PARIS — ViaSat Chief Executive Mark Dankberg said the profitability of the company’s commercial division, centered on providing broadband satellite terminals for WildBlue Communications, was being kept at unacceptable levels because WildBlue is running out of in-orbit capacity in certain regions.
Dankberg urged investors to continue to back ViaSat’s strategy, suggesting that if Denver-based WildBlue does not act to secure new Ka-band satellite capacity soon, ViaSat or someone else will.
ViaSat on Nov. 1 reported a financial performance for the six months ending Sept. 28 that met earlier forecasts. But despite six years of investment in commercial Ka-band satellite technology for delivering high-speed Internet, the company is not yet seeing profits commensurate with revenue-generating and market success of the resulting systems.
The company’s government business reported an operating profit of $18 million on revenue of $150.4 million for the period – a profit margin of 12 percent.
The commercial division, led by the WildBlue-linked Ka-band broadband terminals , reported an operating profit of $2.54 million on revenue of about $125 million. The 2 percent margin for this division, Dankberg said, is a problem that is directly related to the fact that WildBlue is running out of in-orbit capacity and has had to stop selling the service in regions where its satellite beams are full.
“If WildBlue did not have the bandwidth-constraint issues that they do, this business would quite likely be our single largest business within a year or so, and possibly one of the most profitable,” Dankberg said.
WildBlue officials have said they plan to order a large Ka-band satellite this year, and to secure gapfiller capacity from satellite-television companies – DirecTV or EchoStar – in the interim. But to date, neither a satellite contract nor a Ka-band leasing arrangement has been announced.
“For now, their overall plan to increase Ka-band capacity is still unclear,” Dankberg said.
Every WildBlue satellite beam with a “No Vacancy” notice translates into lower revenue for ViaSat as terminals that otherwise would have been sold are not, and the economies of scale that could generate higher profit margins are not realized.
ViaSat has filed with the U.S. Federal Communications Commission (FCC) for a license to build its own Ka-band satellite, an undertaking that would be a large step out of the company’s core business and would spook investors given the capital costs involved.
“We are very mindful of the fact that shareholders would like to see us have partners,” Dankberg said, reiterating that it is “unlikely” that ViaSat would finance the satellite on its own.
WildBlue Chief Executive David Leonard has said a software upgrade now being implemented will increase the capacity of the WildBlue-1 satellite by 50 percent, to 750,000 subscribers. But WildBlue’s current problem is not that its entire satellite is filling up – the company has less than 400,000 subscribers – but that certain regional beams are full.
Leonard said WildBlue’s new satellite could be in orbit in late 2010. In the meantime, WildBlue’s principal satellite competitor, Hughes Network Systems of Germantown, Md., expects to introduce its recently launched Spaceway-3 satellite into service by next spring. Spaceway-3, launched in August, is undergoing testing now.
Hughes uses its own technology for Spaceway Ka-band terminals and is not a prospective customer for ViaSat.
Hoping to build on the success with commercial broadband of WildBlue and Hughes, Eutelsat of Paris selected ViaSat to commercialize a similar service in Europe, starting with limited Ka-band capacity on one in-orbit Eutelsat satellite. Eutelsat expects to order an all-Ka-band satellite in the coming weeks.
Dankberg said ViaSat now expects that WildBlue demand will “plateau for a while based on beam closures following their reaching capacity in several geographic areas. The capacity limitation of existing Ka-band satellites has been a factor that we’re keenly aware of. So while it will somewhat constrain our growth, we have factored that into” the company’s revenue and profit forecasts. “The key takeaway here is that market demand for Ka-band satellites has been extremely strong.”