Spaceway-3: The “Game Changer”

[08/16/07 – Satellite News] Hughes Communications, a provider of broadband satellite networks and services for large enterprises, governments, small businesses and consumers is ready for a new chapter after the successful launch of the Spaceway-3 satellite.

The satellite was successfully placed into orbit on August 14 by an Ariane 5 from Kourou, French Guiana. Grant Barber, CFO of Hughes Communications and its subsidiary Hughes Network Systems (HNS), believes the Spaceway 3 satellite, which has 68 Ka-band transponders, will now act as a “game changer” for the company. In terms of the significance of the satellite for Hughes, Barber said to Satellite News, “If you look at where our company has been the last several years, we have been growing the consumer business at approximately 18 percent a year, our enterprise businesses, both domestically and internationally, are growing. The mobile satellite business has had explosive growth from a small base. We believe we have a steadily growing, profitable company without Spaceway 3. We believe Spaceway 3 will be the game changer for us.”

It will now be a further six months before Hughes will be able to offer Spaceway services under the HughesNet brand. The satellite will bring Hughes a number of benefits. Barber commented, “We believe we will have better control of the market, the provisioning, the speeds and feeds we are able to provide our consumers, SMEs, etc. We will have more control on the P & L side without having to lease transponder space. That gives us more flexibility on the pricing and the offerings than we can have today. Today, we are limited to an economic model as to how many bits you can provide and how many consumers you can put on a transponder. We know the economics of that model. Spaceway 3 is going to allow much more flexibility in terms of providing more bits or higher speeds to customers, or flexible pricing packages.”

As well as bringing customers more flexible and fluid pricing strategies, Barber believes the on-board router will enable Hughes to provide bandwidth-on-demand services. The satellite should also see the operator increase the addressable market among enterprises. Barber said, “We think we are going to be able to increase some of the mesh connectivity that some of the small enterprises need. We also believe managed bandwidth will be significant for some of the enterprise customers we have today.”

Forecast

However, while the satellite will undoubtedly boost Hughes’ power in the market, there are still a number of challenges ahead. Andrea Maleter, technical director, Futron said to Satellite News, “While Ka-Band dramatically improves satellite broadband’s performance, there is still strong competition from terrestrial alternatives. Futron’s latest satellite demand forecast shows that the North American last-mile satellite broadband market, while currently in a strong growth mode for both residential and business sectors, will start to taper off within five to six years, regardless of whether service is provided at Ku-Band or Ka-Band.”

The competition between Hughes and WildBlue in the U.S. satellite broadband market will step up a notch with Spaceway 3. Maleter said, “The biggest difference in strategies between the two companies is that while WildBlue started a new business with Ka-Band, Hughes is transitioning an already existing business to a new technology. This offers the advantage of having an existing customer base, but the challenge of working with those customers to change to new equipment.”

Barber believes there is plenty of room in the market for both players. He added, “We believe given the growth that the two companies appear to have in the market, that there is plenty of room for both companies out there to meet their business plans. We are advertising satellite as a viable alternative to some of the terrestrial applications. WildBlue is doing the same. We think with the two of us in the market extolling the virtues of satellite as a broadband medium, that it is helping to improve the knowledge of satellite as a communications vehicle.”

Barber believes the market opportunity is very strong for Hughes. He said, “We believe from studies we have seen and commissioned that there are 10 to 15 million underserved households and SMEs in the U.S. market alone. We are the largest provider at 353,000 of those. We have barely begun to address that market. We think the upside opportunity is clearly there. Satellite has been gaining in the last several years in terms of affordability and performance. It is now a very viable medium. What we believe today in terms of pricing on Spaceway, you will hear us saying that we expect to have customers benefit from more for less.”

Numbers

As well as the launch of Spaceway 3, the company recently announced its numbers which saw a very healthy increase in profits. The company, which announced its results on August 10, saw profits in the second quarter reach $20 million, up from $4 million in the same quarter last year. Revenues for the quarter were up 12 percent to $234 million compared to the same quarter last year.

Barber admits the company was “very pleased” with its second quarter performance. He added, “We had strong revenue and profitability growth across all of our operating segments for the second quarter and year-to-date, compared to the corresponding periods in 2006. We are right in line with our internal projections and very pleased with our financial performance. We had record revenues and profitability, which is a testament to the strength that Hughes has across the various geographies and product lines. I would say we are very optimistic for the year ahead in terms of our market, as well as our position relative to the competition in that market.”

International Aspirations

While Spaceway 3 will offer Hughes greater opportunities in the north American market, the company is also expanding its international ambitions. The company announced in July the general availability in Europe of HughesNet Managed Network Services, a suite of fully managed virtual private network solutions for multi-site enterprise networks, which offers customers the choice of broadband access technologies at each site, whether DSL, satellite, private line or in a combination. Barber said, “This announcement highlights our ability to do an end-to-end network for them covering DSL in the urban areas, combined with satellite in remote areas. We think we have the best alternative to manage their networks, provide managed care, and be agnostic in terms of whether it is DSL or satellite. It has been very successful in the U.S. with some of the retail petrol stations and we have some early initial take-up in the U.K. and Europe on similar applications. We are excited about it. We think it is going to beat some of the competition from the DSL side because we can now manage integrated networks using both satellite and terrestrial technologies.”