Profile: Getting Ahead in a Hot Market

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  Space News Business

Profile: Getting Ahead in a Hot Market

By LON RAINS
Space News Editor
posted: 12 October 2007
03:43 pm ET





David J. Leonard

Chief Executive Officer (CEO)

WildBlue

Communications Inc.







One of the biggest challenges David Leonard has grappled with since taking over as CEO of WildBlue Communications in August 2005 is keeping up with the much stronger than expected demand for the company’s satellite-delivered rural broadband service.



WildBlue’s business is providing homes and businesses in rural areas with high-speed Internet service.



The service is sold through more than 280 rural electric and telephone cooperatives affiliated with the National Rural Telecommunications Cooperative, which serves customers who are either underserved by cable and fiber optic systems or not served at all. The company also has distribution agreements with direct-to-home satellite television broadcasters Echostar and DirecTV.




The services offered by WildBlue and its competitor









Hughes Network Systems (HNS) have been wildly popular. For example, new sign-ups at WildBlue, which started selling its service in June 2005, continue to come in at an average rate of about




1,000 per day.



As WildBlue and its vendors like ViaSat get a handle on the equipment shortage, Leonard




now is actively trying to resolve a related problem – a lack of satellite capacity.

The company currently uses Ka-band capacity aboard the Anik F-2 satellite owned by Telesat Canada and its own dedicated Ka-band satellite WildBlue 1, which was launched in December. Despite the launch of the new satellite there are still areas where the service has been so popular that the satellite spot beams




are filled to the capacity WildBlue is comfortable with, which means no new customers can get service in those areas. While there might be room for more customers, WildBlue




has set traffic limits on individual spot beams so it does not degrade the service for existing subscribers, a testament to the company’s commitment to quality at a time when it could be adding many more customers than it is at present.





Leonard, a veteran of the cable industry, says that while strong customer demand is a nice problem to have it is still one the company takes seriously and is doing everything it can to address




. He recently spoke with Space News editor Lon Rains about these and other issues during Euroconsult’s Satellite Business Week in Paris.







What is the status of your efforts to resolve the shortage of ground equipment available for new customers?






Well, we still have challenges in the availability of ground equipment. Frankly, particularly with our distribution partners, we could use a lot more equipment than we’re able to produce at this point in time. We see that situation changing, though. It’s a short-term phenomenon that I think will go away. In the next couple of months we won’t be faced with an equipment constraint.


Can you quantify the problem?





With all our distribution partners, we think we could easily be doing at least




50 percent and maybe 100 percent more sales and installations across the country if we had adequate equipment.





Are you concerned that as you try to catch up with consumer demand, you might end up with

more manufacturing capacity than you need?

Well, we work with them on a daily basis, shoulder to shoulder. We have three, six, nine and 12 month forecasts so that we avoid precisely that situation. But it takes time to gear up their production capacity and they’re trying to expand business elsewhere in the world.



They’re working with Eutelsat and others. So I think we’ll be able to fix the equipment shortage problem in the very near future.

What is the current number of WildBlue subscribers?





We’re right at about




250,000 subscribers right now. We’re adding roughly 1,000 customers a day, but sometimes 1,500.


What are you projecting for 2008?





I don’t give out those kinds of projections. For 2007 you can do the math. We’re adding about 30,000 subscribers a month and we think that will continue through the balance of this year or accelerate. Now there is a tricky dynamic. We’ve had to close certain beams because there’s such a strong demand in that beam area and that could affect our growth rate somewhat. But our mission as management of WildBlue is to make sure that in the areas where we’re not capacity constrained, we maintain that momentum – and we will.


What are your plans for additional satellite capacity?





We have short- and long-term plans for satellite capacity. We’re actively looking to expand our satellite capacity with what we call gap-filler solutions that will bridge us until we have our next satellite up and operational, which we think will be three years.



For example, there is some Ka-band capacity that’s out there right now that is not being fully utilized. That’s the short-term solution – what we call the gap filler. We’re also looking at acquiring additional capacity, which will have an order of magnitude expansion over our current capacity. So it will enable us to serve many more customers.





What is your growth curve going to look like? You’ve had high consumer acceptance in the market so far.













Are you seeing the peak, or is






demand going to dip?






I come out of the cable business and back in the 1980s we talked about the phenomenon where people would come out of their homes when they saw the cable truck doing an installation in the neighborhood and say ‘Come over and run a wire to my house.’



At that time it was a discretionary service. This is a little bit different than that, because I believe that broadband is a much more essential service to function fully in the modern economy.





So I don’t think this is an early adopter phenomenon. I see that growth curve either being stable or growing over time and doing so significantly.

You started out going for a niche audience, right?





Absolutely, but it’s still a sizable market. You have by our estimate about 15 million homes and businesses that either completely lack access or lack adequate access to broadband alternatives terrestrially and they all need it – 100 percent of them need it, even the 50 percent who don’t know it yet. So even if that market shrinks by 33 percent over the next five years due to the growth of terrestrial alternatives – whether it is wired line or wireless – there still is a universe of 10 million homes and businesses that are going to need broadband connectivity that can only be provided by satellite.



We think the penetration of that marketplace is probably going to be 60 percent to 70 percent, so do the math. That’s




7 million customers. Between us, and HNS




we have only a fraction of that today.

We find that kind of growth exciting. Now there are others who believe we can expand that marketplace from the 15 million into the suburbs and into underserved areas in the urban areas, which are covered by kind of a patchwork of broadband solutions. And if so, that’s great. But our model doesn’t require that in order to be very, very successful.




DirecTV initially thought they were going after a rural market and then found demand in suburban and urban areas. Do you think something similar could happen for satellite broadband?


You mean that we would migrate into the metropolitan area? I think there’s a different dynamic at play to some extent. First of all the nature of broadband via satellite is a little more complex than it is terrestrially. You’re dealing with issues of physics and the satellite platform that competes against a broadband operator that has 20 or 30 megabits per second in a metropolitan market is a much tougher proposition presuming they provide a good service. So that’s one impediment.



Two, you’re going up against the balance sheets of the incumbent telephone companies and cable operators and that in my view would quickly become a race to the bottom. So why would I go into a metropolitan market right now and try and compete head




to




head with those guys when there’s more than enough demand in the marketplace we currently serve, and they will never touch that market. Well, never is too long of a term, but we don’t see them coming into our market any time soon.

So you don’t see any reason to try to get in to that market until you’ve gotten to a saturation point in your target market.

Exactly.