U.S. Satellite Broadband Providers Hustling To Keep Up With Demand

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PARIS — The two leading U.S. providers of satellite broadband services, ViaSat and Hughes, are sending bullish signals to their investors about the near-term potential of their consumer services, suggesting that their current combined subscriber count of around 950,000 is likely to go much higher, stretching both companies’ in-orbit capacity.

It remains unclear how much more spending on new satellites their investors and creditors will permit. Carlsbad, Calif.-based ViaSat and Germantown, Md.-based Hughes already have committed about $400 million each for Ka-band satellites to be launched in early 2011 and early 2012, respectively, with each satellite designed to produce 100 gigabits per second or more of throughput.

That is 10 times more than what Hughes currently can deliver with its Ka-band Spaceway 3 satellite, which until recently was considered the state of the art.

Hughes is gradually transitioning its business to Spaceway 3 by signing most new HughesNet customers to the Ka-band satellite and letting subscriber attrition reduce Hughes’ need to renew Ku-band capacity on other companies’ satellites.

As of early this year, Hughes said it still had nearly 100 transponders of Ku-band capacity under lease, with each transponder costing around $1.5 million per year. Hughes continues to shed Ku-band transponders at a rate of about one per month.

ViaSat is using the WildBlue-1 satellite that it now owns following its acquisition of satellite-broadband provider WildBlue Communications in late 2009. That purchase also included the U.S. Ka-band capacity on the Anik F2 satellite owned by Telesat of Canada.

ViaSat is struggling to squeeze additional capacity out of the beams pointed at some of the most-populated regions of the United States, having found out after the satellites were launched that it is these regions — more than the vast rural areas of the United States — that have the most pent-up demand for satellite broadband.

With its Spaceway 3 satellite still far from full as it takes on new subscribers, Hughes hopes to profit from ViaSat’s capacity shortage. Spaceway 3 was launched in August 2007 and began commercial service in April 2008.

“Currently we have capacity available for expansion in all our markets and expect this to be an advantage over WildBlue until sometime in 2011, when ViaSat may expect to launch a new satellite for WildBlue,” Hughes said in its 2009 annual report.

Hughes, which is 57 percent owned by private-equity investor Apollo Management, cautioned investors that if satellite-broadband demand continues to outpace previous industry forecasts, the company, like ViaSat and WildBlue, may need to “modify our marketing and business plans in some of our coverage regions” while waiting for the launch of its Jupiter satellite.

Hughes and ViaSat also are faced with the possibility that satellite-television broadcaster DirecTV Group of El Segundo, Calif., which used to own Hughes, may decide to add a satellite-broadband service to its existing product portfolio.

DirecTV signed a five-year noncompete clause when it separated from Hughes in 2005. The five-year period ends April 23. DirecTV officials have said they are reviewing a variety of possible broadband service offers they could bundle into the television package.

DirecTV operates two Spaceway satellites that were originally designed for Hughes’ broadband service but were put to use providing television before the two companies separated.

ViaSat Chief Executive Mark Dankberg has bluntly told investors that the company may order another Ka-band satellite even before the completion of ViaSat-1, which like Jupiter is under construction at Space Systems/Loral in Palo Alto, Calif. The company has, like Hughes, registered additional Ka-band orbital slots with U.S. regulators.

ViaSat has purchased a launch option with Europe’s Arianespace consortium of Evry, France, that must be exercised before December 2015. ViaSat-1 is set for launch in early 2011 aboard a Russian Proton rocket commercialized by International Launch Services of Reston, Va.

ViaSat in recent weeks has completed debt and equity transactions designed to position the company for such an investment, although no decision has been made. On March 23, ViaSat increased a line of credit to $275 million from $210 million.

On March 31, ViaSat and several of its shareholders that had been owners of WildBlue sold a combined 6 million ViaSat shares at $33.50 per share in an offering that was well-received by investors. ViaSat had originally set the deal at 5.5 million shares, increasing it following positive market response. Some 3.17 million of the shares were sold by ViaSat, with the rest sold by other shareholders, including those whose investments originally were in WildBlue.

ViaSat said the company will net $100.5 million from the transaction.