Hughes Wrests Ground System Contract from Rival ViaSat

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MUNICH — Hughes Communications has wrested a Middle Eastern satellite consumer broadband contract from competitor ViaSat months after ViaSat signed the deal, the companies said March 3, a development that may signal just how competitive the satellite broadband landscape is becoming.

Germantown, Md.-based Hughes, which is awaiting regulatory approval of its $2 billion sale to EchoStar Communications of Englewood, Colo., said it has signed an initial contract, valued at more than $27 million, with startup satellite operator Yahsat of Abu Dhabi, United Arab Emirates, to provide that company’s consumer broadband satellite gear.

In a March 3 conference call with investors, Hughes Chief Executive Pradman P. Kaul said the contract is likely to “increase significantly” in value in the coming months as it incorporates delivery of satellite broadband consumer terminals. The initial order includes satellite gateway Earth stations.

Hughes is also managing the system’s operations and maintenance for the first three years after the launch of the Yahsat 1B Ka-band satellite, scheduled for late 2011.

ViaSat announced in mid-2009 that it had won a $46 million contract with Yahsat — specifically, its Star Satellite Communications Co. subsidiary — that included consumer terminals. On March 3, Carlsbad, Calif.-based ViaSat issued a statement saying the contract had been “restructured.”

“Under the revised agreement, the SurfBeam 2 consumer broadband network infrastructure procurement portion is deleted and a corresponding portion of ViaSat order backlog for the Yahsat contract will be adjusted,” ViaSat said in its statement. “The backlog adjustment is not expected to have a material impact on earnings or business outlook.”

ViaSat said its relationship with Yahsat will now focus on using ViaSat’s Yonder mobile Internet service to serve Yahsat customers in commercial and business aviation, and in maritime and government applications.

In addition to its Yahsat foothold, Hughes has purchased capacity aboard Ka-band spacecraft operated by Avanti of London and will use that capacity to serve Hughes customers in Europe and the surrounding region. When added to Hughes’ current and planned Ka-band coverage of North America, it will provide the beginning of what Kaul said ultimately would be a global “Ka-band overlay” for broadband services.

“I believe we will have a Ka-band overlay in many other parts of the world soon,” Kaul said, without offering details. He said Hughes has already shipped 10,000 consumer terminals to Avanti, whose first satellite, called Hylas-1, is in orbit and expected to enter commercial service by this summer.

A second Hylas satellite is scheduled for launch in mid-2012.

Hughes’ own consumer broadband service is expected to add about 75,000 net subscribers per year in the coming years, and posted a net increase of 74,000 in 2010. As of Dec. 31, the HughesNet service had 578,000 subscribers, up 15 percent from a year earlier.

The subscriber additions toward the end of the year apparently slowed, with no net increase beyond what Hughes was able to secure with help from the U.S. government’s broadband stimulus program. Hughes has won nearly $59 million in aid under the program, which offsets the cost of installing satellite broadband gear in certain rural regions of the United States. Hughes has said it will add 106,000 subscribers as a result of this stimulus funding and the subsidies it offers subscribers.

Hughes Chief Financial Officer Grant Barber said during the conference call that the company added 20,000 net subscribers in the fourth quarter as a result of the government subsidies, which began in October. Hughes said its total subscriber growth for the three months ending Dec. 31 was limited to 20,000.

Kaul said Hughes has moved 393,000 of its 578,000 subscribers off of leased capacity on Ku-band satellites and onto the Hughes-owned Spaceway 3 Ka-band spacecraft. The far bigger Jupiter Ka-band satellite is under construction and scheduled for launch in 2012.

Barber said Hughes spent $173 million on the Jupiter program in 2010, including interest, and would spend a bit more than that in 2011, leaving a final $80 million to be paid in 2012.

Hughes reported total 2010 revenue of $1.043 billion, up 3 percent from 2009. The company is gradually becoming more focused on providing services, including rental of consumer premises hardware, as opposed to relying on hardware production contracts. Its services business accounted for 76 percent of revenue in 2010, versus 71 percent in 2009.

Average revenue per consumer broadband subscriber in 2010 increased to nearly $74 per month, from $70 in 2009. Customers who opt to rent their hardware pay higher monthly fees, and Barber said many customers are electing to include next-day repair and anti-virus in their service contracts, which also increases the monthly fee.

Hughes’ backlog at Dec. 31 for its non-consumer business stood at $1.06 billion, up 27 percent over a year earlier.