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WildBlue Rebounds With Financing

By | January 6, 2003

      WildBlue Communications Inc. appears locked in to begin commercial service in 2004 after finalizing a $154 million financing package from key strategic partners.

      As reported in a front page SATELLITE NEWS story Dec. 22, WildBlue cobbled together a partnership for the new financing that consisted of existing investor Liberty Satellite & Technology Inc., global satellite operator Intelsat Ltd. and the National Rural Telecommunications Cooperative (NRTC). The alliance brings WildBlue critical funding that is expected to carry the fledging venture into the commercial launch of satellite broadband service that will be competitively priced with terrestrial rivals, company officials said.

      The new financing also included Kleiner Perkins Caufield & Byers, a venture capital partnership and existing WildBlue investor, along with WildBlue Chairman David Drucker. WildBlue’s earlier backers, aside from Liberty and Kleiner Perkins Caufield & Byers, included EchoStar Communications Corp. [DISH], TRW, Telesat Canada, Gemstar – TV Guide and Arianespace.

      One of WildBlue’s advantages, compared with the existing Ku-band satellite broadband services, is its use of the Ka-band, company officials said.

      “Our cost per megabyte is five to seven times less than the existing Ku-band satellite services,” said Brad Greenwald, WildBlue’s vice president of marketing and business development. “That is an important cost structure advantage for us relative to our Ku-band competitors.”

      That cost advantage would be coupled with efficiencies that WildBlue would gain from using DOCSIS standards for its consumer premise equipment (CPE), Greenwald said. The DOCSIS (data over cable service interface specifications) is the standard upon which cable modem services are offered today. The use of standardized consumer equipment cuts costs.

      “Our lower cost structure allows us to offer a lower price than our Ku-band competitors,” Greenwald said. “A high demand exists for these services at $50 a month or less. That has been shown by the terrestrial services and has helped us to obtain our financing.”

      WildBlue plans to price its service in the $50 or less range, similar to DSL and cable providers. Existing satellite broadband providers have been charging upward of $70 a month, Greenwald said.

      Those current satellite broadband services that use the Ku-band included DirecWay, a product offered by Hughes Network Systems and StarBand Communications, a venture backed by Gilat Satellite Networks.

      Without the new financing, WildBlue had been stalled in its attempts to proceed to service rollout.

      “We are excited to get the financing,” Greenwald said. “It is a great way to start the New Year. We hope this is an indication that satellite broadband can be compelling and profitable business.”

      WildBlue plans to offer affordable, high-speed satellite Internet access service directly to residential and small business users in predominantly rural areas that are currently under-served by terrestrial providers. The WildBlue service would be available within the 48 contiguous states.

      “The service package offerings for consumers will be determined as WildBlue approaches its service in 2004,” Greenwald said.

      However, not everyone is convinced that WildBlue will become a marketplace survivor. EchoStar was an original investor in the WildBlue service but conspicuously was not part of the new financing. EchoStar stepped in to invest $50 million in additional funds after the initial round of financing, but ultimately stopped pumping in new money

      EchoStar Chairman and CEO Charlie Ergen publicly had claimed that his ill-fated plan to merge with Hughes Electronics Corp. [GMH] was needed, in part, to offer a commercially viable satellite broadband service. Broadband is the only business in which he has ever lost money, Ergen told SATELLITE NEWS.

      But WildBlue’s new partners provide it with powerful allies. The key backer seems to be Liberty Satellite & Technology, a subsidiary of Liberty Media Corp. [L].

      Gary Howard, Liberty Media’s executive vice president and COO, told SATELLITE NEWS in October that his company likes the satellite business.

      Liberty Media already owns interests in a broad range of video programming, broadband distribution, interactive technology services and communications businesses.

      While Liberty Media is driving the project forward, Intelsat offers deep pockets and a strong commitment to satellite broadband. In the role of active minority investor, Intelsat plans to work closely with WildBlue to support successful deployment of the service, company officials said. The investment will give Intelsat a strategic position in the North American retail broadband market.

      “This is a natural step for Intelsat and part of our plan to establish a foothold in important new markets in a cost-efficient manner,” said Conny Kullman, CEO of Intelsat. “We believe that retail satellite broadband services in North America will be an important component of future growth in the fixed satellite services industry. Millions of rural residents and small offices have no access to high-quality, affordable broadband service that is comparable to that available in urban areas.”

      Intelsat conducted an extensive evaluation of the company’s planned technology, market approach and subscriber economics.

      Intelsat’s stake in WildBlue at the end of this investment round will be approximately 30 percent on a fully diluted basis and will be held by a wholly owned subsidiary.

      The closing of this transaction is subject to regulatory approvals and the satisfaction of other closing conditions.

      –Paul Dykewicz

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