PONTE VEDRA, Fla. — Commercial and government satellite broadband hardware and services provider ViaSat on Aug. 6 reported sharply increased revenue, including continued fast growth of its U.S. military business, and warned investors that it would be accelerating its research and development (R&D) spending.
Carlsbad, Calif.-based ViaSat also said spending on its lawsuit against supplier Space Systems/Loral (SSL) and its former corporate parent, Loral Space and Communications, is increasing as the lawsuit nears its trial phase in 2014.
ViaSat is alleging that SSL and Loral infringed on ViaSat patents in offering high-throughput Ka-band broadband satellite technologies developed for the ViaSat-1 satellite to other customers, including ViaSat competitors. Loral has countersued, alleging patent infringement on the part of ViaSat.
ViaSat’s consumer Exede satellite broadband business in the United States grew by 7.4 percent in the three months ending June 28 compared with the previous three months, to 550,000 subscribers. The ViaSat-1 satellite, in operation since January 2012, is the principal growth vector for Exede and now supports about 362,000 subscribers.
ViaSat is spending around $625 million on a higher-throughput ViaSat-2 satellite, under construction by Boeing Space and Intelligence Systems of El Segundo, Calif., and scheduled for launch in mid-2016.
In a conference call with investors, ViaSat officials did not provide specific information on customer defections, or churn, but said the 2.5 percent per month churn rate continues to be inflated by customers switching from ViaSat’s older, lower-performance WildBlue service, which uses a smaller satellite, to Exede.
As the number of these subscribers switching to the higher-level service declines, the churn numbers will decrease. For the three months ending June 28, the consumer broadband service added 76,000 new subscribers, minus 38,000 defections to reach the net add of 38,000.
“Migrations are steadily tapering off,” ViaSat Chief Executive Mark D. Dankberg said during the call, adding that Exede’s recent addition of a voice-over-Internet Provider service will help lure new customers and increase average monthly per-customer revenue.
Monthly subscriber revenue has been increasing in recent months anyway as subscribers sign on to the higher-cost subscription plans, which provide more bandwidth. The cost of adding each new subscriber has been inflated in part by ViaSat’s legal charges, the company said.
The increased subscriber base helped the consumer broadband division, called Satellite Services, grow its revenue by 45 percent in the three months ending June 20 compared with the same period a year ago.
ViaSat’s Commercial Networks division, which provides hardware for satellite broadband projects, grew revenue by nearly 30 percent compared with the same period a year ago as its large contract for Australia’s NBN Co. approached full-scale development. The division reported a modest operating profit after a loss a year ago.
NBN Co. is providing satellite broadband to the entire Australian population not covered by terrestrial cable or wireless providers.
Dankberg said the company is now engaged in “elephant hunting” for contracts as big as NBN Co. or bigger. “What we’re seeing is others that size and larger, but the timing on those” is hard to predict, he said.
ViaSat is investing in research and development to prepare for the introduction of ViaSat-2 and similar systems likely to emerge in the coming years.
Dankberg said the biggest R&D effort is on the ground, in networking capabilities needed to maximize the performance goals of tomorrow’s high-throughput satellites in terms of throughput, coverage and the ability to shift satellite resources from region to region.
The ViaSat-2 system, he said, “shatters the myth that you can’t have very high bandwidth along with a large geographic coverage area,” which is what tomorrow’s mobile-broadband customers demand, Dankberg said.
R&D spending will grow by $20 million or $30 million annually as a result, he said.
The quarter ending June 28 confirmed that ViaSat’s government business is feeling apparently zero effect from the U.S. Defense Department budget reductions and the government’s across-the-board spending cuts known as sequestration.
The Government Systems division reported a nearly 30 percent increase in revenue, to $138 million, for the three-month period, with operating profit up by 11.5 percent.
Military users of intelligence, surveillance and reconnaissance platforms, manned or unmanned, are moving toward Ka-band frequencies to boost throughput for the same reasons commercial broadband is adopting Ka-band, Dankberg said.
“Government Ka-band is just starting,” he said, as it offers faster speed at better per-megahertz prices. ViaSat has said its government business is focused on areas that are unlikely to face budget cuts because they are at the core of what the modern U.S. military wants for the future.