EchoStar’s Satellite-broadband Revenue Rises Despite Slower Subscriber Growth

by

PONTE VEDRA, Florida — Satellite fleet operator and broadband services and hardware provider EchoStar Corp. on Aug. 7 said growth of its Hughes U.S. satellite broadband consumer service slowed in the three months ending June 30 as subscriber additions were undercut by customers quitting the service.

Englewood, Colorado-based EchoStar said the HughesNet broadband service nonetheless increased its revenue, and substantially boosted its profitability, in the same period because of higher average subscriber fees.

In a filing with the U.S. Securities and Exchange Commission (SEC), EchoStar said the Hughes consumer broadband service had 935,000 subscribers as of June 30, up about 2.3 percent from March 31.

In a conference call with investors, Pradman P. Kaul, president of EchoStar’s Hughes division, said the company recently shipped its millionth Jupiter satellite terminal, less than two years after its namesake EchoStar 17/Jupiter 1 Ka-band satellite began service.

Kaul said that while EchoStar 17 is only about 60 percent full, several of its beams are nearing saturation, which will slow subscriber additions until the higher-capacity EchoStar 19/Jupiter 2 satellite is launched in 2016.

Hughes also uses its earlier-generation Spaceway 3 Ka-band satellite for the HughesNet service, a satellite that has a digital signal processor that offers beam flexibility but has less than one-tenth the capacity of EchoStar 17/Jupiter 1.

Kaul said that outside the United States, the Jupiter-class ground technology is making inroads and is en route to becoming a global technical standard. Hughes builds the terminals that communicate with its own satellites but is now looking to replicate its U.S. business elsewhere.

The company has entered contracts in which it will provide ground terminals, system maintenance and other services to Ka-band satellite broadband ventures in Europe with Avanti Communications of London, in the Middle East with YahSat of the United Arab Emirates, in Russia with the Russian Satellite Communications Co. and in Brazil through a Ka-band payload Hughes has purchased on a satellite to be launched by Eutelsat of Paris.

Hughes has purchased the Ka-band payload on Eutelsat’s 65 West A satellite, scheduled for launch in mid-2016, and made a first quarterly payment of $10.3 million in the three months ending June 30. Payments will continue during the satellite’s two-year construction.

Hughes’ revenue for the three months ending June 30 was up 4.9 percent, to $330 million, and its EBITDA, or earnings before interest, taxes, depreciation and amortization, was up 23 percent, to $90.3 million, the company said in its SEC filing.

EchoStar has become a much more complicated company in the past couple of years following transactions it has conducted on its own or in concert with its sister company, satellite television provider Dish Network — both owned by Charlie Ergen.

Besides the Hughes business, EchoStar provides satellite telecommunications through a fleet of 18 satellites. Most of this is used by Dish, but EchoStar has been trying to create a business of leasing transponders to other customers.

This business reported revenue of $19.2 million in the three months ending June 30, down 19 percent on lower transponder lease revenue.

EchoStar has embarked on a project to provide hybrid satellite-terrestrial mobile communications services, using S-band spectrum, in Europe, following its purchase of Solaris Mobile of Dublin from Eutelsat and fleet operator SES.

EchoStar is paying Dish to complete work on the TerreStar-2 satellite owned by a now-bankrupt U.S.-based mobile communications venture that Dish purchased out of bankruptcy with a view of using its spectrum licenses.

EchoStar said it expects to launch TerreStar-2, now called EchoStar 21, in 2016 in keeping with European Union regulatory milestones, and that it continues to discuss with European authorities on the development of the business.

Mobile satellite services operator Inmarsat of London is also building an S-band satellite-terrestrial service over Europe but appears to be focused on aeronautical connectivity within the European Union.

EchoStar Chief Executive Michael T. Dugan said during the call that, while nothing should be ruled out, there appeared to be no immediate case for combining the EchoStar and Inmarsat S-band ventures.

EchoStar, through its Solaris purchase, has an S-band satellite payload in orbit over Europe, but it was launched for Solaris with a defective antenna and cannot fulfill all the European regulatory requirements for coverage and power.

EchoStar has long harbored an ambition to create a direct-to-home satellite television service in Brazil and purchased, at auction, rights from the Brazilian government to use the 45 degrees west orbital slot for that purpose. The company moved an aging satellite into the slot but has been unable to find a local partner to deploy the service.

EchoStar has ordered a large satellite, EchoStar 23, from Space Systems/Loral of Palo Alto, California, that is ostensibly to be used for the Brazilian service. But two years after the orbital-slot auction, EchoStar appears no closer to rolling out a service with a Brazilian partner.

“It’s been long and we can’t pretend it hasn’t been,” Dugan said of the effort in Brazil.

EchoStar Chief Financial Officer David J. Rayner said the Brazilian DTH business could not use Hughes’ existing network of Brazilian partners because the business of television provision, including negotiations for programming rights and the scale needed for success, is too different from the broadband business to realize any synergies.