ViaSat’s Military Business Still Growing Despite U.S. Government Cutbacks

by

PARIS — Satellite communications terminal and broadband services provider ViaSat Inc. on Nov. 11 said its military business continues to grow as if the U.S. government’s budget cutbacks did not exist, and that its U.S. consumer satellite broadband service was closing in on 600,000 subscribers.

Carlsbad, Calif.-based ViaSat said its partnership with satellite manufacturer Boeing Space and Intelligence Systems to sell Boeing-built ViaSat-2 high-throughput satellite look-alikes around the world is showing promise. 

Several prospective buyers have visited Boeing’s California plant to be briefed on ViaSat-2, whose launch is scheduled for mid-2016, ViaSat officials said in a conference call with investors.

While defense contractors in general have been rending their garments over across-the-board budget cuts known as sequestration, this is not true for every company doing business with the U.S. Defense Department and has not been true for ViaSat.

The company reported an 11 percent increase in revenue for its Government Systems division during the three months ending Oct. 4, to about $129 million. The product revenue increase more than offset the decline in government services for the period. Viasat Chief Executive Mark D. Dankberg said the services revenue dipped because the military stopped using ViaSat satellite capacity for the Blue Force Tracking–2 contract, for which ViaSat is the hardware provider.

The provision of command and control functions for government networks, and of hardware for intelligence, surveillance and reconnaissance platforms, is a growing business even as the overall defense budget shrinks.

Dankberg said ViaSat’s portfolio lines up well with the Defense Department’s current budget condition and that there is no reason to believe that the U.S. troop withdrawal from Afghanistan will have a material effect on revenue.

ViaSat is engaged in an increasingly expensive lawsuit against Loral Space and Communications of New York over alleged patent infringement by Loral concerning ViaSat-1 satellite technology. As part of the ViaSat-2 contract, ViaSat and Boeing crafted a partnership relating to the satellite’s technology to manage sales outside the United States.

Dankberg said two or three prospective buyers of a ViaSat-2-type Ka-band broadband satellite have surfaced, and are unlikely to wait until ViaSat-2 is launched to make a decision on their own program.

“It’s an expensive satellite, but we think the functional capability is the best available,” Dankberg said of ViaSat-2. ViaSat is paying Boeing $358 million for ViaSat-2. ViaSat has said ViaSat-2 will have 2.5 times the capacity of the 140-gigabit-per-second ViaSat-1.

ViaSat’s consumer broadband service, which uses ViaSat-1 and older Ka-band capacity on the ViaSat-owned Wild Blue-1 and the Anik F2 satellite owned by Telesat of Canada, reported 591,000 subscribers as of Oct. 4.

That is a 7 percent increase from the subscriber count in early July. The company said subscribers are paying more per month, on average, than previously as they opt for higher-volume subscriptions and ViaSat’s new voice over IP feature.

But the number of customers quitting the service also grew. The company said it booked nearly 92,000 new subscribers in the three-month period, but that 51,000 subscribers left during the same period, for a net gain of 41,000.

Dankberg said the high rate of churn is due to customers with terrestrial cable or fiber alternatives signing on to the ViaSat Exede service because of its headline promise of 12 megabits per second for $50 per month. When they confront the volume limits on the satellite service, they pay a termination fee and leave.

Dankberg has long said the Exede service’s promise lies in its ability to win customers who already have access to DSL links but are not happy with the throughput. For these customers, Exede can provide an alternative.

But competing in areas where cable or fiber is present is another matter. Dankberg said some Exede distributors have been less-than-diligent in explaining to customers that the satellite service puts ceilings on use.

“Some [Exede distributors] accounted for a disproportionate amount of the churn and we’ve terminated some of them,” Dankberg said, adding that fine-tuning the Exede advertising pitch to appeal to those consumers likely to stick with it will take several months.

He said that, for the most part, the distributors have an incentive to sign on customers who will maintain their subscriptions rather than chasing new customers regardless of their profile.

 

Follow Peter on Twitter: @pbdes


RELATED ARTICLE

ViaSat-2’s ‘First of its Kind’ Design Will Enable Broad Geographic Reach

ViaSat Revenue Up Sharply but Greater Spending Ahead