ViaSat Gears Up for Loral Trial, Reports Slower Exede Growth

by

PARIS — Satellite broadband hardware and services provider ViaSat Inc. on Feb. 11 said it is ratcheting up legal expenses as it prepares for a March trial in its lawsuit against former supplier Loral over allegations of contract breach and patent infringement.

While Carlsbad, Calif.-based ViaSat reported double-digit percentage increases in revenue and gross profit for the nine months ending Jan. 3, the company said its recent star performer — the North American consumer satellite broadband service Exede — added fewer subscribers than expected toward the end of 2013.

ViaSat also said the end of its one-year, $40 million contract with the U.S. Defense Department to provide satellite bandwidth for the Blue Force Tracking system of connecting military units pushed down revenue in that division for the three months ending Jan. 3.

In a conference call with investors, ViaSat Chief Executive Mark Dankberg gave no hint that he regrets taking on New York-based Loral Space and Communications over patent infringement on the part of Loral’s former satellite-manufacturing arm, Space Systems/Loral (SSL).

The satellite builder has since been sold to Canada’s MDA Corp., which purchased SSL on the condition that the parent company retains all responsibility for the ViaSat lawsuit. ViaSat has since attempted to draw MDA into the argument by filing a separate lawsuit against SSL. Loral and MDA have agreed to suspend any judgment over who is responsible until October 2016, by which time the original lawsuit should have been adjudicated.

ViaSat did not break out its legal charges in the conference call, but said the 11 percent increase in its Sales, General and Administrative spending in the three months ending Jan. 3, to $69.1 million, was largely due to the rising legal costs associated with the Loral lawsuit.

Dankberg said the lawsuit is integral to ViaSat’s policy of protecting the intellectual property underlying its push to bring Ka-band satellite links to ever-more customers, whether they be individual consumers, military units or commercial aircraft passengers.

ViaSat said its Exede consumer broadband service booked 79,000 new subscribers in the three months ending Jan. 3, but that these additions were offset by customers leaving the service, meaning the company booked a net 28,500 new subscribers during the period. That compares with 92,000 gross adds and 41,000 net adds in the previous three-month period.

Dankberg sought to reassure investors that 30,000 new adds per quarter “is not the new normal.” He said the most recent results are in part due to the quarter’s being a week shorter than the previous period.

The decline in subscriber additions is also a result of the company’s continued tinkering with its sales strategy so that it captures long-term customers and not those who do not understand the limits of satellite systems and quit the service after short periods.

ViaSat’s Exede service reported 620,000 subscribers as of Jan. 3.

Dankberg said nearly 500,000 of these customers were loaded onto the company’s high-capacity ViaSat-1 satellite, which is about half of the total subscriber count ViaSat said the spacecraft could accommodate without a decline in service.

How the company will allocate satellite bandwidth between Exede’s consumers on the ground and the airlines adopting Exede for their commercial passengers will be a challenge for the future.

JetBlue of the United States began offering its Fly-Fi service, using ViaSat’s Exede technology, in mid-December. The airliner has equipped 12 aircraft with it so far, and is adding planes at a rate of 15 per month, Dankberg said. United Airlines will follow.

Dankberg said ViaSat and its prospective airline customers are struggling to come up with a business model that reflects the ambition ViaSat has for the service. Current Wi-Fi systems on airlines are installed with the assumption that no more than 6-7 percent of the passengers will use it. Bandwidth requirements are tailored to that assumption.

ViaSat hopes for a service whose prices are low enough, and bandwidth plentiful enough, to attract 50 percent or more of a given flight’s passengers.

ViaSat said investors should view the airline service already being installed at JetBlue and United as adding the equivalent of 50,000 new subscribers to the Exede service in the next year. The company was not clear on how much information it would disclose on what is behind that figure in terms of average airline user rates and monthly revenue.

ViaSat remains bullish on is defense-oriented business as more U.S. defense forces adopt Ka-band for mobile-broadband applications across multiple platforms. For the three months ending Jan. 3, ViaSat’s Government Systems division reported a 2.7 percent drop in revenue, to $142 million, mainly because the satellite-bandwidth contract ended in the previous quarter.

Dankberg said the company’s Blue Force Tracking 2 contract has resulted in “tens of thousands of units,” particularly in Afghanistan, out of more than 100,000 units purchased. As the Afghan force winds down, the remaining units will be slow to deploy. Until this order backlog is depleted, the Blue Force Tracking contract revenue stream will slow.