Profile | Pradman P. Kaul, President, Hughes Network Systems

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The future of consumer satellite broadband is being played out right now in the United States as two healthy, committed companies — EchoStar’s Hughes Network Systems and ViaSat Inc. — battle for market share not so much against each other as against low-quality DSL performance.

Sometime this year Hughes and ViaSat should be closing on a combined 1.2 million subscribers in the United States. Armed with the latest high-throughput Ka-band satellite infrastructure, both are moving in on the suburbs with performance and price points they say best many DSL links.

The low-hanging fruit of more than 10 million U.S. homes without any broadband access is still abundant as well.

For the moment, Germantown, Md.-based Hughes is the market leader in the United States. Hughes President Pradman P. Kaul recently discussed with SpaceNews staff writer Peter B. de Selding the company’s current business in the United States, and its plans for Brazil and India as well.

Do you share the view that the new Ka-band satellite technologies like Hughes and competitor ViaSat are offering will extend satellite broadband into the suburbs? Is it that good?

Certainly if you look at the performance and the plans that we’re both offering, they are very competitive with DSL. We’re not going to compete with cable or fiber. We’re far from competing with them and we’re not interested in doing that.

But in the area of DSL, we have an offering that is as good or better. Having said that, our focus is the 10 million to 15 million homes in the United States that are unserved, or underserved, by terrestrial broadband. This is our prime market. We continue to get most of our customers from that market.

Are you keeping close track of where new subscribers come from — DSL, dial-up, wherever?

I don’t think we track it that way, but the majority is coming from dial-up. We had net subscriber additions of 43,000 in the fourth quarter. ViaSat had something like 37,000, if I recall. ViaSat has had their satellite six to seven months longer than we have had ours, so we felt good about our subscriber additions. We had 659,000 subs at the end of December. ViaSat is at around 467,000.

So, all in all, the subscriber acquisition rate, the operations we are conducting, the performance of the satellite, the performance of the ground network — everything has been working well. We hope these trends continue for the rest of the year.

Do you still find that government authorities interested in broadband are unaware of satellite broadband’s risks, performance, costs, etc.? Or is that changing?

That misimpression is there and we are spending a lot of energy, at least at the federal government level with the different programs for broadband, to correct this. A year-and-a-half or two ago we made a lot of progress when we were awarded a $58.7 million project as part of the broadband stimulus program. That was good. Our project was implemented in record time, and the money was spent very quickly. If I recall we were one of the few projects implemented as part of that broadband program to actually invest the money in broadband and implement the work on schedule.

Now we’re looking at things like the Universal Service Fund. Decisions haven’t been made and we’re working hard. We haven’t been focusing much on state and local governments because not much money on consumer broadband is being spent there.

But if you’re talking about competing with DSL, why does satellite need the incentive of a government stimulus program to gain traction?

It’s a bit complicated. If you look at the Universal Service Fund issue there was a contribution that the carriers had to make to the fund. Then, based on a whole bunch of different criteria, carriers were given funding. So people like the rural exchange carriers are getting funding from the federal government based on this fund.

Up to now they have not asked the satellite Internet service providers to contribute to the fund, and we haven’t been getting any money from the fund either. But there are serious moves being considered that would have us provide a proportion of our revenue to be put into the fund. We would have to pass this on to our customers. Our position is that if our customers are going to be impacted by the cost of contributing to this fund, then they should also receive the benefit of our being eligible to receive grants from the fund. So there is lobbying and testifying going on about this.

Net-net I suppose you’d rather not have to contribute to the fund?

No, I’m happy either way. But if we contribute to the fund then we want to be eligible to get money from the fund to support our customers.

What is the split among your 660,000 subscribers between Jupiter/EchoStar 17, Spaceway 3 and the remaining Ku-band capacity you lease?

We haven’t been giving that precise information, but Spaceway 3 was full up at about 500,000 subscribers. We upgraded a set of these customers onto Jupiter, some are churning out, and we are using the capacity that is freed up on Spaceway 3 to service subscribers that are not in our Jupiter footprint.

As part of our HughesNet Gen4 offering we have increased the speed on Spaceway 3. So that is obviously taking up more capacity than the previous plans we had. This is for what we call the infield, or the parts of the United States not covered by Jupiter. So the two satellites play a complementary role and we expect that to continue for the next few years as we fill up Jupiter.

Are you trying to fill up Jupiter faster to reduce the load on Spaceway 3?

It’s very simple. Any subscriber in a region covered by Jupiter will be put on Jupiter, and in the middle of the country subscribers will be put on Spaceway 3. So current Spaceway 3 customers upgrade to Jupiter where they can, or in some cases churn away. That frees up Spaceway 3 capacity that we can use to load more subscribers in the infield. So hopefully we’ll get to a situation in a few years where both will be full.

Are you still leasing Ku-band capacity or is that behind you now?

We are still leasing Ku, but it’s declining as subscribers get upgraded or churn out. So every quarter the number of Ku-band transponders we are leasing goes down, which of course helps our bottom line.

How many Ku-band transponders do you still have under lease?

We don’t disclose that.

Did you lease a bit of Ka-band from SES last year?

EchoStar has leased SES satellites, and as part of that deal we were using some Ka-band capacity to supplement Spaceway 3. It’s not much, a few beams. It was before we launched Jupiter; we were running out of capacity on Spaceway 3, and EchoStar had the capacity.

The U.S. Department of Defense (DoD) uses a lot of bandwidth over North America for training. Are you getting much of that for Ka-band on Spaceway 3 or EchoStar 17/Jupiter?

We are having discussions about this with the DoD, but not much has come of it yet. We do have some civil U.S. government programs for training, where we use our domestic infrastructure, but again, the numbers are not huge. Training is an important vertical even in the commercial world for us.

Maritime VSAT (very small aperture terminals) is a hot market, but Hughes seems not to be in it. Why?

You can only do so many things. Maritime is a big market but it’s also a different distribution system. We do provide maritime products to Inmarsat and to Thuraya. We’re in the equipment business for mobile satellite, but we’re not in the service business for mobile satellite.

We don’t have much of a stake in that market. You see what Inmarsat is doing with Ka-band, so they obviously believe in it, as does Intelsat with the Epic system. I agree with them: If you look at the bandwidth required on cruise ships, there isn’t enough in L- and S-band to satisfy those needs. The economics of Ku- or a Ka-band satellite are superior.

Do we no longer need to talk about rain attenuation for Ka-band?

We have solved those problems. If you look at the availability we have in our Ka-band network in the United States, it’s as good as Ku-band, assuming you design the system for that.

You have plans with EchoStar for broadband outside North America — especially Brazil and India. Both are difficult to enter. Brazil is now reopening its project for X- and Ka-band satellites for government uses. Does that compromise your ambition in Brazil?

No, that program is mainly for cellular backhaul and government services, not to provide broadband to the consumer market.

In Brazil and India do you want to be a full-service provider, rather than an equipment provider as you are in Europe to Avanti and in the Middle East to Yahsat?

Yes, the model we followed with Avanti and Yahsat we will seek to duplicate in other markets. You have seen some of our activity in Mexico. But in India and Brazil we are trying to replicate what we are doing in the U.S. market.

Both Brazil and India seem to be taking a long time to develop in terms of regulatory approvals.

We have enterprise services in both countries that are doing very well. Yes, there are a number of regulatory pieces that have to fall into place before you can make the investment required to enter the consumer business. We’re trying to put those pieces into place, but they are not there yet. India is more difficult than Brazil.

We were the first under the new India telecoms policy to apply for a license to own and operate a Ka-band satellite for India. Whether that means nobody can get ahead of us, I don’t know. It was two to three years ago when we applied for the license.

In addition to our regular business, in Brazil we recently obtained orbital and spectrum resources at auction and are in the process of implementing our business plan.

Satellite fleet operators have trouble even selling raw bandwidth into India without going through the government space agency.

It’s a hurdle, but eventually we will get there; the wall will be broken. Look at what happened to India in the cellular industry. Who would have thought that 15 years ago? The market forces are there. I’m optimistic.