Broadband Growth Lifts HNS Revenue

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  Space News Business

Broadband Growth Lifts HNS Revenue

By PAUL DYKEWICZ
Space News Correspondent
posted: 25 July 2005
03:09 pm ET


Analysts say it is not yet clear whether the double-digit revenue growth reported by Hughes Network Systems in the second quarter can be attributed to growing demand for the company’s specific broadband service or strong growth in the broadband market overall.

Satellite providers still have a much smaller percentage of the market for high speed Internet connections than their rivals who provide those services via Direct Subscriber Lines (DSL) or cable.

The U.S. Federal Communications Commission (FCC) reported earlier this month that high-speed Internet use by U.S. businesses and households last year jumped 34 percent, with digital subscriber line service soaring 45 percent and cable modem use rising 20 percent.

By the end of last year, the FCC reported there were 13.8 million digital subscriber lines, 21.4 million cable modem lines and 2.7 million satellite or terrestrial wireless connections for high-speed Internet service in the United States, according to the FCC report released July 7.

Hughes Network Systems (HNS), the largest satellite broadband service, achieved growth that fell in between DSL and cable. The company announced July 12 that it had increased its total subscriber base by the end of June to 253,000, up 26 percent from the same period a year ago. Revenues rose 22 percent during that time frame. Hughes Network spokeswoman Judy Blake declined to disclose those revenue figures.

Analysts offered mixed views about whether the gains were driven by HNS initiatives or if the company was riding the broadband wave.

Based on conversations with HNS officials, the company’s “recent resolve” seems to be a combination of two things, said Jimmy Schaeffler, a satellite and broadband analyst who heads Carmel, Calif.-based consulting firm The Carmel Group.

“First, the reminder that there might be indeed a place for a stronger two-way Internet-by-satellite business, especially now that Wildblue has launched and there’s real competition in the wings,” Schaeffler said.

“Second, HNS now has an identity crisis of the past couple of years mostly behind them, and it’s time to reflect that change in a most positive way. HNS can place the confusion of the DirecTV shift away from Spaceway, and the confusion of the new investment in HNS in the background, and say, ‘This is it, we’re ready to start brand new. We have one of three brilliant birds that we will launch, and once we do that, it changes the entire game.'”

However, there still is much concern in the marketplace about HNS continuing to postpone when it plans to launch its next-generation broadband satellite, Schaeffler said. Like any other satellite business that has had launch delays, the company needs to focus on ultimately getting its next launch date firmed up, Schaeffler said.

The HNS gains suggest that the company has positioned itself to take advantage of increased market demand for broadband services, said Andrea Maleter, technical director of Bethesda, Md.-based market research firm Futron Corp. Her company’s forecasts have projected 2004-2007 as key years for satellite broadband companies to capitalize on the market demand in some areas of the United States that HNS is attempting to serve.

However, HNS may just be catching the same broadband growth wave that has allowed DSL to ride high and cable to follow not far behind, said Steve Blum, president of the Tellus Venture Associates consulting firm in Seaside, Calif. The growth in the subscriber numbers of the HNS Direcway satellite broadband service is mostly a function of overall growing demand for residential and workplace broadband, Blum said.

The basic selling proposition for satellite broadband has, at best, stayed the same, Blum said. In contrast, terrestrial competitors are offering increasing bandwidth to customers, at generally falling prices, he added.

When compared to DSL and cable, satellite services are higher-priced. As a result, satellite broadband tends to be best suited for rural areas and other geographic territories where DSL and cable are not available.

HNS has grown its satellite broadband business by 10,000 subscribers a month through the first half of this year through increased demand from both consumer and small business users, said Mike Cook, a senior vice president at HNS. Cook said the company is heading toward a record-breaking year for its Direcway satellite broadband business.

Many homes across the United States cannot take advantage of DSL or cable offerings because they are not provided in their communities, Cook said. For consumers and small business owners who have been overlooked by terrestrial service providers, Direcway brings broadband access that enables its subscribers to stay connected and conduct business online, he explained. Direcway is the brand name for the HNS high-speed satellite Internet access services and IP-based networks.

HNS is owed in equal parts by The DirecTV Group Inc. and SkyTerra Communications Inc.