This strong performance consolidates our leading position in terms of both market share and EBITDA.

Dave will present more financial information in a few minutes. We focus strongly on consumer satisfaction and I'm pleased to report that satisfaction levels remained high in the fourth quarter. For the fourth consecutive year, HughesNet was ranked number one among all ISPs in meeting or exceeding advertised download speeds in the latest FCC's Measuring Broadband America report, which was published in December. As another indication of good customer satisfaction, we managed to keep churn low and ARPU remained high. This allowed us to continue to grow revenue and earnings despite many beams on JUPITER 1 and 2 filling up. We ended the year with approximately 1,361,000 HughesNet subscribers, an increase of 153,000 subs over four quarter 2017 and 29,000 sequentially over the third quarter of 2018.

Increasingly, much of our subscriber growth is coming from South America and we expect this trend to continue. JUPITER 3 satellite is currently under construction with an anticipated in-service date in 2021. It will add significant additional capacity and enable us to offer service plan delivering 100 megabits per second of download speed to the consumer while maintaining the high quality and competitiveness of our service in unserved and underserved regions of the country. The new satellite will leverage the latest satellite and system technology to lower our cost per bit and maintain pace with the increasing usage from our customers.

In consumer services, we lead the market in the US where today HughesNet has been chosen by 69% of satellite broadband subscribers. With the launch of the Hughes 63W hosted payload, we expanded our service footprint in Colombia and Brazil and launched service in Peru and Ecuador leveraging the knowledge, experience and infrastructure that we built in North America and Brazil. We also plan to launch service in additional countries soon.

In the Aero IFC business, we continue to make good progress. Our Global Eagle partner has over 1,100 aircraft outfitted with our terminals. In the fourth quarter, SES ordered additional gateways and some of our JUPITER 2 capacity over Mexico to initiate service for routes over Mexico and the North Atlantic for expansion of Thales In-Flight IFC service footprint. With this expansion, combined with the earlier Global Eagle JUPITER Aero awards, the range of our JUPITER aeronautical platform has now increased significantly and covers routes from Mexico to Canada, the North Atlantic, Europe and Russia. Based on the success of our JUPITER aeronautical platform, our partnerships and ongoing activities in this segment, we expect both the scope of JUPITER Aero coverage and the number of JUPITER-equipped aircraft deployments will continue to grow throughout the year. We believe there is continued growth opportunity in this segment in the years to come.

A key to the strategy behind our leadership in margins and market share is our use of a single broadband platform, the JUPITER platform that enables all our applications in every region of the world. If you want broadband connectivity in India, Brazil, Chile, Colombia, Peru, Mexico, US, Canada, Europe, Russia, Indonesia, Malaysia et cetera, et cetera, you can use the same platform. This broad coverage reduces recurring and non-recurring costs and thus improves our margins.

In addition, the same platform serves various applications and market segments from consumer to government, mobility, and enterprise. As we continue to innovate any enhancements for one segment become available to the benefit of all segments. For example, our aeronautical terminal relies on the same JUPITER platform that enables fixed residential and enterprise applications. From a technology perspective, our JUPITER platform continues to be the de facto worldwide standard for satellite broadband operators. Innovations we've introduced in the JUPITER system include wideband DVB-S2X and our powerful System on a Chip, both of which enables very high overall efficiency, fast packet processing rates, and high data throughput.

It should be noted that our competitors talk about having this type of ubiquitous infrastructure by 2022-2023 (ph). We have them today (ph) and a few examples of the acceptance of the JUPITER platform are recent orders from Botswana Telecommunications Corporation; SatCoNet, a Tanzanian VSAT operator; PSN in Indonesia and the Russian Satellite Communications Corporation. Our Indian subsidiary has made giant strides in the petroleum industry with the JUPITER system. It won long-term contracts from all three state-owned oil marketing companies in India for a total of 19,000 sites. Under separate contracts, Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum chose the JUPITER platform to upgrade network connectivity nationwide to increase transaction speed, monitor all tanks, reduce pilferage and deliver accurate real-time data. In addition, the largest private oil marketing company in India, Nayara Energy awarded Hughes a 3,000 site contract for retail automation connectivity using the JUPITER platform.

Another exciting market that we have penetrated very effectively is community Wi-Fi hotspots. This is an approach to reach rural and unserved customers by means of a broadband VSAT installed at very remote locations. These hotspots allow governments to bridge the digital divide and to allow local retailers to sell byte-sized data packs at an affordable price. We and our partners have deployed over 32,000 VSAT enabled hotspots in Brazil, Mexico, Russia and Indonesia. From a service provision perspective, we're looking beyond our current operations in the US, India, Brazil, South America and Europe and we're looking for opportunities for commercial and strategic alliances with local partners and to expand the list of service providers using our platform.

At the end of the year, we commenced our joint venture with Yahsat to provide services in Africa and the Middle East. The initial focus of the JV is on direct to premises services to homes and small to medium enterprises, service to community centers and schools under local government programs and community WiFi and hotspot solutions. We continue to actively explore other similar JV opportunities elsewhere in the world. So as you see, we have made a significant progress in our vision of being the leader in connectivity. We are leader in the market share, revenue, earnings and geographic market coverage. All in all, it was a very strong quarter and year and I'm looking forward to another exciting year in 2019. Let me now hand it over to Dave.

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Thank you, Pradman. Before I get into our quarterly results, I want to highlight two items that significantly impacted the results. First, consistent with the new accounting provisions relating to investments, which were adopted at the beginning of 2018, we are required to mark our investments to market and record the resulting gains and losses. As expected, this has created volatility in our financial results throughout the year. As you know, the market experienced significant swings recently especially in December when there was a downward movement in the broader market prices. Our investments were also impacted negatively resulting in a loss of $46 million in Q4, more than offsetting gains earlier in the year. Those investments have recovered so far in 2019 and are currently recovered to the point that they exceed the full-year 2018 losses of $12 million and more.

The second item has to do with the valuation of our 45 West orbital slot over Brazil. As you know for several years, we attempted to identify a partner for development of this BSS slot. We've determined that plan will not be successful and accordingly have recorded an impairment expense of $65 million in Q4. We intend to redeploy EchoStar XXIII, which is located in that slot to a revenue producing role.

Now to the quarter's results. Consolidated revenue in the fourth quarter was $531 million, a growth of 5% over the same period last year, driven primarily by Hughes consumer and international enterprise growth offset partially by ESS. EBITDA in the fourth quarter was $85 million compared to $207 million last year with the growth in EBITDA at Hughes being more than offset by the unrealized losses on investments and asset impairments on the 45 degree slot as well as a reduction in ESS EBITDA.

Net loss from continuing operations was $112 million in Q4 compared to net income of $312 million last year, once again driven primarily by the items mentioned above. As a reminder, Q4 last year included a $304 million positive impact related to the Tax Cut and Jobs Act. Capital expenditures in the quarter were $140 million compared to $156 million last year with lower satellite-related spending and lower spending on consumer CPE being the primary reasons for the lower CapEx. Free cash flow in Q4 2018 defined as EBITDA excluding the non-cash investment losses and impairment minus CapEx was positive $56 million.

Turning to the segments, Hughes revenue in Q4 was $445 million as Pradman said a 10% increase year-over-year driven by growth in the Hughes retail consumer service and international business offset partially by North American enterprise and the wholesale consumer business. EBITDA in Q4 was $148 million, a 12% growth over last year primarily from the revenue gross (ph) margin growth offset partially by certain reserves against bad debt. ESS revenue in Q4 was $82 million, down 15% from the same quarter last year primarily due, as Anders mentioned, to the termination of the lease on Echo VII in June of 2018. EBITDA was $69 million in Q4 compared to $73 million last year as a result of the lower revenue partially offset by the termination of lease on AMC-15 and certain impairments in Q4 of last year. Corporate and other EBITDA in Q4 was a negative $133 million compared to a positive $0.6 million last year due to the higher unrealized losses on investments, the asset impairment and lower equity and earnings from unconsolidated entities.

Our balance sheet continues to be very strong with $3.2 billion of cash and marketable securities as of year-end and approximately $322 million of net debt inclusive of capital leases. In the quarter, we repurchased in the open market $69 million of our secured notes that mature in June of 2019. Our intent at this time is to repay the remaining outstanding balance in these notes out of current cash. In addition, during the quarter, we bought back 953,000 shares of our stock in the open market. Let me now turn it back over to Mike.

Michael T. Dugan -- President, Chief Executive Officer, Director

Thank you, Dave, Pradman and Anders. As I indicated at the start, 2018 was a solid year and myself and the team are looking forward to an exciting 2019. We are now ready for the question-and-answer session. So let me turn it back over to the operator.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Chris Liddell (ph) from North Sound. (ph)

Chris Liddell -- North Sound -- Analyst

Hey, guys. Chris Liddell (ph) here. Just a quick question. The talk around ESS in Europe, that's the first time you all have talked about integrating with DISH in terms of providing connectivity from a device standpoint and not necessarily a consumer. Could you expand on that a little bit in the sense of where are you spending money now to develop that and where do you see that going in terms of ultimately integrating with DISH and what they are trying to do from a connectivity standpoint? Thank you.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Well, this is Anders Johnson. I think given the strategy that DISH is pursuing regarding their NB-IoT network here in the United States, a collaboration at the device and applications level seemed obvious to us. So as many of the standards necessary for those products to be produced, we're doing it in a coordinated fashion looking more at the global opportunity as opposed to a regional opportunity to share in both the costs of the development stage as well as a roll out to as large a market as possible.

Operator

Your next question comes from the line of Ric Prentiss from Raymond James.

Ric Prentiss -- Raymond James -- Analyst

Thanks, good morning guys.

Michael T. Dugan -- President, Chief Executive Officer, Director

Good morning, Ric.

Ric Prentiss -- Raymond James -- Analyst

A couple of questions. First, I appreciate that the Hughes segment grew year-over-year, but obviously in a recurring revenue model, there's a lot of focus also on quarter-over-quarter and it looked like the Hughes revenues were basically flat quarter-over-quarter and EBITDA was actually down quarter-over-quarter. Can you help us understand what might be going on there, consumer versus enterprise, US versus international, there's probably a lot of moving pieces there that are maybe masking what is growth markets versus new markets?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Yeah, Rick, let me try and address that and as you well know, there are a lot of moving pieces and a lot of components. It's not as straightforward as it might appear. Certainly on the consumer side, both in North America and South America, we continue to grow that business. Sequentially, we had a -- got to be careful here, certain customers that we have contracts for development and equipment that we either slowed down or stopped working Q4 because of their financial or concerns that we had about their financial ability to pay us. That also obviously impacted EBITDA as a result and it also impacted bad debt on one of those customers specifically.

In addition, as we started up in new countries in South America, there are certain start-up costs that we incur. Clearly, the first customer that we sign up is not a positive margin customer and those businesses are going to scale just as Brazil has scaled and eventually contribute to the bottom line, but in the near-term, those are investments in those new markets and their start-up costs both operationally and from a lack of scale standpoint. So this is -- for the most part, those costs in South America, we view as very positive. They are investments that we're making in future revenue and margins. On the enterprise customers that we are concerned about, we think those will be -- some of them will be resolved. Others, not so much.

Ric Prentiss -- Raymond James -- Analyst

And when you mention the reserve for bad debt, was that taken as a contra revenue or was it an expense item and can you kind of put a magnitude on that for us?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Yeah, well -- it was more than five (ph), less than 10 (ph). It was -- there was obviously an increase in bad debt overall as the size of the consumer business -- sorry, I don't want to say the consumer business is excluded from bad debt, obviously bigger revenue, more bad debt there and it is flowing through G&A. On the enterprise customer, it also flows through G&A and really related to revenue that we recognized in prior periods.

Ric Prentiss -- Raymond James -- Analyst

Okay and obviously this tees up the natural question of more disclosure. Have you thought about are these businesses getting large enough at some point to breakout US versus international or some more clarity there to help us kind of peel back the onion to get at to actually see the growth versus the start-up phases?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Yes, we constantly discuss that and yes, we decided not to this quarter because frankly it raises more questions than it does answers as you start looking at the dynamics on a smaller scale if you will between Brazil -- let's say between South America and North America. I think we'll get there as we've said previously, we think we'll get there, but it's got to have meaning before we put it out.

Ric Prentiss -- Raymond James -- Analyst

Okay and then the last question for me is in the 10-K, there was some new language in there about the S-band that you're looking at seeking additional licenses or opportunities to align with other licensees. Can you share with us kind of what your thoughts are there as far as what do you need to own? How could you maybe align or partner with people just kind of help us understand what that new language might be suggesting to us?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Well, I -- this is Anders again. I think it's reflective of us identifying a broader opportunity and a lot of that opportunity is going to be dimensioned by the footprint. So we don't necessarily need to own everything, but we want to make sure that we're aligned with parties that will give us the greatest reach possible as some of these new commercial markets develop.

Ric Prentiss -- Raymond James -- Analyst

And as far as timeline, I know the World Radio Congress (ph) is coming up this year -- late this year, but how should we think about the opportunity to kind of put some more meat on the S-band bones over the next one or two years?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Well, I think we've had our S-band licenses now for -- the most meaningful one for five years. So it's certainly taking a long view of the opportunity. I think to recognize your point, the World Radio Conference and then equally important the release of some new standards early in 2020 will probably stimulate the actual manufacturer of devices and the roll out of products associated with it. So I'd look at it more in the intermediate term of 2020 being the start and '21 and '22 being the more meaningful periods of development.

Ric Prentiss -- Raymond James -- Analyst

That helps. Thanks guys.

Operator

Your next question comes from the line of Jason Bazinet with Citi.

Jason Bazinet -- Citi -- Analyst

I just had a question on Hughes. When I go back and look at the launch of EchoStar XVII or EchoStar XIX, you were either a few quarters ahead or a few quarters behind ViaSat's launch, but candidly, you can't even really see in the net adds of the financials that you guys put up, that there were sort of any implication of that at all. And my question is as we get ready for ViaSat-3 launching in 2020 and you guys have said you're going to launch your next satellite in 2021, do you think it's the same dynamic or do you think we're hitting the point where it becomes a little bit more zero-sum or there's not enough incremental capacity for you guys to sort of meet latent demand, if you will, that's out there. Thanks.

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Yes, I'm not sure, Jason, that I understand your question, but fundamentally, the dynamics of the market -- I don't expect any difference in the sense that as you use up all the beams, you saturate the amount of subscribers that we can handle with those beams and those satellites. So the curve starts flattening and then when you launch the next satellite, you pick it up again for a couple of years and hopefully we order the next satellite at the time so that we don't necessarily have the period of flattening be as long as it has been between JUPITER 2 and JUPITER 3.

Jason Bazinet -- Citi -- Analyst

Okay. I guess my question (multiple speakers). No, no, that's OK. So does that mean you think you'll see even more unit growth or the financials will just work out because you'll end up having a higher priced product. We may not see as many subs, but you'll just get more ARPU as they buy higher-end products?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

No, I think you should see more unit growth definitely because you will have more capacity in the market as we have mentioned the penetration so far has only been about 10% of the available market. So plenty of room to grow number of subs.

Jason Bazinet -- Citi -- Analyst

Okay. The reason I ask, it just seems like if indeed the penetration rate is only 10%. It just seems like all of your capital should just be thrown toward the North American market where the ARPUs are high and there's this huge pent-up opportunity, I mean every time you launch a North American Satellite, it seems to work for you and it seems like you're spending quite a bit of capital going to Latin America, now we're talking about Europe and I don't know, it just -- if it really is 10%, just let's focus on the North American untapped market. Why is that not the right answer?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Yes, because we are not limited by capital, right. We are addressing the market in Brazil for example, that's growing very nicely. Yes, the ARPU is lower than North America, but it's still a very good market. We make good margins. So I think we'll continue to address all these markets. We have for example capacity available in Latin America, which we don't have now in North America where we're saturating. So the advantage of that is that for the next couple of years till we get Jupiter 3 launched, we'll see much more growth in Latin America than we will see in North America. So the diversity of the marketplaces is an important element in our strategy.

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Jason, this is Dave, let me just add one more piece to that. We've conceded previously that we underestimated how quickly Jupiter 2 would sell and we were probably a little bit late on starting Jupiter 3. You can build more capacity, throw it on earlier -- I mean, and once again, remembering that this is a long build cycle on these satellites, but the reality is if you do that, you are going to be disadvantaged in the long-term because the cost per gig on these satellites comes down dramatically with each generation. So we can go spend CapEx and go build two Jupiter 3s simultaneously and have that capacity available longer, but the reality is that a subsequent satellite is going to have better technology, better economics and so you want to try and stage things appropriately so that you're getting the best returns on the capital investments.

Jason Bazinet -- Citi -- Analyst

Yes, that makes sense.

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Ideally, Jupiter 3 would be sooner than what we're going to realize, but we've conceded that now for some time.

Jason Bazinet -- Citi -- Analyst

Understood. That's very helpful. Thank you.

Operator

Our next question comes from the line of Giles Thorne from Jefferies.

Giles Thorne -- Jefferies -- Analyst

Hi, there. Giles here from Jefferies. I had a handful of questions too. The first one was around Mexico and seeing DISH Mexico strike terms with Hispasat for capacity for residential broadband service didn't make any sense to me. I didn't understand why you weren't in the frame for that. So if you could fill in the gap of my knowledge there that would be useful. And yeah, I'll do one question at a time. Thanks.

Michael T. Dugan -- President, Chief Executive Officer, Director

Okay, this is Mike. Obviously, we don't directly control DISH Mexico. We certainly have capacity in Mexico that could be used. We constantly work with them on what we have to offer and so on, but they made that decision and we're OK with it. So we are pursuing other options for the capacity we have Mexico. We actually have part of it already producing revenue with a customer for part of it and we're working very hard to include the rest of it, whether DISH Mexico will be part of that is yet to come.

Giles Thorne -- Jefferies -- Analyst

Okay, but there was definitely a conversation around that?

Michael T. Dugan -- President, Chief Executive Officer, Director

Oh, absolutely. I mean yes, you can have confidence. We work with DISH Mexico on a daily and weekly basis and sometimes people do things financially that we find we can't do because we manage things a little bit closer than other people do. So Hispasat probably made a little better offer to them than we were willing to do. Our capacity is very valuable and our equipment is high quality and that's about all I can say.

Giles Thorne -- Jefferies -- Analyst

Understood. Turning to Africa and Yahsat and the JV there, you put a $100 million. Well, that's my first question, $100 million, was that an amount of money you put into the JV in return for equity or was that an amount of money you gave to Yahsat to buy a stake from them in the JV. I'm guessing it was fresh money into the JV. Is that right?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Yes, yes, it was put into the JV.

Giles Thorne -- Jefferies -- Analyst

Okay. So there's $100 million cash sitting in that JV and presumably that's going to fund a large marketing and distribution campaign. Is that right? And if that is right, what early conclusions are you coming to about distribution?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Actually there's more than $100 million because there's about $160 million of cash in the JV because of some of the insurance payments on Yahsat 3, but having said that, this money allows us to have some ambitious expansion plans in Africa. We hope that will buy more capacity either hosted payload or a new satellite and we just kicked it off early January. So it's only been a month since the JV has been in operation, but we are very optimistic that we'll rapidly start filling up the capacity available in Yahsat 2 and 3 and start our expansion planning.

Giles Thorne -- Jefferies -- Analyst

Yahsat has been operating that for years and years. So what are you bringing that's going to be different?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Well, one of the reasons they were interested in doing a JV with us is to use our expertise in marketing and distribution and to see if we could repeat the success we had in North America, use some of the same knowledge and techniques of distribution. So hopefully, we have reset their marketing plans and distribution plans and let's hope the experience that we bring to the party will allow us to grow that business in Africa.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

And Giles, the other thing that's also different is the introduction of the Yahsat 3, the new satellite into the market with new capabilities.

Giles Thorne -- Jefferies -- Analyst

Understood. Thank you and coming back to the question of the S-band. Anders, if you could define I mean we ask most quarters what's the latest and what are you doing and so on, but if you could kind of top down define your ideal setup for the deployment of that license, what is it? Define that vision for us? Very open question.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Well, I think, as previously stated, our initial focus here has been to focus on the MSS development of the opportunity and given what's happening in the evolution of networks overall and the opportunity that the whole 5G environment will create the MSS opportunity for us we certainly consider significant. How that eventually will carry through in the development of the CGC portion of the licenses we hold in Europe has yet to be fully defined, but for right now, we're definitely focused on the MSS components and the opportunity there and have not really focused on CGC yet although I would expect that naturally will follow as the definition of some of these 5G hybrid capabilities becomes clearer.

Giles Thorne -- Jefferies -- Analyst

This is kind of what I'm coming to which is everything you've said, you've said before and is totally understandable, but here is your opportunity to define what you would like to see be the outcome?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

We have a lot of thoughts regarding that, we're just not sharing it right now.

Giles Thorne -- Jefferies -- Analyst

Okay, fair enough. And last question is, then, and obviously, it's a very lazy question, so do forgive me, but and the window for Inmarsat has opened up again, it feels like that business and that equity story hasn't done much to reduce its candidacy as a target. I'm not going to ask you if you're going to bid again, but I am going to ask you what could be a catalyst for bidding again? I mean there was a situation you walked away. What could be the catalyst for reengaging? Thank you.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Yes, Giles, as you can certainly understand, we don't have any comments regarding that.

Giles Thorne -- Jefferies -- Analyst

Okay. Thought I give it a shot. I did say it was a lazy question. That was it from me. Thank you.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Thanks.

Operator

Your next question comes from the line of Chris Quilty from Quilty Analytics.

Chris Quilty -- Quilty Analytics -- Analyst

See, don't feel so bad. So anyways, Dave, I just wanted to follow up on the Hughes margin question that Ric was asking. They were sequentially down about 350 basis points and understand there was a lot of stuff thrown in there with bad debt and start-up costs, but just as we model out into 2019, I assume both of those issues should resolve to a degree and are we looking at the margins continuing on the prior trend up at kind of the 36 (ph) moving to 37 (ph) level were should this impact drag on for another quarter or two?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

I think you can probably expect a dampening impact from the start-up and a lot of it really factors into how successful we are in South America. If we're growing subscribers aggressively and we're meeting a lot of success in these new markets, we're going to be incurring subscriber acquisition costs upfront and as you know that's going to have a dampening impact on margin. So it's sort of damned if you do and damned if you don't, right. We all want to have constantly increasing margins, but investing in new markets and new subscribers comes at a cost and frankly, I hope we do have a little bit of a dampened impact on margin because that bodes very well for the longer-term.

Chris Quilty -- Quilty Analytics -- Analyst

And that should also show up in the net adds continuing to rise then?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Yeah, I mean it will show up in net adds and it should also show up in revenue.

Chris Quilty -- Quilty Analytics -- Analyst

Okay and just a specific question on Telstar 19V, I know you kind of -- you bought the entire payload there, but you're not fronting the entire or are you fronting the entire cost of that on day one when the satellite turned on?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

The hosted payload that we are using, which is on the whole satellite. We're fronting the costs of that hosted payload.

Chris Quilty -- Quilty Analytics -- Analyst

Okay. That was also reflected in the Q4 step down, correct?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Step down in CapEx, yes.

Chris Quilty -- Quilty Analytics -- Analyst

Right, but I mean in terms of margins?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

I mean, there will be a little bit of operating costs with that and certainly there are gateways and other ongoing OpEx associated with operating the satellite, certainly.

Chris Quilty -- Quilty Analytics -- Analyst

Okay. Question on EchoStar XXIII because it's a little bit of an unusual satellite with AA and S-band again, but also it's a broadcast satellite, if I remember correctly and that's somewhat limits the utility or I guess the orbital slots you may choose. Have you made some determination or are you still in discussions with who might want to use that capability, because it's not a native capability you can deploy in terms of, to the end customer?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Yeah, I mean just to be clear about the spacecraft. It's a Space Systems Loral FS-1300X. So it's a very large powerful DTH spacecraft. It's strictly a Ku-BSS frequency space station. So it does not have any S or Ka capabilities on board and in fact when we designed it, we contemplated future deployments of it. So from a capability standpoint, it's pretty much a Western Hemisphere Region 2 Ku-BSS spacecraft. So it's capable of performing missions both into North America as well as South America. So we're obviously going to be in discussions with the usual suspects about onward deployment opportunities.

Chris Quilty -- Quilty Analytics -- Analyst

Understand, David, question for you. I mean I was surprised that the buyback was not larger given where your stock is trading here. Is there some reason that you're not deploying cash quicker?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Yeah, the buyback, which we have -- best of recollection (ph) we've never done -- we might have done some things back in the 2008, 2009 time frame, but certainly not recently. So this is our first buyback of any size that we've done and it's being done under parameters based on Board of Directors guidelines.

Chris Quilty -- Quilty Analytics -- Analyst

And if the stock remains at these levels, is the Board perhaps more motivated to get more aggressive with the buyback?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

I don't think I want to discuss what motivation the Board may or may not have or what our plans would be in that arena.

Chris Quilty -- Quilty Analytics -- Analyst

Got you and so final question back to Anders on the IoT and M2M side of the market. Can you just clarify the type of service because it can range from very narrow band, low-cost type of IoT service to more of a high-bandwidth applications for trucking and transportation. Where exactly are you looking to position the service with your customers and have you established distribution channels for going to market?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Yeah, I think it's a little too early Chris to talk about the products and services themselves, but I mean just to give you some guidance, I'd focus more on the lower-end given it is MSS spectrum. We've got 15 megahertz in theater up and down. So it's certainly not heading toward a medium or broadband capability, but I think that the market is going to emerge here and there will be the need for a meaningful satellite component for many of the applications and services that people are talking about. So that's where we're trying to position ourselves to capture those opportunity.

Chris Quilty -- Quilty Analytics -- Analyst

Okay. And I lied, one more question if I can circle back to something David said earlier about the rate of technology progression with the staging of satellite acquisitions. You haven't given a throughput or any type of capability around JUPITER 3, but as you look at developments in onboard processors and beam forming and other technologies, I mean do you expect the rate of improvement that we've seen over the past decade to improve to continue for the next decade or are we starting to see either due to size of satellite or available spectrum, the rate of growth starting to slow in terms of the satellite improvements for your JUPITER 4, call it?

Michael T. Dugan -- President, Chief Executive Officer, Director

I'm going to turn that over to the engineering expertise of Mr. Pradman Kaul.

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Well, I think the rate of technology improvements is pretty steady and so I would expect that JUPITER 3 will reflect that growth in capacity cost per bit the per speeds, the various parameters that are very important to us. We've said previously that for example, the capacity of the satellites will be greater than 500 gigabits and that's a good measure because that drives not only the capacity, but then the rate at which each receiver receives. So we've said that we'll have over 100 megabits download speeds into each terminal. So all of those get reflected in the various parameters that dictate what kind of services we'll be able to offer and the fact that when you have that much capacity in a satellite, the cost per bit goes down also and so, all of them contribute to the quality of the services that we will be offering.

Chris Quilty -- Quilty Analytics -- Analyst

Understand, all right.

Operator

Your next question comes from the line of Nithin (ph) (inaudible).

Nithin -- -- Analyst

Hi, so I guess almost everything has been asked at this point, but just wondering in terms of a follow-up on the beams on JUPITER 2 being full. Can you just give us a sense as to whether or not, they are full in the sense that they are maxed out fully or is there sort of a conscious decision for you in certain beams not to fill them up totally with consumer broadband capacity and reserve some of that for maybe other uses in the future? And then just in terms of I know that Pradman, there was an interview with you late last year on India-related opportunities for building and deploying a Ka-band satellite. So anything there? And then finally, Dave, I just wanted to make sure I understood correctly what you said earlier. Are you paying off the sort of the full balance -- the $990 million of the 2019 debt when it comes due or you refi-ing?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Let me answer that piece, then I will turn it over to Pradman for first two parts of the question. Our intent would be to repay the 2019 maturity, not refinance it at this point. I think we've got lots of capability to refinance it if we wanted to do so, but at this point in time, we'll just repay it.

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Yeah, let me address the question on India. We are very keen to and we are working hard with the Indian government and ISRO to get a license to put a Ka-band satellite, broadband satellite over India. I think we are in good position when and if the Indian government makes a decision to issue such a license. We are in a good position to be right upfront on the list of companies to get that license, but as of this stage, we have not crossed the final hurdle. So we are working at it and hopefully one of these days, we'll succeed. What was the first question, again?

Nithin -- -- Analyst

It was around just beams filling up on JUPITER 2.

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Yes, so basically, we tend to fill beams up to capacity, but then there's always churn that creates a little capacity and then we fill it up again. So it is a constant filling action going on, but essentially, the beam is full. The only area where we reserve a little capacity is for our aeronautical business in certain beams, but for practical purposes, the beam is full, it is full.

Michael T. Dugan -- President, Chief Executive Officer, Director

Right and Pradman we ought to add as we manage capacity within the beams, customer experience is very key --

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Right.

Michael T. Dugan -- President, Chief Executive Officer, Director

We do our very best to make sure that the full position for our beams still supports what the customer expects and I think our constant awards for best service and best expectations by the customer, I think we're doing the right thing. We value every bit and we try to deploy in the right ways and we will not say that every beam being full is set at the same place because that's just not the way it works.

Nithin -- -- Analyst

Okay, thanks. Just one additional follow-up, just looking at the Hughes equipment revenue, should we infer that OneWeb might not be deployed as quickly as people originally expected. They might be having any sort of problems there?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

I don't think we would infer anything regarding OneWeb or any other specific customer.

Nithin -- -- Analyst

Thank you. Appreciate it.

Operator

Our next --

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Operator, we probably got time for one more question.

Operator

Our next question comes from the line of Jonathan Jacoby with Tabor.

Jonathan Jacoby -- Tabor Asset Management -- Analyst

Hi, just two quick follow-up questions. One, I think we all understand now that sort of margin call it in the near to somewhat mid-term are going to be under some pressure, but what is the long-term margin target for the business as you sort of work through the investment cycle? And then secondly, do you have any monetization plans for DISH Mexico? Thanks.

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

In terms of the sort of the long-term margins, a lot of that really is driven by the mix and the distribution methods. When we have in North America for instance incremental margins on a consumer retail subscriber, are very high above 50% incrementally and so as we grow that business obviously there's very, very strong opportunity for margin expansions. There's other aspects for our business, the equipment sales and development efforts with specific customers, we don't see those kinds of margins, which is why we're so excited about the consumer business and shifting more to a recurring revenue.

South America incremental margins, we're approaching from a margin standpoint those kinds of numbers in Brazil right now, we're starting to achieve scale. Obviously, the smaller markets such as Colombia, Ecuador, Peru and other countries we launch in, yeah, realistically I don't expect to be able to get to those margins because I don't think we'll be able to achieve the same kind of scale that we see in North America. So hopefully that gives you a kind of indication without giving the specifics. As we start looking at other joint venture kind of markets be it Africa, be it other places, really, the distribution methods are going to be different. If we're selling capacity, if we're selling equipment and letting our partner run the local operations, it's going to give us a different margin mix than if we were running it ourselves, but obviously we wouldn't have the same kind of capital investment in those markets.

Jonathan Jacoby -- Tabor Asset Management -- Analyst

Okay, thanks. (multiple speakers).

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

DISH Mexico, I would say just like any of our investments, opportunities to monetize versus continue to operate them, we would always evaluate that, but we don't have any specific plans at this point.

Jonathan Jacoby -- Tabor Asset Management -- Analyst

Thanks.

Deepak Dutt -- Vice President, Treasurer and Investor Relations Officer

Operator, I think that brings us to the end of the call today. So let me close by saying thank you everybody for participating. Good day.

Operator

This does conclude today's conference call. You may now disconnect.

Duration: 60 minutes

Call participants:

Deepak Dutt -- Vice President, Treasurer and Investor Relations Officer

Dean A. Manson -- Executive Vice President, General Counsel, Secretary

Michael T. Dugan -- President, Chief Executive Officer, Director

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Chris Liddell -- North Sound -- Analyst

Ric Prentiss -- Raymond James -- Analyst

Jason Bazinet -- Citi -- Analyst

Giles Thorne -- Jefferies -- Analyst

Chris Quilty -- Quilty Analytics -- Analyst

Nithin -- -- Analyst

Jonathan Jacoby -- Tabor Asset Management -- Analyst

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