Broadband Stimulus Package May Hurt, Not Help, Satellite Providers

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PARIS — The U.S. government’s broadband stimulus package, which once was viewed as a potential boon for satellite broadband providers, may now present more of a threat than an opportunity as terrestrial broadband operators use the funding to start businesses that could not otherwise have raised capital, according to David Leonard, chief executive of satellite consumer broadband provider WildBlue of Denver.

WildBlue has submitted applications for stimulus funding along with more than 2,000 other companies, but satellite industry officials have said the way the stimulus package is structured gives a natural, if unintended, advantage to smaller-scale, capital-intensive projects such as laying down cable in underserved communities.

WildBlue, which currently has about 405,000 subscribers, expects to end 2009 with 425,000 subscribers, which would represent a 15 percent increase over a year earlier. But Leonard cautioned that “subsidized funding could create a different environment.”

Leonard said WildBlue still has yet to decide on a long-term solution to its satellite capacity issues stemming from the fact that its WildBlue-1 and Anik-F2 Ka-band satellites cannot permit the company to take advantage of the full growth potential in certain regions of the
United States.

Leonard said the addition of Ka-band capacity leased from EchoStar aboard the AMC-15 satellite will bring some relief but will not fully alleviate the problem.

WildBlue estimates that it could accommodate 713,000 subscribers on the combined capacity of Anik-F2 and WildBlue-1, but this figure assumes a subscriber distribution that fully uses the satellites’ spot beams. Instead, what WildBlue has found is that demand is far higher in some areas than in others, meaning some spot beams are sold out while others are barely used.

In addition, the satellites’ capacity is highly sensitive to the kind of subscribers that use it. The more bandwidth that is used by the average subscriber, the fewer the subscribers that can be accommodated. A capacity of 713,000 subscribers at 9 kilobits per second of demand shrinks to 550,000 subscribers when usage increases to 12.5 kilobits per second, according to WildBlue figures.

The good news for WildBlue is that it appears to have traversed what Leonard referred to as “the critical zone” in its development — a time when it had high fixed costs and insufficient subscriber revenue to cover these costs. With average monthly subscriber revenue of $42, including both wholesale and retail customers, WildBlue is maintaining its customer base despite the poor economy, he said.

WildBlue expects to report $210 million in revenue in 2009 and to reach $85 million in EBITDA, or earnings before interest, taxes, depreciation and amortization. The company reported $44 million in EBITDA on revenue of $187 million in 2008.