8. Property and Equipment and FCC Authorizations

Property and Equipment

Property and equipment consisted of the following:

	Depreciable	As of
	Life	September 30,			December 31,
	(In Years)	2014			2013
		(In thousands)
Equipment leased to customers	2-5	$	3,640,723		$	3,596,310
EchoStar I (1)	12	—			201,607
EchoStar VII (1)	15	—			177,000
EchoStar X (1)	15	—			177,192
EchoStar XI (1)	15	—			200,198
EchoStar XIV (1)	15	—			316,541
EchoStar XV	15	277,658			277,658
D1	15	150,000			150,000
T1	15	401,721			401,721
Satellites acquired under capital lease agreements	10-15	499,819			499,819
Furniture, fixtures, equipment and other	1-10	752,035			720,570
Buildings and improvements	1-40	84,638			83,531
Land	—	5,504			5,692
Construction in progress	—	745,128			515,447
Total property and equipment		6,557,226			7,323,286
Accumulated depreciation (1)		(2,754,424		)	(3,225,575		)
Property and equipment, net		$	3,802,802		$	4,097,711

(1) Property and equipment and accumulated depreciation decreased $1.073 billion and $633 million, respectively, as a result of the Satellite and Tracking Stock Transaction. See Note 6 and Note 12 for further discussion.

Construction in progress consisted of the following:

	As of
	September 30,		December 31,
	2014		2013
	(In thousands)
Wireless ground equipment and build-out, including capitalized interest	$	449,387	$	289,732
Pay-TV Satellites, including capitalized interest	236,688		143,839
T2 satellite	40,000		40,000
Other	19,053		41,876
Construction in progress	$	745,128	$	515,447

As we prepare for commercialization of our AWS-4 and H Block wireless spectrum licenses, which are recorded in “FCC authorizations” on our Condensed Consolidated Balance Sheets, interest expense related to their carrying value is being capitalized within “Property and equipment, net” on our Condensed Consolidated Balance Sheets based on our weighted-average borrowing rate for our debt. We began capitalizing interest on the H Block licenses in April 2014 concurrent with the FCC order granting our application to acquire these licenses. See Note 10 for further discussion.

Depreciation and amortization expense consisted of the following:

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Equipment leased to customers	$	219,978	$	195,843	$	639,662	$	555,653
Satellites	21,956		33,866		73,809		101,598
Buildings, furniture, fixtures, equipment and other (1)	27,956		23,327		77,534		130,597
Total depreciation and amortization	$	269,890	$	253,036	$	791,005	$	787,848

(1) During the second quarter 2013, we ceased operations of our TerreStar Mobile Satellite Service (“MSS”) business. As a result, we accelerated the depreciable lives of certain assets designed to support this business and the remaining net book value of $53 million was fully depreciated in the second quarter 2013.

Cost of sales and operating expense categories included in our accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) do not include depreciation expense related to satellites or equipment leased to customers.

Pay-TV Satellites. We currently utilize 14 owned and leased satellites in geostationary orbit approximately 22,300 miles above the equator, one of which we own and depreciate over the useful life of the satellite. We currently utilize capacity on 11 satellites that we lease from EchoStar, which are accounted for as operating leases. We also lease two satellites from third parties, which are accounted for as capital leases and are depreciated over the shorter of the economic life of the satellite or the term of the satellite agreement.

As of September 30, 2014, our pay-TV satellite fleet consisted of the following:

		Degree	Estimated
	Launch	Orbital	Useful Life
Satellites	Date	Location	(Years)
Owned:
EchoStar XV (1)	July 2010	45	15

Leased from EchoStar (1):
EchoStar I (2)(3)	December 1995	77	NA
EchoStar VII (2)(3)	February 2002	119	NA
EchoStar VIII	August 2002	77	NA
EchoStar IX	August 2003	121	NA
EchoStar X (2)(3)	February 2006	110	NA
EchoStar XI (2)(3)	July 2008	110	NA
EchoStar XII (2)	July 2003	61.5	NA
EchoStar XIV (2)(3)	March 2010	119	NA
EchoStar XVI	November 2012	61.5	NA
Nimiq 5	September 2009	72.7	NA
QuetzSat-1	September 2011	77	NA

Leased from Other Third Party:
Anik F3	April 2007	118.7	NA
Ciel II	December 2008	129	NA

Under Construction:
EchoStar XVIII	2015	110	15

(1) See Note 12 for further discussion of our Related Party Transactions with EchoStar.

(2) We generally have the option to renew each lease on a year-to-year basis through the end of the respective satellite’s useful life.

(3) On February 20, 2014, we entered into the Satellite and Tracking Stock Transaction with EchoStar pursuant to which, among other things, we transferred these satellites to EchoStar and lease back certain satellite capacity on these satellites. See Note 6 for further discussion.

FCC Authorizations

As of September 30, 2014 and December 31, 2013, our “FCC authorizations” consisted of the following:

	As of
	September 30,		December 31,
	2014		2013
	(In thousands)
DBS Licenses	$	611,794	$	611,794
700 MHz Licenses	711,871		711,871
MVDDS Licenses (1)	24,000		24,000
AWS-4 Licenses	1,949,000		1,949,000
H Block Licenses (2)	1,671,506		—
Total	$	4,968,171	$	3,296,665

(1) We have multichannel video distribution and data service (“MVDDS”) licenses in 82 out of 214 geographical license areas, including Los Angeles, New York City, Chicago and several other major metropolitan areas. By August 2014, we were required to meet certain FCC build-out requirements related to our MVDDS licenses, and we are subject to certain FCC service rules applicable to these licenses. We have filed an application with the FCC seeking an extension of the build-out requirements related to our MVDDS licenses and requested an additional four-year license term. That application remains pending, and we cannot predict the timing or outcome of our application. Part or all of our MVDDS licenses may be terminated if our application for an extension is not granted. If the FCC decides to terminate part or all of these licenses, we may be required to write-off up to the $24 million carrying value.

(2) On April 29, 2014, the FCC issued an order granting our application to acquire all 176 wireless spectrum licenses in the H Block auction. See Note 10 for further discussion.