ViaSat Riding Wave of U.S. Military In-flight Broadband Demand

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PARIS — Satellite broadband hardware and services provider ViaSat Inc. on Feb. 6 said U.S. Defense Department demand for in-flight connectivity was overwhelming budget concerns and troop drawdowns and delivering double-digit revenue and profit growth for the company’s Government Systems division.

“The lump man giveth, and the lump man taketh away,” ViaSat Chief Executive Mark D. Dankberg said in a conference call with investors, referring to the inherently feast-or-famine nature of government contracts when measured in three-month increments. It is now a feasting moment for ViaSat.

Carlsbad, Calif.-based ViaSat said its consumer satellite broadband subscriber base grew by 9 percent, to 466,700, in the three months ending Dec. 28, with improved per-subscriber revenue. Some 45 percent of these are using the ViaSat-1 high-throughput Ka-band satellite, which entered operations in January 2012 and is marketed under the brand Exede. The others are using ViaSat’s slower-speed WildBlue service.

Dankberg said that despite earlier statements, the company is still not ready to order a ViaSat-2 satellite, but not because ViaSat is getting cold feet about the market’s prospects.

“We’re about as anxious as anybody else to get it started,” Dankberg said. “There are specific details that we have to get exactly right to do what we intend. Also, there are some pretty interesting strategic opportunities that are associated with the satellite that have presented themselves. We’re working through those as well.”

He did not specify what the strategic opportunities are, or whether they include having the eventual ViaSat-2 contractor purchase part of the capacity or otherwise help ViaSat grow the business.

With ViaSat-1’s throughput of about 135 gigabits per second, the company’s Exede service offers downlink rates of 12 megabits per second for $50 per month. Dankberg has said previously that he hopes ViaSat-2 will provide double that throughput.

Average monthly revenue from ViaSat consumer broadband customers, including those using the new and old services, increased by about 8 percent in the past 12 months, to $49.07. Dankberg said this should continue to increase before stabilizing somewhere between $50 and $55 per month.

Dankberg said the market for high-speed satellite broadband in the United States is so large, when those now receiving low-speed DSL and cable Internet links are included, that ViaSat’s Exede has not been affected by the competing HughesNet Gen4 service that EchoStar Corp. of Englewood, Colo., offers through the EchoStar 17 satellite, which entered operations in October.

“The underserved market is a lot bigger than the unserved market, and the unserved market was big enough for both of us,” Dankberg said of the EchoStar-HughesNet competition.

ViaSat’s Satellite Services division is still losing money, reporting an operating loss of $18.4 million on revenue of $71.8 million for the three months ending Dec. 28.

ViaSat Chief Operating Officer Richard A. Baldridge said the company is more than willing to sacrifice profitability today in return for penetrating new consumer broadband markets in the United States, particularly customers now using DSL or cable whose service cannot match Exede.

ViaSat is continuing to invest in sales and marketing to capture these new subscribers. “If growth slows, earnings get a lot better,” Baldridge said of the consumer broadband division. “If the growth rate keeps up, it pushes things off a little bit. If we stopped growing, we’d be profitable right now.”

Profitability is the least of ViaSat’s concerns at its Government Systems division, where despite a macro environment clouded by U.S. Defense Department budget cuts and sequestration threats, ViaSat’s business is flourishing.

Dankberg said once U.S. military services get a taste of mobile broadband, they find ways to pay for it. While it may start in budgets for overseas operations, it eventually works itself into the budget strata as a program of record.

In-flight mobile broadband is the biggest piece. “Lots of customers are figuring out how to get it,” Dankberg said. “In-flight airborne connectivity is really, really valuable for imagery, communications — whatever. There are just not that many ways to do that using broadband, and we’ve got a big market share there.”

ViaSat’s Government Systems division reported that for the three months ending Dec. 28, operating profit more than doubled, to nearly $27 million, on revenue that, at $146 million, was up 54 percent.

Baldridge cautioned investors against extrapolating performance in future quarters from these figures given that revenue from ongoing programs such as blue-force tracking and the Joint Tactical Radio System program are not easily predicted quarter by quarter.

ViaSat’s Commercial Networks division, which provides broadband hardware including consumer premises equipment and gateway antennas for networks around the world, reported an operating loss of $3.4 million on revenue of $54 million, with the revenue figure up 26 percent from a year ago.

ViaSat is providing Ka-band broadband networks for Saudi Arabia, which uses capacity leased from Riyadh-based Arabsat, and for Australia’s NBN Co., which is building a satellite broadband network covering all of Australia.