Profile: A New Ship to Ride a Rising Tide

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  Space News Business

Profile: A New Ship to Ride a Rising Tide

By PETER B. de SELDING
Space News Staff Writer
posted: 14 September 2007
03:22 pm ET





Pradman

Kaul

CEO, Hughes Network Systems






The Aug. 14 launch of the all-Ka-band Spaceway 3 broadband satellite was a game-changing event for Hughes Network Systems (HNS). The Germantown, Md., company has a fast-growing consumer-broadband business in the United States in addition to its enterprise market, and has been paying large sums of money to rent high-priced Ku-band capacity from various North American satellite-fleet operators.



Assuming no problems aboard Spaceway 3, HNS will gradually reduce its Ku-band exposure starting early in 2008 as it transitions customers to Spaceway 3. HNS Chief Executive PradmanKaul admits the company does not yet know exactly how quickly it will be able to move toward Ka-band, but the direction is clear enough that HNS is already in the market for another Ka-band satellite and hopes to make a decision by the end of the year.



Meanwhile, HNS is subcontractor to Boeing in its bid to build the U.S. Air Force’s Transformational Satellite Communications system, or T-Sat. Boeing Space and Intelligence Systems built the Spaceway satellites and has cited that work in touting its credentials for the multibillion-dollar T-Sat contract, which is slated for award this year.

Kaul
spoke with Space News staff writer Peter B. de Selding.




What is the status of Spaceway 3 and when will it be put into service?








The satellite is doing well, and we expect that its XIPS xenon-electric propulsion system




gradually will raise the orbit to final position over a 50-day period. Then our manufacturer, Boeing, will conduct initial tests for about a month before transferring it to us in December. We will then conduct our own tests before starting commercial service in the first quarter of 2008.



What is the plan for transitioning customers to Spaceway 3, which operates in Ka-band, from the current service, which uses Ku-band capacity leased from SES Americom, Intelsat, Satmex and others?







The first priority is to get new customers onto Spaceway 3 starting in early 2008. Then later in the year we will begin transitioning some of our existing enterprise customers.





Existing customers will need new transceivers on their rooftop antennas, and new indoor gear as well, to use Spaceway 3. How will this work – will you subsidize the equipment changeout?







We have not yet fine-tuned the exact approach we will take. The basic message to customers will be that we will offer more for less. For example, today a consumer pays $300 for the hardware – the antenna, the wiring and the indoor unit – and around $60 per month for, say, 700 kilobits per second of bandwidth. In the Spaceway world, we may offer more bandwidth or speed for the same price. The details will be worked out over the next few months.





Will all






current HughesNet rooftop antennas






need to be replaced for customers to use





Spaceway

3?



No. For the past few years all antennas we have shipped are compatible with Ka-band. They will need new transceivers installed on them, but most new antennas shipped in the past two years will be able to remain in place.


What is the status of the production line for the new, Spaceway 3-compatible equipment?




We are setting up our production lines for 2008 and the initial run rate is in the 25,000-per-month range. Then we’ll see how strong demand is before deciding whether to increase production. We could easily double the production rate. Our hardware manufacturers would have no trouble increasing the production rate.



HNS currently is one of North America’s biggest customers for Ku-band satellite capacity. How many transponders do you lease now over North America?







We lease more than 100 Ku-band transponders for our North American business.



How will this figure trend down now with the arrival of Spaceway 3?




We really don’t see any dramatic moves; it will happen gradually. Our business already has a 2 percent churn per month, which means that at the end of any given year about 25 percent of our customers have left the service. If most new customers are being served with Spaceway 3, this will mean that 25 percent reduction in Ku-transponder demand occurs after the first year or so, and in the subsequent years.



So in four to five years you will have ended your lease arrangements for all of the Ku-band transponders?




Not necessarily. We think that for one reason or another some customers will want to remain on Ku-band. We also see a need for Ku-band for many of our enterprise customers and for broadcast/multicast applications. A lot depends on the take-up rate for Spaceway 3. If customers are lining up at our doorstep, we may concentrate on them first before focusing on moving existing customers from Ku-band.



But isn’t the arrival of Spaceway 3 a major event in the lives of SES Americom, Intelsat, Satmex and your other suppliers?



Ku-band demand in the United States is still very strong, and I’m sure our current satellite capacity suppliers have been planning for the arrival of Spaceway 3. It’s a new dynamic for them, but there is almost no Ku-band capacity available in North America today. I wouldn’t worry about the future of these satellite operators.





What is the capacity of Spaceway 3 to serve broadband users compared to conventional Ku-band satellites?








We expect we will get full use of 8 gigabits of the 10-gigabit capacity of Spaceway 3. That’s 8 gigabits uplink and 8 gigabits downlink. The average Ku-band transponder delivers 50 megabits, so we expect Spaceway 3 capacity to be equivalent to 160 Ku-band transponders.







Given your recent consumer and small-business market success, and that of your competitor, WildBlue Inc., is the current






market for satellite broadband






bigger than you expected?







Well, we have been working on the Spaceway project since early 1998 and always believed in the potential of satellite broadband – especially once we moved to Ka-band, which we thought was absolutely necessary to keep our enterprise and, later, our consumer customers. But yes, the market currently is more robust than I thought it would be.



Your initial Spaceway project had three satellites, but your former sister company, DirecTV, adapted Spaceway 1 and Spaceway 2 for direct-broadcast television. Would you like to repurchase those satellites from DirecTV?







One option is clearly to get them back in the family. That would be our first choice for expanding capacity if demand materializes as we expect. We have had informal discussions with DirecTV about this and we hope to come to some sort of conclusion by the end of this year. But we have other options for new capacity. We have an option for a Spaceway 4 satellite with Boeing, and we have had initial talks with a couple of satellite manufacturers about a new satellite as well. There are some interesting new designs for high-capacity bent-pipe spacecraft.



You had to pay $9 million for the Spaceway 3 orbital slot to the companies that originally secured the rights to the position. Is orbital-slot availability a problem for future growth in North America?







No, not in Ka-band.
We are paying $9 million over 10 years or so for the Spaceway 3 slot. It’s not significant considering the overall investment in the program and if need be, we could work out a similar arrangement for another slot. We don’t see that as a problem at this point.



Before Spaceway 3 was launched you tested the service on DirecTV’s Spaceway 2. Did the Air Force also take part in this as it plans for its future T-Sat program?







No because we had only 30 days of use of the DirecTV satellite – not much time. But our view is that the Spaceway experience gives our T-Sat team an advantage because of the technologies we already have




developed.







A T-Sat decision is expected late this year – before Spaceway 3 is operational. Will that make it more difficult for the Boeing-HNS T-Sat team to prove its case?







We don’t think so. The Spaceway experience is a real advantage for us with respect to T-Sat.





A couple of years ago your Israel-based competitor, Gilat Satellite Networks, sought to purchase HNS. Are you now preparing an offer to purchase Gilat?






We never comment on these kinds of industry rumors.