Hughes Communications Files with FCC for Spaceway 3 Licensing

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The new publicly traded stock in Hughes Communications Inc., the dominant player in the business of providing corporate communications networks via satellite, broke the $40-a-share barrier last week, another milestone in a month of change that also brought a transition to a new brand name and the company’s application for U.S. government approval of satellite frequencies and an orbital slot that are vital to its future.

Hughes Communications is the parent company of Hughes Network Systems of Germantown, Md, which now operates the company’s corporate and private communications services under the brand name HughesNet.

The company applied March 6 for Federal Communications Commission approval of its plans to launch the Spaceway 3 satellite to an orbital slot at 95 degrees west longitude, operating in the Ka-band spectrum, Arunas Slekys, vice president for corporate marketing and general manager for Hughes Network Systems LLC, said in a telephone interview March 31.

The company expects to complete construction of its Spaceway 3 Ka-band satellite in October. Sea Launch of Long Beach, Calif., would then launch the satellite by first quarter of 2007, Hughes Chief Executive Officer Pradman Kaul said during a roundtable with reporters at the company’s Germantown, Md., headquarters March 24.

The Spaceway 1 and Spaceway 2 satellites are now the sole property of DirecTV Group of Los Angeles, which already had sold its 50- percent share of Hughes before the offering. DirecTV will use the satellites for high-definition television broadcasts.

The FCC has to approve Spaceway 3’s technical parameters, which Slekys said largely mirror the Spaceway 1 and Spaceway 2 satellites. “It’s more or less a pro-forma application,” Slekys said, noting he would expect to see approval within the next 60 days or so. The application is currently in a public comment period.

Hughes had explored the possibility of partnering with a foreign company which had an orbital slot already approved, but ultimately decided that pursuing FCC approval made the most sense economically, Slekys said.

Slekys said that Hughes expects to start providing service on Spaceway 3 about 90 days after the satellite reaches its orbit, and hopes to transfer its existing customers to the Ka-band satellite.

“Something like 95 percent of customers have already said, ‘Yeah, we’re ready to go when you guys are,’” Slekys said, though he noted that some portion of customers may not be transferred to the new satellite until their existing commitments expire.

“It’s more or less our call, though, because we could move them even earlier,” Slekys said. He noted that while customers would be required to get new equipment in order to migrate to the Ka-band service, the company is exploring a variety of incentives options in order to convince customers to make the transition.

Spaceway 3 will be the first satellite to include a router operating in space, Kaul said.

“Hopefully, that will be one of our highlights next year,” Kaul said.

In the meantime, Hughes is adjusting to its status as a public company. Thirty percent of its shares — around 19 million — became publicly tradable on the Over-The-Counter Bulletin Board Feb. 24, Hughes spokeswoman Dacrie Brooks said. The company may make the move to the Nasdaq stock market in a few months, according to Kaul.

The new shares began trading at $12.75 per share, but rose as high as $39 a share by March 30.

Investing firm Apollo Management LP still owns 70 percent of the company, said Kaul.

After DirecTV sold its stake in Hughes to SkyTerra Communications of New York and Atlanta, also a previous owner, SkyTerra promptly spun Hughes off as a separate entity, said Mike Cook, senior vice president for sales and marketing for Hughes.

But DirecTV may regret that decision down the line, said Jimmy Schaeffler, chairman and senior analyst for the Carmel Group, a market-research firm in Carmel, Calif.

“I think an awful lot of what Hughes today has in terms of its capabilities are still the kind of things DirecTV is looking for,” he said.

Hughes, which earned $800 million in revenue for 2005, will now divide up its revenues between its VSAT business and its Telecommunications Systems business, Kaul said.

Schaeffler said becoming a public company should ultimately be a positive move for Hughes.

Hughes’ major growth for 2006 will likely be in the consumer satellite broadband business, said T. Paul Gaske, executive vice president and general manager for Hughes Network Systems’ North American division. Hughes boasted around 275,000 customers with its Directway service, and now will market satellite broadband under the HughesNet brand.

The kickoff for marketing the HughesNet name already has begun, Slekys said. He declined to quantify how much the company will spend on marketing the new service, but said it would mostly be re-allocating existing marketing funds, and additionally pursuing new customers in the managed services and government markets.