ViaSat Inc.’s recent financial reports could be a poster child for the consequences of a delay in getting a satellite in service. After a long orbit-raising phase, ViaSat-2 is scheduled to begin commercial service in February. ViaSat forecasts a reversal of its decline in subscriber count — attributed solely to a lack of in-orbit capacity — in the months following start of service. Credit: ViaSat

PARIS — Satellite broadband services and hardware provider ViaSat Inc. reported continued declines in consumer broadband subscribers for the three months, but also an increase in per-subscriber revenue and airline connectivity that minimized the effect.

ViaSat said its subscriber count likely would drop further before increasing after the ViaSat-2 satellite enters service in February.

ViaSat-2 was launched in June and since then has been making its way to geostationary orbit. It is expected to start commercial service in February and to relieve the bandwidth bottleneck that ViaSat said is the sole reason for its reduced subscriber count.

“In-orbit testing begins immediately upon conclusion of orbit raising, and we anticipate having control of the satellite for final integrated network performance testing before the end of calendar year 2017,” ViaSat Chief Executive Mark D. Dankberg said in a Nov. 8 conference call with investors. “We anticipate scaling, production and consumer services in early February.”

It’s the lack of bandwidth, and not customer demand, that is the problem, ViaSat said.

Dankberg said that once ViaSat 2 is in service, the company should be able to add substantially more than the 130,000 subscribers per year it added when ViaSat-1 became operational in January 2012.

High-end subscribers nearly, but not quite, compensate for overall decline

For now, ViaSat’s Satellite Services division is making up for most of the revenue lost from the smaller subscriber base by focusing on those subscribers willing to take higher-end packages.

The result has been a 9% increase in average per-subscriber revenue (ARPU) in the three months ending Sept. 30 compared to the previous year.

ViaSat’s in-flight-connectivity (IFC) business, which recently reported a new contract with existing customer Jet Blue, was on 576 aircraft as of Sept. 30, up from 533 a year ago, with an order backlog of another 833 planes. ViaSat does not break out per-aircraft revenue.

ViaSat said it had 589,000 home and small-business subscribers as of Sept. 30, down 14 percent from a year ago. ARPU was $67.35 per month. Total revenue for the satellite services division was $147,4 million, down 1.4%.

The division’s operating profit margin was 8.5% compared to 20.8% a year ago.

Government Systems doesn’t rely on ViaSat-2, and it shows

ViaSat’s Government Systems led the way on quarterly performance as it had regularly in the past two years. For the three months ending Sept. 30, Government Systems revenue was $189 million, up 7% from a year ago. Operating profit was up 18%, to $34 million.

Like other satellite IFC providers, ViaSat increases spending on winning business

ViaSat Chief Financial Officer Shawn Duffy said the company is spending more than anticipated on ViaSat-2 to prepare its commercial debut, and also increasing spending on its airline connectivity business.

ViaSat’s showcase in-flight-connectivity (IFC) customer is JetBlue, which which it recently expanded its relationship. But ViaSat also has airline customers in Europe and Australia. Credit: JetBlue

“We are now expecting IFC-related R&D to stay elevated a while longer due to new business opportunities that we’re developing. So that may keep overall R&D elevated a bit longer into 2018 and into next year,” Duffy said.

In a Nov. 8 filing with the U.S. Securities and Exchange Commission (SEC), ViaSat said it expected the ViaSat-2 roll-out costs, including the deployment of multiple gateway Earth stations, to be less than what the company spent on ViaSat-1.

ViaSat is building two ViaSat-3 high-throughput-satellite (HTS) system, expected to launch in 2019-2020. Boeing Satellite Systems International, which also built ViaSat-2, is manufacturing the two ViaSat-3 satellites, while ViaSat has taken over responsibility for building the satellites’ payloads.

The company said that after a revision of its ViaSat-3 contract with Boeing, it now expects the two ViaSat-3 satellites to cost a combined $1.2 billion to $1.4 billion. The figure includes the satellites’ construction, launch, insurance and the amount of gateways financed by the time of the launch.

ViaSat-3 agreement with Eutelsat facing a ‘rethink’ & possible delay

ViaSat has established two joint ventures with fleet operator Eutelsat to market HTS services in Europe, starting with Eutelsat’s Ka-Sat, already in orbit. The remain piece of their collaboration relates to the second ViaSat-3 satellite, expected to be stationed over Europe, to which Eutelsat would contribute half the cost.

This agreement has proved more complicated than ViaSat expected. Dankberg said the relationship between the two companies “is good,” but that they are revising some of the agreement’s original features.

“We’re trying to translate the things that we’re learning on Ka-Sat into the ViaSat-3 joint venture agreement,” Dankberg said. “That’s causing us both to rethink some of the detailed terms that we had but not really the conceptual terms. I think that’s still on track.”

The companies had planned to close the deal by the end of December, but Dankerg said it may stretch into 2018.

ViaSat has applied to the U.S. Federal Communications Commission (FCC) for a license to operate a constellation of satellites in medium-Earth orbit. Dankberg suggested the system was not a high priority and that “from a capital investment perspective, we’re very focused on the the [ViaSat geostationary-orbit satellites].”

Joint R&D with ESA in electronically steered, flat-panel antennas

Beyond its collaboration with Eutelsat, ViaSat is expanding in Europe with a growing engineering facility in Switzerland. Its European business recently struck a cost-sharing agreement with the European Space Agency (ESA) to research flat-panel antenna technology.

Electronically steered flat-panel antennas are believed to be a key technology to enable satellite broadband to reach the mass market. But manufacturers continue to struggle with the price/performance equation.

ViaSat’s engagement in Europe began with a regulatory card trick to get U.S. Ex-Im Bank funding for the ViaSat-2 satellite, but now it’s a real business. Here, officials from ViaSat, the European Space Agency and the Swiss and Dutch governments sign a cost-sharing R&D agreement on electronically steered flat-panel antennas. Credit: ESA

Dankberg said one of the focus areas of the ESA-Viasat project is to determine whether an extremely high-throughput satellite like ViaSat-3 — billed as having a terabit-per-second throughput — can deliver so much bandwidth as to overcome the performance issues of flat-panel antennas for some applications.

“If we can create very large amounts of bandwidth economically in space, then we can use it a little bit less efficiently on the ground with some of these phased arrays, and a couple of the applications that we’re looking at,” Dankberg said.

“One is residential. The idea would be that you could essentially buy in a box a little flat-panel antenna that you could take home and stick it on a wall facing basically south, and it would acquire the satellite. It would basically reduce our SAC [subscriber acquisition cost] for those types of self-installs fairly significantly. Or create an opportunity where subscribers could just take on an installation on their own — a Geek Squad type of thing that you see in Best Buy.

“The connected cars opportunity is also really interesting because we can make antennas that we think are sort of the size of like a GPS or a satellite radio antenna that’s essentially invisible on modern cars and still get really high interactive broadband data rates on a ViaSat-3 class satellite.”

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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 preeminent reporter in the space industry and is a must read for space executives. Follow Peter @pbdes
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