By Nick Mitsis

As 2003 began, executives at Viasat Inc. were holding their collective breath. Wrapping up one of the most economically negative years since the company’s inception in 1986, cautious optimism enveloped their future business initiatives. But when all the numbers were tallied, 2003 proved to be one of the strongest years for Viasat’s ledgers. The provider of communications equipment for commercial and government customers reported orders for new business of $259.5 million, a 54 percent increase in backlog and cash flow from operations of more than $15 million for the fiscal year.

But profitability was not the only bright spot for Viasat in 2003. The San Diego, CA-based satellite networking equipment company expanded its business portfolio, partnered in some leading-edge broadband initiatives and transformed its image from a small defense player to a large global satellite entity.

At the helm of this dynamic company is Mark Dankberg, chairman and CEO, who started Viasat out of his home more than 15 years ago with his partners Mark Miller and Steve Hart. "We started the company with virtually no capital, and we were really hoping to survive for at least a year–so even if we weren’t successful, at least it wouldn’t be embarrassing," says Dankberg. "But we’ve been able to grow the company pretty steadily. We introduce our key technologies to new customers, or introduce our customers to adjacent technologies. But either way, our formula for success has been very leading edge technology-centric."

And that formula indeed proved successful for Viasat. The year 2003 contained many significant achievements under Dankberg’s leadership. Most notably, Viasat won an order of more than $30 million for a new satellite networking system based on the cable modem DOCSIS standard. This new broadband satellite technology, for which Viasat is the only supplier, is garnering recognition in the industry as the possible future standard for consumer broadband access via satellite.

In addition, Viasat won a competition to design and produce the Enhanced Bandwidth Efficient Modem (EBEM) for the U.S. Army Communications Electronics Command. This product will support current military communications standards, but also will bring advanced commercial technologies to the military for increased efficiency and throughput.

Also notable was the satellite networking systems work Viasat did for both Connexion by Boeing and Arinc Inc., together totaling more than $13 million, to enable in-flight Internet access to become a success.

These are just a few examples of the innovative strides Viasat accomplished in 2003. Dankberg’s ability to diversify satellite services for various vertical markets enabled Viasat to successfully manage the economic downturn others struggled with last year. These successes, combined with his ability to create profitable business ventures in an industry still battling the high-profile failures of years past, make him an excellent recipient of the Satellite Executive of the Year award, which recognizes sound business accomplishments for the past calendar year.

As part of our annual award’s process, Dankberg shared his insight on the industry’s current status, future growth potential and business issues of importance with Via Satellite Editor Nick Mitsis.

Nick Mitsis (NM): What do you consider Viasat’s major milestone in 2003?

Mark Dankberg (MD): I would say the biggest milestone for our company in 2003 was that we re-established profitability within our commercial business. That materialized through a combination of successful contracts in our broadband, antenna and VSAT business units. We had a negative financial 2002-year and we completely emerged from that in the first half of 2003.

NM: What do you consider the substantial milestones in 2003 within the global satellite industry that significantly impacted Viasat’s business?

MD: One industry milestone that stands out in 2003 to us was the financial restructuring and re-launch of Wildblue Communications. Liberty Media, Intelsat and the National Rural Telecommunications Cooperative led a new investment round. And, that was promptly followed by SES Americom and Echostar partnering to announce their own Ka-band spotbeam initiative. These certainly communicated to the satellite industry and to the broadband community that Ka-band really has some business value.

The e-Mexico initiative in 2003 was also a significant milestone. The ultimate goal of e-Mexico is to connect 10,000 sites with electronic services for distance learning, Internet access, government, health and commerce by 2025. Viasat became the satellite technology partner behind this project to provide complete terminals and network management under a $6 million initial contract. In just six months, more than 3,500 VSAT sites were delivered and installed in Phase I of the project all managed from a single hub in Mexico City. People already respected our technology and this event really helped everyone realize that in some way, we had "finally arrived" in the VSAT market.

Another significant milestone for the satellite industry was the amount of U.S. defense business in the Middle East. Compared to Desert Storm, which many considered the first high-tech war, there were literally orders of magnitude more satellite bandwidth used in Operation Iraqi Freedom. Given the pace of operations and the geographic dispersion of forces, satellite surfaced as a huge success story. It definitely helped emphasize the role that satellite plays during times of conflict. Viasat was in a unique position, straddling both the commercial and defense worlds. Given that, I think many people gained a new appreciation for our company’s diverse strengths. Just in the last few months, we’ve won a $1.5 million contract to supply combat mobile broadband VSAT systems and a $5.4 million contract for IP-centric communications terminals and engineering support for DISA [Defense Information Systems Agency].

NM: The surge of military business in 2003 was a positive impact for commercial satellite companies. Mark, are defense contracts now becoming more of a long-term business niche for our industry or does it remain as a profitable vertical only during times of conflict? Likewise, how significant will satellite products and services be for the reconstruction of war-torn regions of the world?

MD: Military operations have become extremely data intensive. The growth in information volume is so fast, and the collection and dissemination demands so great, that the traditional defense procurement processes have a hard time keeping up. Therefore, I believe there will be an enduring opportunity for responsive and innovative commercial satellite businesses to serve the defense market long term.

In regard to reconstruction efforts, clearly there is a big opportunity for satellite infrastructures to aid in the rebuilding of Iraq and other war-torn regions of the world. We are seeing demand coming out of the woodwork for this. Much of this, however, will be gated by the economic stability of the regions. Regardless, the keys to success in working in the defense and reconstruction world rest on satellite solutions being packaged and delivered well.

NM: Along with supplying services to the defense market, one of Viasat’s successes is that you operate a diverse business portfolio. Why did you decide to adopt and maintain this business strategy instead of remaining a primarily defense-focused company?

MD: That was done on purpose. We want to compete by having the best technology, so we need to participate in the markets that are on the cutting edge. In the 1970s and 1980s there was a lot more investment in satellite technology for defense applications. In the 1990s, Direct-To-Home TV, Mobile Satellite Services and Ka-band broadband attracted a lot of investment capital and so the commercial markets probably led the technology charge, especially in terms of miniaturization and cost reduction. But, then the telecom bust stopped commercial capital flow at the same time as DoD began to address its need for highly secure, mobile broadband satellite networks. So, you can see an ebb and flow in terms of the direction of the cutting edge of technology. But even with this defense technology renaissance, we remain committed in serving various commercial markets that are expanding, particularly with broadband initiatives. I believe people within the defense arena will tell you that we are not a typical defense company, because we tend to approach our military business as a market instead of just a series of programs–more like a commercial entity. But, we have a very good understanding of those defense markets, long-lived customer relationships and all the processes it takes to serve military customers. I think we have shown that we can cater to different markets and we will continue to do that in the future.

NM: Your involvement with innovative broadband initiatives garnered great success for Viasat in 2003. How confident are you that such applications will solidify into long-term market segments yielding sustained profits?

MD: What we are really talking about now is a complete business model including packaging, branding, pricing and distribution. When all those elements are successfully executed, then such broadband applications will succeed long term. Take Internet in the sky for example. If you are on a flight for several hours and can benefit from being online during that time, as conveniently and economically as you’d do when you buy broadband access for an evening in your hotel room, then this does make sense and I think people will use it. Obviously there are challenges in fully bringing this application to market, but so far all the trials have been successful, and the indications are that availability of broadband connectivity at a $25 or so price point for an entire flight is going to influence the business traveler’s choice of airline.

On the consumer satellite broadband side, I think the main event is entertainment. Broadband connectivity is an important adjunct to that because the cable companies have been successful in bundling broadband with TV service. But, if you look at what is happening today, satellite-delivered television is doing very well in the United States. The number of cable subscribers actually decreased for the first time ever due to satellite growth. And, satellite subs are typically the best customers, willing to buy the newest and best services. I think the satellite industry should focus where people place the most value. I believe high definition holds a huge opportunity for our industry. Within this context, broadband satellite service is an important piece of the puzzle, partly just because the cable industry believes it’s someplace where it actually has an advantage and it’s exploiting that by bundling. But, we think that’s just a transient and the right consumer satellite technology can neutralize that, and help sustain the overall satellite value proposition.

NM: In your opinion Mark, what do you think are the major obstacles still hindering commercial business growth for the global satellite community today?

MD: There are a couple. The first is an external mindset issue. Considering that paying customers drive commercial success, they have to be aware that satellite has a role to play in their lives. I believe that Via Satellite’s selection of XM Radio last year for this award was an excellent choice, even though it was not an obvious call at the beginning of the year. After the business failures and troubles of Iridium and Globalstar, the emergence of any successful player within our industry helps in increasing that awareness. Satellite radio definitely is an application that has opened many people’s eyes.

The other obstacle rests within the commercial satellite industry itself. The pace of change in information technology is frenetic and I am convinced that satellite is, at its core, fundamentally a technology business–not just a real estate play. Unfortunately, many satellite industry executives have been beaten up for walking down this path. And, there is no one segment within this industry that can bring together all of the parts that are needed for success including orbital slots, spacecraft manufacturing, payload technology, launch, ground segment, standardization, distribution, operational expertise, etc. Above all else, I feel what is needed for us to succeed as an industry are innovations that speak to customers in a way they can easily relate to, in a way that we can actually fulfill, while somehow attracting participation of all the industry segments needed to deliver the complete package. There is a fear factor associated with innovation on the inside and a doubting factor associated with satellite services on the outside. We as industry leaders need to change this dynamic. That won’t come from trying to "eliminate" risks. Just like in any other technology-intensive industry it’ll come from the benefits of the successes overcoming the costs of the failures.

NM: One changing dynamic within the end-user community, particularly with corporate network applications, is that enterprise users want to do more with the bandwidth they already operate. What challenges does this element bring to Viasat?

MD: I view this as a different dynamic. I think people do not necessarily want to do more with less bandwidth, rather, they want to do more with less money. And I think that is why the satellite industry is in this malaise. We had a 20-year period where value was created by taking relatively expensive satellite bandwidth and technology that was ahead of its time and finding economically rewarding applications and business models for it. Many companies that have been successful, such as SES and Eutelsat, really figured out ways to actually raise prices while conferring more value to their customers at the same time. But, what has been happening concurrently in the terrestrial world is that bandwidth pricing in the backbone and the last mile has been plummeting and customers are really benefiting from that. So, I think now the satellite industry needs to focus on reducing the costs of our bandwidth, as well as increasing the value. That’s different than it used to be, but fundamentally it comes down to market segmentation, technology, service pricing and packaging and distribution.

Likewise, there are some really interesting counter trends going on. For one thing, compression used to be really important to satellite and less so to the terrestrial word. But now, compression is hugely important to the entire Internet/multimedia industry. So you are seeing players like Microsoft endorsing their own compression technology for audio and video applications. So, in some respects I believe that what satellite needs to do is follow quickly as opposed to lead in the compression field. I think satellite service providers can now just use such innovations instead of having to pioneer them.

What is also becoming more decisive in our industry are information security and network technologies. For example in the broadcasting world, conditional access is very important. Every year, more than $1 billion of revenue leaks out in the form of piracy. Networking technology can greatly help in these areas. Two-way networking via satellite is a perfect vehicle for improving conditional access in an unobtrusive way and shaving lost revenue.

NM: The ground segment of the satellite industry continues to face some challenges. What are your thoughts about some of the major satellite operators now offering turnkey solutions of ground and in-orbit services to their clients?

MD: I think this is an inevitable evolution and it makes sense. Fundamentally, especially for broadband data services, customers feel they are buying bandwidth and connectivity. The satellite operators have large reservoirs of bandwidth and are capable of packaging and pricing that bandwidth in a way that speaks to enterprise customers and underscores the unique advantages that satellite can bring–such as perfectly recreating the exact same information technology solution at every single customer site at an attractive cost for the entire enterprise. To do that, operators are going to have to package ground segment that fulfills those pricing models. This is a driving imperative for the success of some satellite enterprise broadband applications. Might satellite operators take margins away from other parts of the value chain? That is possible but this development could really expand the market in a way that would not happen otherwise. I think that would be a fair trade.

NM: What major events does Viasat have to look forward to in 2004?

MD: I think we are going to show continued growth at a very healthy rate. On an industry level, I believe that Connexion by Boeing is going to gain strength and this will be the year that broadband in the sky will go mainstream. The other thing is that Wildblue is going to launch its service the second half of this year and how this plays out will be very important to us and the satellite industry as a whole. Exciting developments are definitely on the horizon.