Hughes in No Rush To Move Existing Customers to Spaceway 3

PARIS
— Hughes Network Systems has no immediate plans to move any existing Ku-band satellite broadband subscribers to the company’s powerful new Ka-band Spaceway 3 spacecraft in part because it wants to be sure to leave room for growth on Spaceway 3 for new subscribers over the next three years, Hughes Chief Executive Pradman P. Kaul said Sept. 10.

Addressing the World Satellite Business Week conference here organized by Euroconsult, Kaul said Spaceway 3, which entered commercial service earlier this year, has the capacity to accommodate about 1 million subscribers to Hughes’ HughesNet service.

Hughes’ current and future competitors, WildBlue Communications Inc. and ViaSat Corp., gave updates on their investment in satellite broadband as well.

Hughes’ HughesNet service now counts more than 400,000 subscribers, almost all of them using gear linked to one of the many Ku-band satellites whose capacity Germantown, Md.-based Hughes leases from commercial satellite-fleet operators. Hughes’ longer-term business depends on gradually moving its subscriber base from the capacity it leases on these satellites to Spaceway 3, which it owns.

Industry officials say any attempt by Hughes to move existing subscribers to Spaceway likely would require the company to subsidize, at least partially, the equipment these customers would need to connect to Spaceway 3 – a potentially large expense.

One industry official said Hughes appears to be counting on natural attrition among its subscribers – the customers who decide to quit the service each month, often referred to as churn – to permit the company to reduce the amount of satellite capacity it leases while at the same time growing the business.

“The smart thing for them to do is to let churn work a gradual reduction among their Ku-band subscribers,” another industry official said. “They put all new customers on Spaceway, and reduce the amount of satellite they have to lease in the market.”

Kaul
put it differently. He reiterated his promise that Hughes was about to order a second, large all-Ka-band satellite to bolster its in-house capacity, a contract he said would be signed within weeks. Industry officials said Space Systems/Loral of
Palo Alto
,
Calif.
, is the favored supplier, but that Boeing Satellite Systems International of El Segundo, Calif., which built Spaceway 3, also might be going after the contract. Hughes has said the new satellite would not include sophisticated onboard processing that is one of Spaceway’s features.

Kaul
said it will take three years to launch the new Ka-band satellite and that Hughes wants to be sure that Spaceway 3 capacity is available for new subscribers throughout this period. The company is adding more than 15,000 subscribers per month. “We need to reserve it,” Kaul said of Spaceway 3 capacity.

Grant Barber, chief financial officer of Hughes, said during a Sept. 11 presentation at the conference that Hughes currently leases 126 satellite transponders worldwide for its broadband service, 110-115 of them covering
North America
. In 2007, he said, Hughes was leasing a new transponder every three weeks to keep up with demand for the service.

Barber said Hughes recently took out an in-orbit insurance policy for Spaceway 3, which was launched in August 2007, with a policy that expired in August. In-orbit insurance policies are normally for one year as well.

Dave Leonard, chief executive of Denver-based WildBlue, said the company hopes to continue to position itself as the low-cost provider of satellite broadband given the currently higher cost basis of Hughes. WildBlue has around 350,000 subscribers and continues to add customers at a rate of some 15,000 per month.

WildBlue
owns the WildBlue-1 Ka-band satellite and also has leased most of the Ka-band capacity on Telesat
Canada
‘s Anik F2 satellite. But the company’s growth already has stretched the capacity of these satellites to the limit, and for awhile certain geographic areas in the
United States
were closed to new customers for that reason. These areas have since been reopened as WildBlue, with its ground-technology partner ViaSat of Carlsbad, Calif., has added software upgrades to increase system throughput.

Leonard said WildBlue shares the market estimate that 5 million
U.S.
homes are unlikely to receive terrestrial broadband service, through DSL or cable, anytime soon. With a combined 750,000 subscribers, WildBlue and Hughes have plenty of room to grow, he said.

Nonetheless, WildBlue, whose shareholders recently invested $50 million in the company to add to its sales force and facilitate a customer equipment-lease program, has no immediate plans to order a new satellite, Leonard said.

“We are taking an open mind on how we expand our space capacity in the future,” Leonard said. “We in the industry need to find a clever way to share capacity, and to do so efficiently.” Leonard raised the possibility of WildBlue leasing capacity aboard Hughes’ Spaceway 3. Hughes’ Kaul, who was sitting next to him during a panel discussion, did not respond.

Leonard said WildBlue may also lease capacity on the ViaSat-1 Ka-band satellite that ViaSat is building on its own. The satellite is under construction at Space Systems/Loral and is scheduled for launch in 2011.

ViaSat
Chief Executive Mark Dankberg said the company continues to hold discussions with potential ViaSat-1 partners. He agreed that WildBlue eventually could be a customer.