Hughes Network Systems LLC (HNS) has leased “multiple” transponders aboard the Intelsat Americas-8 (IA-8) satellite, capacity that was purchased prior to the satellite’s June launch, in order to meet expected demand for HNS’ Direcway satellite broadband service.
The capacity was purchased to meet what Mike Cook, senior vice president for North America at HNS, described as a steady growth of customers for the company’s Direcway service. HNS said it is gaining on average of 10,000 gross new subscribers per month, bringing its total to around 253,000 at the end of the first half of 2005. If these rates continue, Direcway could break last year’s record of adding about 40,000 net subscribers in a single year. The current pace has Direcway ending 2005 with about 286,000 subscribers, 66,000 subscribers ahead of its 2004 year-end count.
“We are pretty comfortable with the way things are going,” Cook said. “We are now in about 26,000 zip codes across the country. We are pretty much everywhere where there are people, including not only the rural areas but also including urban and suburban areas. We have a pretty good spread of geographic coverage.”
But with those 10,000 gross new subscribers, the company is losing roughly 4,500 subscribers per month. The churn, however, is not a concern to HNS at this point. While he would not provide specifics on Direcway’s churn rate, Cook said, “Our churn rates are in the same range as you would expect from any broadband business. It is the same rate you would see in a cable modem or DSL business.”
A key move 18 months ago by HNS that has helped to reduce churn was the move to getting Direcway software off the personal computer and into a plug-and-play modem.
“What we found is when we got out of the customer’s PC environment, the whole service, stability, performance and customer satisfaction has increased significantly,” Cook said. “Churn rates have gone down significantly. The business is looking solid at the moment.” He added that customers are remaining with Direcway for “several years” following their initial service sign up.
The Wildblue Factor
One thing that Cook said has not affected the Direcway business so far is competition from Wildblue Communications Inc.‘s satellite broadband service. Wildblue cut the ribbon on its first customer June 2 (SN, June 6, p. 10), but since then has remained silent.
A Wildblue spokeswoman declined to provide any information on how many subscribers Wildblue has gained since its service launch. With no subscriber numbers being released, it is harder to gauge whether HNS’ capacity purchase was, in part, a maneuver to handle an influx of new subscribers if it stepped up its marketing efforts. With Wildblue now offering service, HNS’ leadership position could be jeopardized if Wildblue CEO Tom Moore’s prediction that his comapany can do “as well or better” than the 10,000 new customers per month that Direcway is adding turns into reality (SN, May 30). Given that the market for consumer satellite broadband services is expected to heat up, HNS could be forced to shift its subscriber acquisition strategy from its limited marketing campaign designed to keep the company profitable to one intended to simply add more customers, because gaining 5,500 net additional subscribers per month may not be enough to keep HNS ahead of its competition.
But so far, Direcway has seen no effect on its current business due to competition entering into the market, Cook said. And with no shifts in the growth of Direcway, the company has no plans to step up its marketing efforts to build additional subscribers. “The most important thing we managed to achieve in the past 12 months is to make the consumer part of our business profitable and generate a positive cash flow,” Cook said. “It is important that we don’t go crazy and try to get to ambitious in our rate of growth. The most important thing for us today is to maintain a profitability of our business and continue to develop it. Our marketing stance is based on our ability to continue to fund the growth of the business based out of existing cash flow.
“If you think about our gross and net of churn [subscriber additions], we are seeing a steadily increasing subscriber base,” Cook said, noting the capacity purchase on IA-8 was made to cover the current growth trends. “We need more capacity in order to maintain the growth of the business. More or less, we are lighting up a new transponder every month in our North American business. The arrangement with Intelsat is to secure enough capacity to allow us to continue to grow the business.”
–Gregory Twachtman
(Judy Blake, HNS, 301-601-7330)
