ViaSat Hopes To Lure Rural Subscribers with Unlimited Bandwidth

by

PARIS — Satellite broadband hardware and services provider ViaSat outlined its strategy for penetrating more deeply into DSL- and cable-served areas once its ViaSat-2 satellite is in orbit, a strategy it has begun to test now in low-demand areas.

As is the case with its competitor, the EchoStar-owned Hughes Network Systems’ HughesNet service, ViaSat’s Exede consumer satellite broadband growth is slowing as high-demand areas fill up the beams allocated to them.

ViaSat has said in the past it is determined not to open up new capacity on these beams by reducing service quality, meaning the only path to growth in the next two years will be luring customers in regions where demand has been lowest — the rural areas of the United States.

Offering unlimited bandwidth, which is not an option for customers in densely populated areas, should lure new subscribers and give Carlsbad, California-based ViaSat a real-world test as it plots ViaSat-2 strategy, ViaSat said in a Nov. 7 conference call with investors.

Until ViaSat-2 arrives, ViaSat said, its goal will be to reduce churn — customer turnover — and test customer reaction to the no-limit bandwidth packages.

ViaSat said that in the three months ending Sept. 30, its consumer broadband service grew its customer base by some 4.3 percent, to 657,000 subscribers. In an earlier conference call, Englewood, Colorado-based EchoStar said Hughes’ consumer broadband offering grew by 2.7 percent, to 960,000 subscribers, in the same period.

ViaSat Chief Executive Mark D. Dankberg said during the call that recent U.S. Federal Communications Commission (FCC) data show that many U.S. households have only one or two options for terrestrial broadband. As the standard for what constitutes “broadband” gets higher in terms of throughput and bandwidth, so do the numbers of homes with few high-quality terrestrial options.

It is this population that ViaSat hopes to attract with the ViaSat-1 and ViaSat-2 tandem, once the latter is in service in late 2016.

The FCC data also show that a substantial number of would-be subscribers are turned off by the bandwidth limits placed on satellite services, even if the throughput speeds are satisfactory. Putting enough bandwidth in orbit to satisfy these people, even if it forces them to pay a premium, is ViaSat’s plan. ViaSat said that for the three months ending Sept. 30, an average of 2.7 percent of its consumer broadband customers quit the service each month down from 2.9 percent earlier in the year.

Asked whether he viewed any of the potential Silicon Valley-generated satellite Internet constellations as a threat, Dankberg said that if they materialize they could present more of an opportunity than a threat if they use ViaSat technology.

ViaSat and ViaSat-2 prime contractor Boeing Space and Intelligence Systems of El Segundo, California, have been trying to sell replicas of the ViaSat-2 satellite outside the United States, with no success so far.

ViaSat has said ViaSat-2 will cost it about $600 million including the satellite’s construction, launch, insurance and ground infrastructure.

“These are big projects but we have a few candidates,” Dankberg said, adding that some prospective customers could elect to offer smaller versions of ViaSat-2, perhaps through a payload on a conventional satellite, to keep costs down. That would reduce cost-per-delivered-megabit advantage of ViaSat-2, but would be more affordable in terms of capital spending, he said.

ViaSat received about $40 million in September as part of a settlement of its lawsuit against satellite builder Space Systems/Loral of Palo Alto, California, and its former owner, Loral Space and Communications of New York.

ViaSat Chief Financial Officer Shawn Duffy said that the company booked $37.5 million of that sum after subtracting lawsuit-related legal costs. Duffy said the remaining payments under the legal settlement would be $6.9 million in cash for each of the next 10 quarters.

ViaSat is viewing the payments as an implied license fee in exchange for the use of certain ViaSat satellite technologies associated with ViaSat-1 and a nearly identical satellite Loral built for EchoStar/Hughes.

Dankberg said ViaSat intends to use some of the settlement proceeds to invest in next-generation technology, with a focus on developing a satellite broadband architecture that would “take bandwidth limits off the table” for high-use.