PARIS — Satellite broadband hardware and service provider Viasat Inc. said the two defective Ka-band antennas on the Viasat-2 satellite will have the biggest effect on the core consumer-broadband market and reinforce the company’s priority of favoring fewer high-paying customers over an expanding subscriber base.
Viasat said it had filed a $188 million claim for the antenna defect with the company’s insurance underwriters — less than the originally forecasted $200 million — and had already received an initial payment of $44 million.
Viasat Chief Executive Mark D. Dankberg said Viasat’s other markets, all of which grew in the three months ending Sept. 30, were not affected by the Viasat-2 issue.
Viasat-2 was built by Boeing Satellite Systems International, with the four Ka-band antennas provided by Harris Corp. Viasat has said the problem occurred in the deployment of two of them.
In a Nov. 1 conference call with investors, Dankberg said the investigation into the failure has concluded. He did not disclose the root cause.
Viasat had to persuade underwriters that a loss of bandwidth in and of itself should justify a claim, even if the estimated available capacity on Viasat-2 does not look to be materially different from what Viasat had predicted before launch.
“Ultimately, the product we’re selling, and the purpose of the satellite, is bandwidth,” Dankberg said. “The value of the claim is based on the capacity the satellite would have delivered had the affected antennas deployed nominally.”
Viasat had used a figure of about 300 Gbps as the capacity of Viasat-2, but after initial testing concluded that this was overly conservative.
“Absent the anomaly, ViaSat-2 would have delivered significantly more throughput. Yes, we’d definitely rather have that capability than the insurance proceeds, but it’s still a very formidable asset and it’s supporting our growth strategy.”
Even before ViaSat-2 was operational, Viasat had been crafting a business model that favored high-paying loyal customers even if that meant a lackluster total subscriber count. Higher ARPU, or monthly subscriber revenue, and lower subscriber acquisition charges and other variable costs would be much reduced.
He provided this example. One $100-per-month subscriber has the same value as two paying $50 per month, but over three years the single, higher-ARPU customer will generate more than $1,000 in savings. For every 100,000 subscribers of this type, the savings is more than $100 million.
“We have an opportunity to apply that tradeoff to several hundred thousand” subscribers, he said.
As of Sept. 30, Viasat had 585,000 consumer broadband subscribers, up just 1.2% from the subscriber base reported last June 30. But ARPU, at $74.35, was up 3% from June 30 and 10% from a year ago.
So what once had the look of a strategy now is a necessity as the reduced bandwidth on Viasat-3 forces the company to seek out fewer, higher-value customers.
Dankberg said the antenna issue has not reduced Viasat-2’s geographic reach and would not affect the government, aeronautical or international markets. What it is about the residential consumer market that makes it more vulnerable to the issue he did not spell out.
“One of the reasons we’ve switched to these higher-priced, higher-value plans, while again it sort of reduces the near-term addressable market, is it’s a way for us to make up for the bandwidth deficiency,” he said. “Basically that’s what we’re doing. It’s made life more challenging in that particular market. But I think we’re overcoming it.”
In-flight connectivity has been a growth driver for Viasat and showed no sign of slowing down. As of Sept. 30, ViaSat had 898 commercial aircraft fitted with its service, up 18.6 percent from June 30, with another 854 on order.
New customers include La Compagnie, a business-class trans-Atlantic service, and Aeromexico.
In North America, Viasat said it had doubled its market share of narrow-body jets, to 20%, in the last two years, mainly at the expense of competitors Gogo and, to a lesser degree, Global Eagle Entertainment (GEE).
Viasat’s U.S. government business has been a star performer for some time now and was again in the three months ending Sept. 30, with double-digit increases in revenue, new orders and total backlog.
The U.S. government in-flight connectivity market, including unmanned aerial systems, is nearly as large as the fleets of the top 10 U.S. commercial airlines.
Aeronautical broadband, for government and commercial customers, figures heavily in Viasat’s planned Viasat-3 terabit-per-second satellites, on which the company will be spending heavily in the next two years.
Two of these are on order, for the Americas and Europe, the Middle East and Africa. The third, ostensibly for the Asia-Pacific is not yet under construction.
Viasat said the largest global Viasat-3 markets are community WiFi and consumer residential subscriptions, with government demand, aeronautic ando other, larger than the aviation markets.