ViaSat Emphasizes Revenue over Subscriber Numbers

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PONTE VEDRA, Florida — Satellite broadband hardware and services provider ViaSat Inc. on Aug. 12 asked investors to focus on revenue and gross profit, and not raw subscriber numbers, in judging the company’s Exede U.S. consumer satellite broadband service.

Carlsbad, California-based ViaSat reported that for the three months ending July 4, the company’s consumer service posted zero subscriber growth. The Exede service delivered by the company’s ViaSat-1 satellite had 518,000 subscribers as of July 4, and another 112,000 were using the slower service, on ViaSat’s WildBlue satellite, that is being phased out in favor of Exede.

The total of 630,000 subscribers compares with 935,000 on the competing HughesNet service offered by Hughes Network Systems as of June 30.

In a conference call with investors, ViaSat Chief Executive Mark D. Dankberg said shifting focus from subscriber count to revenue and profit is not simply a case of making a virtue of a necessity. The company’s goal, he said, is to sell its inventory of satellite bandwidth across a range of applications that do not all translate easily into subscriber numbers.

The company will focus on counting dollars, not subscribers, he said.

A customer moving to a higher-priced Exede package remains just one customer even if the revenue and profit to ViaSat increase. Similarly, the growing fleet of commercial aircraft equipped with Exede services is better measured on a per-minute or per-aircraft basis.

When measured in units of revenue, Dankberg said, the Exede service is up by the equivalent of 30,000 subscribers.

With more retrofits on JetBlue and United Airlines aircraft on the way, ViaSat expects its aeronautical revenue will increase sharply in the coming months.

ViaSat has been testing a dual-band aeronautical antenna that can be used on both Ka- and Ku-band satellite networks, a development Dankberg said should be “a game changer” given that some aircraft flying U.S. and European routes occasionally fly elsewhere, where Ku-band aeronautical satellite links are dominant.

ViaSat has been testing the new antenna, which Dankberg said fits into the standard-size radome on an aircraft frame, aboard a Boeing 757 aircraft in the United States linking to ViaSat’s Ka-band satellites as well as Ku-band satellites operated by SES of Luxembourg and EchoStar of Englewood, Colorado.

Testing should be completed in time for commercial introduction of the dual-band antenna in 2015, Dankberg said.

ViaSat did not disclose updated figures on passenger use of Exede at JetBlue and United, which as of July 4 had a combined 140 aircraft equipped with the service. During the conference call, Dankberg said the number of users “is a multiple of any other in-flight Wi-Fi service, even though the penetration … is still relatively low, and because of that, [the airliners] still aren’t really promoting the service that much.”

ViaSat had warned investors in recent months that it would continue to tinker with ways to prevent certain prospective customers from subscribing. The company reiterated the point Aug. 12, saying some consumers like the service but cannot make the required monthly payments. Others cannot abide the bandwidth ceilings that are typically imposed on satellite broadband systems.

The goal is to reduce the amount of “churn,” or subscriber defections, that increase costs.

ViaSat-1 has fixed beams trained on certain geographic areas. In high-demand regions, the beams are filling up. In low-demand regions, the same-size beams have plenty of available capacity, and ViaSat is introducing an all-you-can-consume package to test consumer reaction in places like Alaska, Hawaii and Maine.

This problem should be at least partly solved when the ViaSat-2 satellite enters service sometime in late 2016. The satellite, under construction by Boeing Space and Intelligence Systems of El Segundo, California, will be better able to distribute capacity according to expected regional demand.

The satellite “will take the volume caps out of play,” Dankberg said, saying that alone will reduce subscriber churn.

Dankberg said the Exede service is now generating about $80 million in quarterly revenue, or $320 million per year with monthly subscriber charges averaging around $30. Higher-bandwidth packages will generate higher monthly revenue even if subscriber growth is relatively weak.

The Exede service is front-and-center in ViaSat’s thinking, and in the evaluation of investors, because the company’s government business is down — by 15 percent for the three months ending July 4 compared to a year ago — as U.S. military spending shifts focus and as ViaSat completes major deliveries under the Blue Force Tracking-2 contract for the U.S. Defense Department. Blue Force Tracking systems better enable U.S. military forces to distinguish between friend and foe.

But ViaSat said new military orders booked in the past several months should provide revenue growth in the near-term.