Subscriber Slowdown Scorches EchoStar

Shares tumble after the satellite TV service records a 62% drop in customer growth.
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EchoStar (DISH) - Get Report shares got squashed Monday after the company reported a 62% drop in subscriber growth.

The Englewood, Colo., satellite TV shop said it added 110,000 net new subscribers in the third quarter, down from the 295,000 added in the year-ago period. The Dish network operator blamed the defections on increased competition and a weakening real estate market.

Churn, the rate of subscribers switching off service or shifting to other video providers, rose to 1.94% in the third quarter from 1.76% last year.

EchoStar posted its third-quarter results late Friday. Adjusted earnings were 44 cents a share, up from 31 cents a share during the same period last year. Analysts were looking for an adjusted profit of 43 cents a share, according to Thomson Financial.

Sales in the quarter were $2.79 billion, up 13% from a year ago, but slightly below the $2.81 billion analysts had expected.

Investors saw the news as more evidence that the housing slump and credit crunch continues to spread beyond the mortgage industry to other sectors of the market.

EchoStar's weak subscriber gains are also a sign that competition from rival

DirecTV

(DTV)

is heating up. As well, the entry of phone companies like

AT&T

(T) - Get Report

and

Verizon

(VZ) - Get Report

into the video market has put pressure on all the players.

Cable shops like

Comcast

(CMCSA) - Get Report

,

Cablevision

(CVC)

and

Time Warner Cable

(TWC)

all reported

softer-than-expected subscriber and service sales wins in the third quarter. Observers have pointed to a range of factors dragging down some players in the video business, including mortgage defaults and the paltry offerings of high-definition programming.

For its part, EchoStar, in its quarterly financial filing, blamed its subpar subscriber performance on the "relative attractiveness of promotions; adverse economic conditions, including, among other things, the deteriorating housing market and increased mortgage defaults due to subprime lending practices and weakness in the economy; and operational inefficiencies."

EchoStar shares were down $5.21, or 11%, to $43.30 in mid-morning trading Monday.