(Reuters) - Dish Network Corp (>> DISH Network Corp), the second-largest U.S. satellite TV company, reported lower-than-expected quarterly revenue as it lost pay-TV subscribers due to increased competition.

Dish, which has about 14 million subscribers, said on Tuesday it lost about 12,000 pay-TV subscribers in the third quarter compared with the second quarter.

"The pay TV business is a mature business," said Dish Chairman Charlie Ergen, "but it's a solid business for Dish and continues to hold up pretty well."

Dish, which has said it will begin offering a video streaming service by year end, sees "a pretty clear path to actually grow the business," he said.

The service, which will include offering Walt Disney Co's (>> The Walt Disney Company) sports channel ESPN to online subscribers, will target customers who do not pay for cable or satellite service - a market that Ergen estimates is growing by 4 million to 5 million people a year.

The service will be priced at about $1 a month, he said, and marketed to sports fans, apartment dwellers and others. Dish is still in talks with programmers, Ergen said, and has agreements to offer ESPN, Disney Channel, A&E, Lifetime and other channels.

Dish shares fell as much as 5.2 percent on Tuesday but by afternoon were down 0.7 percent at $63.34.

Instead of losing subscribers in the quarter, analysts had expected net addition of 22,100 subscribers, according to market research firm StreetAccount.

Dish, which also offers broadband services, attributed the loss of pay-TV subscribers to intense competition, with rivals offering discounts to new customers and aggressive plans to existing ones to retain them.

"While results disappointed, it is unlikely to shift investor focus away from the ultimate outcome of Dish's spectrum and M&A opportunities," Jefferies analysts wrote in a note.

The company plans to bid in the Federal Communications Commission's November auction of airwaves previously occupied by the government. Dish will compete against U.S. wireless carriers such as Verizon Communications Inc (>> Verizon Communications Inc.), AT&T Inc (>> AT&T Inc.) and T-Mobile US Inc (>> T-Mobile Us Inc).

Dish is not too concerned about its core pay-TV business as it is focused on using its spectrum to move into the wireless market, Pacific Crest Securities analyst Andrew Hargreaves told Reuters.

The company said average revenue per pay-TV subscriber rose to $84.39 in the quarter from $80.98 a year earlier, mainly due to February price increases.

Third-quarter net income fell to $145.5 million, or 31 cents per share, from $314.9 million or 68 cents per share a year earlier, mainly due to higher expenses.

Revenue rose 4.8 percent to $3.68 billion.

Analysts on average had expected a profit of 39 cents per share and revenue of $3.69 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Ronald Grover in Los Angeles, Anya George Tharakan and Supantha Mukherjee in Bangalore; editing by Kirti Pandey and Matthew Lewis)

By Anya George Tharakan and Ronald Grover