Hughes Projects Strong Growth In U.S. Broadband Subscribers

by

PARIS — Satellite broadband hardware and services provider Hughes Communications on Nov. 3 reported continued success of its U.S. consumer broadband business in the teeth of a sharp economic downturn and said it will have more than 930,000 subscribers by late 2015.

That would be a 67 percent increase over the 558,000 U.S. subscribers that Hughes counted as of Sept. 30, for an average 19 percent annual growth in net subscribers between 2010 and 2015.

Germantown, Md.-based Hughes said the new subscribers will not be gained by sacrificing profitability. The company’s gross profit margin, which was 17 percent in 2009, should be at least 30 percent by 2015, Hughes Chief Executive Pradman P. Kaul said in a conference call with investors.

Hughes has been loading most of its new subscribers onto its Ka-band Spaceway 3 satellite, gradually replacing the Ku-band capacity it leases on satellites operated by SES, Intelsat and others, since early 2008. Each Ku-band transponder lease that it lets expire means $1 million or more per year of savings in satellite-bandwidth costs. A significant portion of these savings goes to Hughes’ bottom line.

Some 350,000 of Hughes’ current U.S. consumer broadband subscribers were on Spaceway 3 as of Sept. 30. The satellite, which has a throughput of 10 gigabits per second, ultimately can carry between 550,000 and 600,000 subscribers.

As is the case with competitor ViaSat Inc. of Carlsbad, Calif., Hughes has ordered a new-generation Ka-band satellite that will make Spaceway 3 seem as volume-limited as conventional Ku-band satellites appear next to Spaceway.

Hughes’ Jupiter satellite, with 100 gigabits per second of throughput, is scheduled for launch in the first half of 2012. Current estimates are that Jupiter will be able to handle between 1.5 million and 2 million consumer broadband customers.

Canadian consumer broadband provider Barrett Xplore, which has booked capacity on Hughes’ Jupiter and on ViaSat’s ViaSat-1 satellite, set for launch in 2011, has agreed to commit to its Jupiter capacity lease for the satellite’s full 15-year life. Barrett’s $245 million order is one reason Hughes reported that its order backlog as of Sept. 30 reached $1 billion, a 26 percent increase over a year ago.

Hughes said its average consumer broadband customer was paying $75 per month in fees, compared with $71 per month a year ago. The increase indicates that more customers are opting for the higher-bandwidth service, and for other options in the Hughes service including next-day repair.

Subscriber defections, which Hughes says are typically higher in the July-September period as people change residences, were 2.2 percent per month for the period, compared with 2.3 percent a year earlier. Hughes added 13,000 net new subscribers in the three months ending Sept. 30.

Kaul said the company is optimistic that the U.S. government’s broadband stimulus investment will push satellite broadband into new neighborhoods. The company won just under $59 million in broadband stimulus aid, distributed through the Department of Agriculture’s Rural Utilities Service.

The program’s implementation, which Kaul said began in late October, provides Hughes with a subsidy of $551 per qualified new subscriber, meaning those living in the areas deemed in need of broadband by the program’s government sponsors. Hughes offers reduced-price yearlong subscriptions to these customers.

Kaul said Hughes was “very carefully” tiptoeing around nonqualified areas so as to offer the reduced-rate service contracts without damaging its nonsubsidized business.

In a Nov. 4 filing with the U.S. Securities and Exchange Commission (SEC), Hughes said its recent settlement with commercial launch provider Sea Launch Co. of Long Beach, Calif., gives Hughes two $22.2 million discounts for Sea Launch launches booked before January 2015 and conducted before January 2018. Sea Launch owed Hughes $44.4 million in deposits as part of a launch contract that was subsequently canceled. The settlement was part of Sea Launch’s recently concluded Chapter 11 bankruptcy proceedings.

Hughes has already selected the Arianespace consortium of Evry, France, to launch Jupiter, and has no other satellites on order. But the agreement with Sea Launch allows Hughes, under certain circumstances that are not detailed, to sell the discounts to third parties.

“This could provide us with a nice upside for both earnings and cash in the next few years,” Kaul said.

In addition to its U.S. consumer business, Hughes is expanding its Ka-band broadband reach into Europe and the Middle East by purchasing capacity on the Hylas 1 and Hylas 2 satellites under construction for Avanti Communications of London. Hylas 1 is scheduled for launch in the coming weeks.

Kaul said the two Hylas satellites together could support some 1 million subscribers.

Hughes is also among the companies vying for a Ka-band satellite broadband contract in Australia, and is competing to provide gateway Earth stations and user terminals for a global Ka-band system being built, mainly for maritime customers, by Inmarsat of London.

“I believe we will have a Ka-band overlay in other parts of the world [beyond North America, Europe and the Middle East] very soon,” Kaul said.

For the nine months ending Sept. 30, Hughes reported that revenue increased 2 percent, to $762 million. New orders totaled $989 million for the period, increasing total backlog by 26 percent, to $1.04 billion.