ViaSat details $1.4-billion global Ka-band satellite broadband strategy to oust incumbent players

by

PARIS — Satellite broadband hardware and service provider ViaSat Inc. on Feb. 9 fully unveiled its plan to cover the world with three 1-terabit-per-second-throughput Ka-band satellites and accelerate its near-term market expansion by changing launch-service providers and forming a joint venture with Eutelsat of Europe.

In a conference call with investors, Carlsbad, California-based ViaSat said it would be spending about $1.4 billion over five years to provide inexpensive bandwidth to terrestrial consumers, business and commercial aviation passengers and government mobile platforms.

Also in its cross-hairs, ViaSsat said, are maritime and offshore-energy markets, which are now paying far too much for their broadband connectivity.

ViaSat’s ambition will certainly draw close attention from satellite fleet operators and service providers across the board – SES, Intelsat, Inmarsat, Telesat, Telenor Satellite, OneWeb, Panasonic Avionics, Gogo, Thales Live TV, Harris CapRock, GEE and many others.

The company repeated its earlier assessments that established satellite fleet operators simply don’t get what ViaSat thinks is obvious: Provide low-cost broadband to as many people as possible and revenue and profitability will follow.

How profitable? ViaSat Chief Operating Officer Richard A. Baldridge said the ViaSat-1 satellite launched in late 2011 over North America is generating a “really high IRR [internal rate of return] – kind of venture-capital-ish high IRR returns. We’d expect to be somewhere between the DBS [satellite television] guys and the cable guys in ROIC,” Baldridge said, referring to its return on invested capital.

Viasat Chief Executive Mark D. Dankberg was more specific, saying the ViaSat-1 ROIC estimate was “between 20 and 40” percent.

The ViaSat announcement has several pieces. Here are the highlights:

— The ViaSat-2 satellite, now in construction at Boeing Space and Intelligence Systems of El Segundo, California, will be launched in the first three months of 2017 aboard a European Ariane 5 rocket, and not the SpaceX Falcon Heavy vehicle as previously contracted.

Hawthorne, California-based SpaceX has announced delays in the introduction of its new Falcon Heavy, most recently saying it would not make its inaugural flight before late this summer. ViaSat-2 had been scheduled for the third Falcon Heavy launch, meaning a possible launch slip into 2017 rather than late 2016.

Dankberg said the company preferred a firm date later than scheduled to an earlier date with many question marks still attached to it.

“We’re extraordinarily sensitive” to service introduction delays for ViaSat-2, Dankberg said, saying the satellite ultimately would generate around $45 million per month of revenue, or 10 times the level of ViaSat-1.

ViaSat is maintaining its Falcon Heavy launch contract, which will now be used to launch one of the ViaSat-3 satellites around 2020, and has booked a reservation for a future Falcon Heavy, also for ViaSat-3, which is not yet a contract.

Ariane 5 is generally more expensive than SpaceX’s Falcon, but Baldridge said Evry, France-based Arianespace met the company partway to secure the business.

“We think we got a good price,” Baldridge said, adding that because early Falcon Heavy launches will carry higher insurance costs – the Ariane 5 now has 70 consecutive successes – the net difference in cost was negligible and keeps the ViaSat-2 program to within its total estimated cost of around $650 million.

ViaSat booked a second Ariane 5 launch contract for a 6,400-kilogram ViaSat-3 satellite in late 2019 or early 2020.

— ViaSat has selected Boeing as the prime contractor for ViaSat-3, with two firm orders for satellites over the Americas and Europe, the Middle East and Africa. A third, covering Asia, is likely to come later.

But unlike ViaSat-2, it is ViaSat itself that will be building the ViaSat-3 Ka-band payload modules.

Dankberg said the company would be using its experience in building Ka-band transmit/receive modules for the 81-satellite Iridium Next low-orbit mobile communications constellation, whose launches are scheduled to begin this spring.

McLean, Virginia-based Iridium Communications’ service to customers is in L-band, but its constellation, under construction by prime contractor Thales Alenia Space of France and Italy, uses Ka-band for inter-satellite links and feeder links between the Erth and the satellites.

ViaSat’s work on Iridium Next has not been without problems. A glitch in its hardware, discovered late in the program, forced Iridium to delay the start of its launches – and thus the start of its service – by four months.

Dankberg said the modules for first Iridium Next launch, of two satellites, have been shipped, and that Viasat is “about a quarter of the way” through the full Iridium Next contract.

“It’s really given us good experience in working with [Thales Alenia Space] on getting space-qualified,” Dankberg said. “The way we structured our contract with Boeing is essentially they’re giving us the payload framework for us to add our modules.”

— ViaSat is forming a joint venture with Paris-based Eutelsat under which ViaSat will pay Eutelsat 132.5 million euros ($148 million) for a 49 percent stake in Eutelsat’s orbiting Ka-Sat broadband satellite and the Ka-Sat wholesale business. The two companies will also create a retail broadband entity in which Viasat will have 51 percent ownership.

Dankberg said that for Europe and the surrounding region, ViaSat is adopting the same strategy it used in 2009 when it purchased its customer, WildBlue Communications, whom it accused of moving too slowly to deploy quality consumer satellite broadband.

Instead of having to create a new business on its own in Europe, Dankberg said, ViaSat is buying into an existing wholesale and retail sales operations with growth potential.

“Eutelsat… has an inventory of orbital slots that are a good resource for expansion,” Dankberg said. “They have strong regulatory and landing rights positions throughout Europe.”

In addition, Eutelsat’s base of millions of satellite-television subscribers is fertile ground for mining future satellite broadband subscribers, Dankberg said.

This assessment may be less enthusiastically shared by Eutelsat, and is still less shared by fleet operator SES of Luxembourg, which has been skeptical about the potential of satellite consumer broadband in Europe.

Dankberg said ViaSat would use the cash flows from its share of the joint venture to help financing the ViaSat-3 program, with the second ViaSat-3 satellite then adding to Ka-Sat at the end of the decade.

Eutelsat said in a Feb. 9 statement that the joint venture had yet to decide whether and how it would use ViaSat-3.

Eutelsat also said its ViaSat tie-in would not dampen its backing of a French government-proposed Ka-band constellation of four satellites, each with 250 gigabits per second of throughput, to be financed in part by the European Commission’s Juncker Fund.

That project would use made-in-Europe technology to provide global broadband. It is now under review at the European Investment Bank. Eutelsat has made no commitment to finance the constellation.

— ViaSat Chief Financial Officer Shawn Lynn Duffy said the company would be boosting its R&D spending to accommodate the ViaSat-3 program. She said ViaSat foresees spending an average of $275 million per year, between 2017 and 2021, to fund the remaining costs of ViaSat-2 plus the two first ViaSat-3 satellites.

The program would be financed from ViaSat’s increasing operating cash flow, existing credit lines and planned low-cost financing from the French and U.S. export-credit agencies.