ViaSat Squeezes Revenue Gain from Reduced Subscriber Base

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PARIS — Satellite broadband hardware and service provider ViaSat Inc. on Aug. 6 reported a reduction in subscribers to its U.S. consumer broadband service, saying satellite beams trained on regions of highest demand are fully booked.

Carlsbad, California-based ViaSat nonetheless sought to persuade investors that raw subscriber count is only one measure of success. Other measures include average monthly subscriber revenue, subscriber-satisfaction levels and ViaSat’s ability to, in effect, sell the same bandwidth to airline passengers.

ViaSat’s government division reported a 23-percent increase in revenue for the three months ending June 30, the latest indication that ViaSat’s aeronautical broadband business, using both Ka- and Ku-band satellite capacity, is expanding even during an extended period of overall flat U.S. government spending.

Gross profit for the government division was up 34 percent, with backlog up 22 percent as of June 30.

ViaSat has made a priority of tailoring its Ka-band satellite capacity, from both the current ViaSat-1 satellite and the future ViaSat-2, to the fast-growing airline connectivity business. The company hopes the same strategy it is using on the ground – maximizing the amount of bandwidth given to each customer – will prove a winner as airlines move from providing passengers with basic Web access to supporting streaming video inflight.

ViaSat said subscribers to its U.S. consumer broadband service dropped by 1,000, to 685,000, in the three months ending June 30. “Bandwidth constraints are the single biggest factor” in the decrease, ViaSat Chief Financial Officer Shawn Lynn Duffy said during a conference call with investors.

While subscriber count fell, monthly revenue per subscriber increased 7 percent, to $54.76, in the three-month period.

ViaSat is waiting for bandwidth-limit relief in the form of its large ViaSat-2 satellite under construction by Boeing Space and Intelligence Systems of El Segundo, California. How long the wait will be is unclear.

For now, ViaSat has booked a flight on Hawthorne, California-based SpaceX’s untested Falcon Heavy rocket, whose inaugural launch is scheduled for sometime early in 2016. ViaSat-2 would be the second or third Falcon Heavy customer, with a launch tentatively set for between October and December 2016.

ViaSat competitor Hughes Network Systems, a division of EchoStar Corp. of Englewood, Colorado, recently booked a higher-priced United Launch Alliance Atlas 5 rocket through Lockheed Martin to assure a late-2016 launch to ease its own bandwidth saturation in high-demand beams.

ViaSat Chief Executive Mark D. Dankberg said during the call that the company’s confidence in SpaceX remains undiminished since the June 28 failure of SpaceX’s Falcon 9 rocket. A Falcon Heavy is basically three Falcon 9 rockets strapped together.

But with SpaceX admitting that Falcon Heavy work has taken a back seat to the company’s failure review and Falcon 9’s return to flight – still unscheduled – Dankberg said ViaSat has begun to consider a Plan B for the ViaSat-2 launch.

“They have a good shot at fitting in that launch window,” Dankberg said of SpaceX and a late-2016 ViaSat-2 launch. “Definitely we’re monitoring the situation. We’re considering alternatives. I don’t really want to go into what they are, but we are considering alternatives, but right now, we still think that SpaceX is by far the most likely way that we’ll go up.”

ViaSat-2 is expected to weigh around 6,700 kilograms at launch. Europe’s Ariane 5 rocket is fully booked through 2016. Russia’s Proton rocket may be an option, but Proton, too, is recovering from a failure and its launch schedule for the coming 12 months is unclear.

International Launch Services of Reston, Virginia, which is responsible for commercial sales of Proton, said Aug. 7 that it has at least one slot available in 2016 and is “currently in active discussions with customers about this possibility.”

ViaSat’s results came just hours after those from competitor Hughes, which reported an increase of 15,000 subscribers – to 1.014 million — in the three months ending June 30. Hughes said it had focused on lower-demand regions, whose satellite beams are less filled, to increase its subscriber base.

ViaSat produced a chart, from an unnamed magazine, showing what appeared to be much higher user-satisfaction levels with ViaSat than with a competing, if also unnamed, satellite broadband provider.

“There is a striking contrast with the competing satellite service, even though they currently have roughly comparable bandwidth resources,” Dankberg said – a clear reference to Hughes. He said the survey’s details measure bandwidth speed, reliability, customer support and other factors that help explain the difference.

ViaSat’s service has also ranked heavily against terrestrial Internet service providers in U.S. Federal Communications Commission surveys measuring advertised performance against actual performance.

ViaSat-2 is expected to permit the company to increase the number of subscribers who are offered unlimited-bandwidth contracts – which up to now have been impossible in high-demand regions given the extraordinarily large appetite some users have for bandwidth.

ViaSat has been tinkering with no-limit bandwidth in regions whose beams are still open and has concluded that, for some prospective users with the ability to pay, bandwidth caps act as a scarecrow especially since they often perceive the caps as a bandwidth-speed limitation, Dankberg said. Getting rid of the bandwidth limits is the single most important goal if the satellite broadband market is to further expand into terrestrial-service territory, he said.