Consumer Broadband is Primary Growth Engine for Hughes

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PARIS — Satellite broadband provider Hughes Communications on Nov. 4 reported continued strength in its North American consumer business, saying demand for broadband access among U.S. households is unabated despite the still-struggling U.S. economy.

Germantown, Md.-based Hughes said it increased its subscriber count, reduced subscriber defections and also increased average revenue per subscriber in the three months ending Sept. 30 compared with the same period a year earlier.

In contrast, the company’s enterprise business, which sells satellite access gear to corporate customers to link field offices with headquarters, declined as companies reduced their hardware purchases in the economic downturn.

The result, for Hughes, is a company that is increasingly devoted to providing services to consumers rather than ground gear to businesses. About 70 percent of the company’s revenue for the three months ending Sept. 30 was from services contracts, with 30 percent from hardware sales.

“This [consumer satellite broadband] business continues to fire on all cylinders and remains our premier growth engine,” Hughes Chief Executive Pradman P. Kaul said in a Nov. 4 conference call with investors.

Hughes said that, as of Sept. 30, it had 464,000 consumer subscribers, up nearly 17 percent over a year earlier. Average monthly revenue from consumer subscribers was $71, up from $68 a year earlier. Around 60 percent of new subscribers have opted for Hughes’ lease package in which they agree to rent the satellite dish and other hardware in exchange for a two-year commitment.

Monthly churn, or the percentage of subscribers quitting the service, was 2.3 percent for the three months ending Sept. 30, down from 2.6 percent a year earlier.

Hughes is gradually moving its subscriber base from Ku-band capacity that Hughes leases from other satellite operators to the Hughes-owned Spaceway 3 satellite, a high-capacity Ka-band spacecraft. Changing from Ku-band to Ka-band requires subscribers to install new equipment. Instead of paying subscribers to do this, Hughes is letting the transition happen at about the same rhythm as its subscriber defections.

As of Sept. 30, some 208,000 subscribers were aboard Spaceway 3. Kaul said he expected Spaceway 3, which can accommodate 600,000 to 800,000 customers — depending on how its 100-plus individual beams in different geographic locations fill — will have capacity to spare through early 2012.

Hughes has ordered an even more powerful all-Ka-band satellite, called Jupiter, from Space Systems/Loral of Palo Alto, Calif., under a $252 million contract that calls for the satellite to be ready for launch in early 2012.

Hughes officials say they are reducing the number of transponders they lease on Ku-band satellites by an average of one per month. Hughes had 99 transponders under lease as of Sept. 30 and remains one of North America’s biggest customers for Ku-band satellite capacity.

Meanwhile, Hughes’ mobile satellite services segment, which the company said depends on a few large contracts that may never recur, reported lower revenue, as did the enterprise segment’s equipment-sale business.

Hughes reported revenue of $747 million for the nine months ending Sept. 30, down from $775 million a year earlier. The company reported an operating loss of $7.3 million during the period, compared with a gain of $43.8 million a year earlier.

Hughes earlier this year took a $44 million charge against earnings following launch service provider Sea Launch Co.’s nonpayment of a reimbursement claim that an arbitration panel agreed Sea Launch owes to Hughes, plus interest. Long Beach, Calif.-based Sea Launch subsequently filed for Chapter 11 bankruptcy protection, raising doubt as to whether Hughes will ever be paid.