By Anna Prior
Satellite television provider DirecTV (DTV) said some employees
at a unit of its Latin America business improperly credited
subscriber accounts, which artificially reduced its subscriber
churn--or turnover--rate last year and at the start of this
year.
Shares slipped 3.4% to $59.00 shortly after the start of trading
Thursday, as the company said the preliminary results of an
internal probe it launched in April revealed that some employees of
Sky Brasil directed activities inconsistent with its authorized
policies for subscriber retention and churn management, including
improperly crediting various subscriber accounts to reduce or
eliminate balances owed.
DirecTV estimated in a regulatory filing that Sky Brasil would
have had about 100,000 fewer subscribers at Dec. 31 than the 5.04
million that was reported.
At May 31, the company said it reported 130,000 fewer
subscribers for its Sky Brasil unit, following the investigation
and resulting from significantly increased churn.
The company said it expects substantially all Sky Brasil
subscribers improperly recognized as active at or after March 31 to
be churned out of the Sky Brasil subscriber base by the end of the
second quarter.
As a result of the increased churn, DirecTV said it will record
a pre-tax charge of about $25 million in the second quarter, to
reflect the write-off of capitalized installation costs and
subscriber related equipment held by the terminated
subscribers.
Citing increased competition, economic and other factors, the
company also said it expects Sky Brasil's ongoing churn will be
higher than previously anticipated.
More details, including an update to its 2013 guidance, are
expected during the company's quarterly conference call, which is
scheduled for Aug. 1.
In May, the company reported its first-quarter earnings fell
5.6%, weighed down by currency devaluation charges, but core
earnings and revenue both improved, pushing results above
expectations.
The company has had to adjust its U.S. strategy as its cable
rivals have been able to offset softness in the mature video
business with growth in broadband and other services that satellite
operators can't provide as well. The company has increasingly
looked to Latin America as a source of growth.
As of Wednesday's close the stock was up 29% in the last 12
months.
Write to Anna Prior at anna.prior@dowjones.com
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