Growth, Churn Rate Up for Hughes Broadband Service

PARIS
— Hughes Communications on Nov. 6 reported a slightly higher rate of customers quitting its consumer satellite broadband service in recent months, but said revenue and gross profit continued to grow and that the company still expects to order a large all-Ka-band satellite by the end of the year.

In a conference call with investors, Germantown, Md.-based Hughes also said it expects to be able to use its monthly churn rate – which refers to subscribers who quit the service – to reduce the number of satellite transponders it leases in North America by about one per month in the coming months. Each transponder lease costs Hughes an average of $1.5 million per year, the company said.

Hughes is loading all its new consumer and small-business subscribers onto the Ka-band Spaceway 3 satellite, and is counting on subscriber churn to allow it to reduce the cost of leasing Ku-band capacity from other satellite operators.

With Ka-band and Spaceway 3 as Hughes’ biggest growth engine in the near future, Hughes had told investors it would purchase another Ka-band satellite – but bigger than Spaceway 3 and with less onboard complexity – this year.

Hughes Chief Executive Pradman P. Kaul said the company is taking its time before ordering the satellite given the economic downturn in the
United States
. But he said an order still is expected before the end of this year.

He said Hughes’ current cash position – cash and marketable securities totaled $208 million as of Sept. 30 – and expected cash flow from operations would be enough to pay for the satellite.

Industry officials said Space Systems/Loral of
Palo Alto
,
Calif.
, and Boeing Satellite Systems International of El Segundo, Calif., are competing for the Hughes satellite order. Loral is building an all-Ka-band satellite for Hughes competitor ViaSat Inc. of
Carlsbad
,
Calif.
, and Boeing built Spaceway 3.

Hughes said revenue for the nine months ending Sept. 30 was $775 million, up 12 percent from the same period a year earlier. EBITDA, or earnings before interest, taxes, depreciation and amortization, was $106 million, an 18 percent increase from a year earlier.

Hughes’ nonconsumer backlog totaled $861 million at Sept. 30, up 24 percent from a year ago.

Hughes said its consumer and small-business subscriber base was 420,700 as of Sept. 30 – up from 409,000 as of June 30 – and that subscriber churn was 2.6 percent per month, an increase from the company’s average of 2.3 percent.

Kaul
said the increase may be a sign of the economic weakening in the
United States
affecting consumer spending, but cautioned that it is too early to tell. The company added 44,000 new subscribers in the same period – all put on the Ka-band Spaceway 3 satellite, which uses different customer hardware than the Ku-band satellite capacity Hughes leases.

One positive side effect of a higher churn rate is that it enables Hughes to stop renting transponders sooner, a cash savings.

Hughes leases some 120 satellite transponders covering
North America
and estimates its average annual leasing expenses at $160 million. Spaceway 3, which became operational in April, has capacity equivalent to 150 transponders, according to Hughes.

In a Nov. 6 filing with
U.S.
regulators, Hughes said it expects a ruling from an arbitration panel before the end of the year on its demand that Sea Launch Co. of Long Beach,
Calif.
, refund $44.4 million in launch-reservation payments. Hughes, which was in a hurry to launch Spaceway 3, canceled its contract with Sea Launch following a Sea Launch rocket failure in January 2007. Sea Launch has argued that Hughes had no right to terminate the contract and is not entitled to a refund.