You believe it or you don’t: ViaSat says the declining subscriber count and consumer broadband EBITDA will reverse once ViaSat-2 is in service, a repeat of what happened in 2011 in the run-up to ViaSat-1. The company also says subscriber count isn’t everything: Better to have fewer subscribers, with a large proportion demanding high-end packages, than more subscribers at the low end. Credit: ViaSat

LOGAN, Utah — Satellite commercial and government satellite broadband hardware and service provider ViaSat Inc. on Aug. 8 reported further subscriber losses for its U.S. consumer broadband service but said per-subscriber revenue growth offset the decline.

For the first time, the company said its subscriber base had been eroded by unlimited-volume 4G/LTE mobile subscription plans and by competitor Hughes Network Systems’ introductory rates accompanying Hughes’s new Jupiter-2 Ka-band broadband satellite.

Also hurting subscriber growth was a change in the way Dish Network, which has the same principal owner as Hughes but is a distributor of ViaSat’s service, switched from a branded retail formula to a sales-agent model. That had the effect of all but suspending Dish sales until new offers are put into place sometime later this year.

Hughes had reported similar issues in the transition of the Dish relationship.

The net effect is a 10 percent drop in ViaSat consumer subscribers over the past year, to 625,000 on June 30 compared to 696,000 a year ago. But per-subscriber revenue of $66.61 per month was up 11% in the same period, which canceled out the subscriber loss on a revenue basis, ViaSat said.

Kerrisdale Capital, a shortseller that has publicly attacked ViaSat’s consumer business as unsustainable — http://bit.ly/2tit0r7 — immediately renewed its charge, saying satellite home internet is “doomed” and pointing to the fact that ViaSat’s per-subscriber revenue did not move much since March.

Per-subscriber revenue on March 31 was $66.02, according to ViaSat.

At least partly addressing a Kerrisdale allegation, ViaSat said the increase in per-subscriber revenue in the past year was driven “almost completely” by bandwidth services.

Kerrisdale has said ViaSat subscriptions include non-bandwidth-related add-ons that inflate the revenue figure and are not sustainable.

Kerrisdale’s assessment that consumer satellite broadband in the United States is in a death spiral applies to Hughes’s consumer broadband business as well. But Kerrisdale has been less vocal about it because it sees ViaSat’s stock as overvalued. Hughes’s performance is the principal business of EchoStar Corp.

In a conference call with investors, ViaSat Chief Executive Mark D. Dankberg said he was more than willing to trade lower subscriber count for higher per-subscriber revenue and that the 4G/LTE and Hughes Jupiter 2 offers were mainly nibbling at the lower end of ViaSat’s subscriber base.

ViaSat has warned investors that the late arrival of the ViaSat-2 satellite, expected to enter service late this year, would put pressure on subscriber growth as ViaSat has run out of bandwidth available in the highest-growth areas.

Dankberg also suggested that the company was withholding currently available bandwidth that might be used to retain lower-end subscribers and directing the capacity to the more-profitable in-flight connectivity market for airline passengers, and to ViaSat’s mobile broadband service for government customers.

Dankberg said the company is also reserving bandwidth, presumably freed up by subscriber losses, to prime its service just before ViaSat-2 is ready and facilitate ViaSat-2’s market uptake.

ViaSat said consumer broadband customer Xplornet of Canada made an $84 million prepayment for ViaSat-2 services.

ViaSat is betting that consumers will not switch to 4G/LTE mobile for their home broadband use, but rather will upgrade their broadband packages and switch their video viewing to over-the-top broadband, cancelling their pay-TV subscriptions.

Consumers the star attraction, Government Systems the star performer

While the consumer broadband service, and ViaSat’s plans for ViaSat-2 and the first ViaSat-3 to launch in 2019 or 2020, have been the focus of Kerrisdale and others following ViaSat, the company’s Government Systems division is the ViaSat’s star performer.

The sound and fury surrounding ViaSat focuses on satellite consumer broadband and the effect of the coming ViaSat-2 and, in 2020, the ViaSat-3 satellites on subscriber growth and per-subscriber revenue. But for now, it’s the company’s Government Systems division which is stealing the show. Credit: ViaSat

Government Systems reported a 26% growth in revenue from a year ago, to $183 million, with backlog up 48% to a record $696 million.

ViaSat-3 payload CDR imminent

Dankberg said ViaSat-3 design was on schedule and that the satellite payload’s Critical Design Review, a key milestone in determining the program’s status, was scheduled for later this month.

“That’s when we would freeze its design,” he said. Production of flight hardware would begin only after a successful CDR.

ViaSat is building the ViaSat-3 payloads itself. Two satellites are under construction. Boeing Satellite Systems is building the structural platforms for both. A third ViaSat-3, needed to provide coverage over the Asia-Pacific and offer a global network for airline customers, has not yet been ordered.

Dankberg said ViaSat and Paris-based Eutelsat are still negotiating an agreement on sharing the cost of the second ViaSat-3, over Europe, and that a final agreement is expected around the end of the year.

In-flight connectivity: You gotta spend to win

Like other companies seeking to line up airline customers for a satellite in-flight connectivity business, ViaSat is spending heavily to secure type-approval licenses to install its Ka-band hardware on different classes of commercial aircraft, and to build and install the equipment.

The company had installed its hardware on 568 aircraft as of June 30, with another 840 on order.

Dankberg repeated is long-held belief that ViaSat’s competitors, most of them using capacity available on commercial Ku-band satellites, will be unable to serve the growing demand for passenger connectivity, especially over busy airport hubs.

ViaSat Chief Financial Officer Shawn Duffy said the company’s R&D spending on aeronautical connectivity jumped 67% in the three months ending June 30 compared to the same period a year ago.

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Peter B. de Selding
Peter B. de Selding
Peter de Selding is a Co-Founder and editor for SpaceIntelReport.com. He started SpaceIntelReport in 2017 after 26 years as the Paris Bureau Chief for SpaceNews where he covered the commercial satellite, launch and the international space businesses. He is widely considered the preeimenent reporter in the space industry and is a must read for space executives. Follow Peter @pbdes