ViaSat Says Problems with Unnamed Government Program Likely the Last

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FISH CAMP, Calif. — Satellite ground hardware and consumer broadband services provider ViaSat said its government business has suffered from a costlier-than-expected satellite program that has caused the company problems in the past, but that the most recent hiccups are likely to be the last on the contract.

Company officials said ViaSat’s consumer satellite broadband business, conducted through the ViaSat-owned WildBlue Communications, also reported lower revenue as ViaSat voluntarily limited subscriber growth to maintain service quality in high-demand regions.

Carlsbad, Calif.-based ViaSat, whose large all-Ka-band ViaSat-1 consumer broadband satellite is scheduled for launch in early 2011, said it hopes the drop in subscribers to its WildBlue service has stabilized at around 415,000  as of July 2. That is down from a mid-2009 level of 425,000 subscribers, before ViaSat’s late-2009 acquisition of WildBlue.

ViaSat has said it would not seek to replace all customers in WildBlue’s highest-demand areas. In an Aug. 9 conference call with investors, ViaSat Chief Executive Mark D. Dankberg said limiting the subscriber count in high-demand areas would improve bandwidth for the remaining customers, a policy ViaSat believes will pay off as it prepares to serve these same high-demand regions with the ViaSat-1 spacecraft.

In the short term, the policy means a decline in WildBlue subscribers and a decline in purchases of WildBlue’s ViaSat-built equipment.

Dankberg said the U.S. Rural Utilities Service is expected to announce in early September a series of broadband stimulus subsidies that may result in $100 million in satellite broadband support to encourage service in areas currently ill served by terrestrial broadband. That would provide an early boost to WildBlue’s subscriber count.

Longer term, he said, a new generation of ViaSat’s Surfbeam broadband hardware, plus the arrival of ViaSat-1, should allow WildBlue and ViaSat to raise the subscriber count — and sell more hardware — without diluting the bandwidth available to each customer.

ViaSat had warned investors that it would change what it viewed as WildBlue’s subscriber-stuffing policy following the acquisition, and that this would result in a near-term drop in subscribers.

ViaSat said its commercial division reported a 28 percent decline in revenue for the three months ending July 2, to $45.6 million, compared with the same period a year ago. The company reported an operating loss for the division compared to a gain a year ago.

While the consumer broadband division’s performance was at least partly predicted, ViaSat’s continued problems in an unidentified government — probably U.S. Defense Department — satellite communications project was a surprise. For the three months ending July 2, the company reported a 4 percent drop in revenue, to $88.8 million, for the government division. Operating profile was down 86 percent, to $1.7 million, after an $8.5 million charge taken on the government satellite program.

In an Aug. 10 filing with the U.S. Securities and Exchange Commission (SEC), ViaSat said a review of the program in June concluded that “significant additional rework was required in order to complete program requirements and specifications” on the program. The government customer is expected to begin its own testing of the hardware by September.

It was not the first quarterly charge ViaSat has taken on this same program, which is a firm, fixed-price contract. But Dankberg said the work is nearing completion and that the company now believes it has put the program on track and within the customer’s specifications.

Dankberg said the company has no reason to believe that a possible protest of its award of the U.S. Army’s Force 21 Battle Command Brigade and Below, Blue Force Tracking 2 (FBCB2-BFT-2) program by the losing contractor will delay revenue flow.

BFT-2 is an indefinite-delivery, indefinite-quantity contract with an initial value of $38 million and an ultimate value of up to $477 million.

ViaSat bested the U.S. Army’s incumbent provider, Comtech Telecommunications Corp. of Melville, N.Y., for the BFT-2 work by offering higher performance, lower cost and a nonproprietary, or open, network technical standard, Dankberg said.

The same combination, he said, should play to ViaSat’s advantage as the U.S. Defense Department turns to lower-cost providers as it seeks to cut spending.

Dankberg said government satellite telecommunications programs at ViaSat have tripled in value in the past three years and are likely to increase by 25 percent, in terms of revenue, again in the current fiscal year. ViaSat’s fiscal year begins April 1.

Dankberg said the recent decision by London-based mobile satellite services provider Inmarsat to order three large Ka-band satellites should be seen as a validation of ViaSat’s long-held belief that Ka-band’s higher throughput eventually will win over mobile customers now using Inmarsat’s lower-speed L-band service.

Dankberg said it is possible that Inmarsat and ViaSat, along with ViaSat hardware users Eutelsat of Paris and YahSat of the United Arab Emirates — all planning to launch Ka-band satellites with ViaSat-built ground gear — could combine their offer for government and commercial customers. Inmarsat has not yet selected a ground equipment provider for its global Ka-band service, which is scheduled to be available in 2014.