Newly Acquired Hughes Business is a Bright Spot for EchoStar

by

PARIS — Satellite broadband provider Hughes Communications, which in June was purchased for $2.2 billion by satellite television set-top box builder EchoStar, increased its U.S. consumer broadband subscriber base by 2 percent in the three months ending June 30, EchoStar said Aug. 9.

EchoStar did not break out how many of these new subscribers, which brought Hughes’ U.S. total to 626,000, were added as a result of the U.S. government’s broadband stimulus program, under which Hughes was awarded $59 million.

Under the program, which took effect in October, customers in certain regions who sign up to the HughesNet consumer satellite broadband service for one year receive a $551 discount.

In a conference call on Englewood, Colo.-based EchoStar’s financial results, Michael T. Dugan, the company’s chief executive, said the subscriber growth was 15 percent when measured against the same period a year ago. He said that of HughesNet’s 626,000 subscribers, 464,000 had been loaded onto the Spaceway 3 Ka-band satellite operated by Hughes.

Hughes has been loading most new subscribers onto Spaceway 3 for several years as a way to wean itself from dependence on Ku-band satellite capacity it leases from commercial operators for $1 million a year per transponder. At one point the company had more than 100 transponders under lease.

Hughes officials have said they want to pace the transition from leased Ku-band capacity to Spaceway 3 so that the satellite is not filled before Hughes’ more powerful Jupiter satellite, now under construction, is launched in the first half of 2012.

Dugan said he had some hope that Jupiter, to be launched aboard a European Ariane 5 rocket, could be launched in the first three months of 2012. But availability issues with the Ariane 5 may push the launch into the spring, he said.

Hughes has said it will load Spaceway 3 with up to 600,000 subscribers. Jupiter, which has 10 to 12 times the raw throughput of Spaceway 3, will be able to accommodate 1.5 million to 2 million subscribers.

Hughes’ direct competitor in North American broadband — ViaSat Inc. of Carlsbad, Calif., and its WildBlue service — is preparing to launch its ViaSat-1 satellite in late September. ViaSat-1 and Jupiter resemble each other so much that ViaSat had openly wondered whether its intellectual property for ViaSat-1 had not found its way into the Jupiter satellite.

Space Systems/Loral of Palo Alto, Calif., which is building both spacecraft, denied that it had communicated ViaSat-1 secrets to Hughes for Jupiter.

Satellite- and rocket-related issues have delayed ViaSat-1 by several months. If launched in late September, its once-commanding time-to-market lead over Jupiter will have shrunk to as little as six months.

Dugan said that Hughes had a firm backlog of $1.1 billion as of June 30, a figure that does not include the consumer broadband business. Hughes sells satellite broadband to corporate networks and also builds broadband and wireless communications equipment that employs satellite links.

EchoStar, whose main business is selling satellite TV set-top boxes to Dish Network — both companies are owned by Charlie Ergen — said its own satellite services backlog was also $1.1 billion as of June 30.

With the Hughes Spaceway 3 and Jupiter spacecraft included, EchoStar has 11 satellites in its fleet, including four that it leases from other satellite operators under long-term contracts.

With Dish Network’s satellite television business showing sluggish growth, EchoStar’s revenue from equipment sales to Dish have dropped sharply in 2011. For the first six months of the year, equipment sales to Dish were $542.8 million, down 29.4 percent from the same period last year.

Dugan said EchoStar’s purchase of Hughes will serve to diversify the company’s revenue base and also help EchoStar in its planned international expansion. Hughes is the world’s leading provider of corporate satellite networks called VSATs, or very small aperture terminals.