[Satellite News – 1-22-08] When ViaSat Inc., primarily an equipment manufacturer, announced that it was partnering with Loral Space and Communications to build and launch what it claims will be the world’s highest capacity broadband satellite, it got the attention of the satellite industry.    
    ViaSat-1, being developed in conjunction with a similar satellite that EADS Astrium will manufacture for Eutelsat, will target a small but growing part of the satellite business, said Mark Dankberg, ViaSat’s chairman and CEO. According to ViaSat, there are about 700,000 satellite broadband subscribers in the United States — evenly split between WildBlue and Hughes Network Systems, but with those satellites reaching capacity in their markets, there is room for more competition.
    Dankberg spoke with Satellite News Editor Jessica Pearce about the satellite broadband market and ViaSat’s targets.

Satellite News: What will your satellite bring to the market that is not available now?

Dankberg: There are two parts to it. Number one, if you just look at capabilities of satellite, that’s the thing that’s transformational. I think it’s transformational in the sense of how much capacity you get for how many dollars. One of the things that people talk about, like VSAT data services or other services, is how many thousands of dollars per month per megahertz. Typical numbers can be $2,000 to $3,000 for a megahertz of bandwidth on a good quality conventional [fixed satellite services] satellite. Obviously if you go to a really great orbital slot like Eutelsat’s 13 degrees East video slot it’s a lot more than that, but basically people talk about that kind of range, thousands of dollars per megahertz per month. If you take a satellite that has 100 times as much capacity, it costs more. Say it costs 40 or 50 percent more, what you’re doing is reducing the cost of bandwidth enormously. That’s our objective. We’re looking at going out and charging the equivalent of hundreds of dollars per megahertz per month. That’s the part I think is the big deal. It’s a big change in the cost of bandwidth, and I think it will cause people to recalibrate what satellites can be good for.

Satellite News: By the time the satellite launches in 2011, other technologies such as WiMax also will have developed further. What makes you think that satellite broadband will offer a compelling alternative to these other technologies?

Dankberg: Absolutely you want to pay attention to what satellite does in the context of terrestrial alternatives. There’s a lot of hype about WiMax, but one question is, “Why would you think it would be a threat?” We don’t especially expect to compete with WiMax. Clearwire, which is really the only WiMax national service provider that’s going after home use, will tell you in their prospectus that virtually all of their deployments are people who already have a choice of DSL and cable. The reason they’re doing that is because wireless is very, very expensive to deploy in rural areas.

Satellite News: How will you compete against Hughes and WildBlue?

Dankberg: Hughes will actually be a competing service, but WildBlue may or may not be. WildBlue is essentially out of capacity in high-demand areas. The main way we propose to differentiate our service is to offer a much faster, high-quality service at the same price. We won’t be the service provider. What we’re offering to do is to sell bandwidth to other people who are service providers. WildBlue has a lot of people who retail the service, and then WildBlue sells them bandwidth. Because we have more than 10 times the bandwidth we’ll give them a lot more. Right now if you look at Hughes and WildBlue they have plans that range from about $50 to $80 a month and they offer download speeds of 500 kilobits at the low end, about a megabit-and-half at the high end. Our service would offer download speeds of 2 to 8 megabits. We think that’s pretty compelling at exactly same price.

Satellite News: How do your broadband speeds compare to cable speeds?

Dankberg: On the charts that show ranges of speed for cable and DSL, 8 megabits is faster than any DSL in the country. It’s probably around the 75th percentile for cable. You can find faster cable, but not everywhere. There are two philosophies in the broadband market. Philosophy number one is, “If I’m selling a service in the rural parts of the country where people don’t have a choice, then I don’t have to be very good. I can sell basic service and if it’s not competitive. I don’t really care because my customers have no choice.” There are clearly services with that philosophy. Our philosophy is that we don’t want to compete with cable. I don’t want to try to get a single cable customer, but what I’d like to do is go out to rural people and tell them we’re trying to give you a service that would be as good as cable if you could get it. We’ll provide a service that’s as good as cable, better than DSL, but we don’t want to compete with DSL.

Satellite News: Do you think the North American market is more suited to satellite broadband than Europe?

Dankberg: Not necessarily. If you look at the U.S. market, there’s an existence proof. There are these two services, [and] between them they are closing in on 700,000 customers. By the time we go to market there will be a million. On the one hand, there’s proof there’s a market here. We know that, and we know where the people are, so we’ve kind of tailored our satellite coverage to emphasize the areas where there’s the most demand. There’s competition, but our strategy is to offer services they can’t.
    In Europe it’s kind of a green field. There’s no competition out there at all. We think that a lot of the market forces. The same things are true in Europe. The phone companies have told us that. It’s a little bit different environment because it’s not as competitive as in the U.S., but that means you can go talk to phone company and say, “Tell me what your plans are and show me the addresses of the homes that you can’t serve,” and they’ll count them up and tell you. What that means is it’s a little bit different environment. You have a more theoretical chance of getting a market, but you just don’t have the existence proof. We think both are attractive, but for different reasons.

Satellite News: Why do you think the dynamics are different now that you can build a successful business where others have failed?

Dankberg: One of the things we like to do is look at the problems. What are the specific reasons that other projects have failed? We believe WildBlue has been very successful. There’s an argument that what has made broadband successful outside the satellite world is providing bandwidth really cheap. That’s what broadband is. It’s cheap bandwidth. If you look at people who have broadband now, if they trade up, it’s because they’re getting faster speeds at the same price. If you look at the satellite operators, go back to 2000. How many of the ones who were doing broadband said, “What our mission is to make really cheap bandwidth.” I don’t think any of them said that clearly and explicitly. The only one who did that was WildBlue, and we said, “That’s the one who gets it. That’s the one we want to work with.”
    It took a while, but WildBlue came to market in 2005. In two years they got about the same amount of subscribers as Hughes got in 10 years. Over the summer — before they ran out of capacity — they were probably adding triple the subscribers as Hughes. What we’re trying to do is take that theme and expand it. WildBlue’s success has shown that there is demand. What it looks like is there’s demand, there’s awareness and the demand is accelerating because broadband is even more important this year than it was last year. If we can technically perform, I think we’re going to do really, really well.
    The other thing is we’re aiming so high. We’re aiming for more than a factor of 10 improvement so that we have some wiggle room. If it’s imperfect it’s still going to be really, really good.

Satellite News: Is there a backup plan for the satellite if the broadband business does not takeoff as quickly as expected?

Dankberg: There’s several backup plans. The simplest backup plan is we look at it like we have a bit factory in the sky. We don’t really have to offer service from 2 to 8 megabits. We could actually offer services from 5 to 20 [megabits] or 10 to 30 [megabits]. If we do higher speed services we won’t get as many customers, and if we charge the same price it means we make less money. We expect to have an incredible return with about 2 million customers on the satellite offering quality that is three to four times better than anyone else at the same price. We think that’s probably more than we have to do to get acceptance in the market.
    The next backup plan is that the satellite that we’re building is essentially the same architecture that people are using for HD (high-definition) video. Both EchoStar and DirecTV are buying satellites that are similar but don’t have quite as much capacity. We can sell it for HD. Beyond that we’re also doing things like aviation services, satellite broadband on business jets, defense, enterprise and business applications, anything where people pay for bandwidth. The reason we put consumer broadband first is because of demand, and the volume of customers. We think it’s the most likely to sell out the fastest, but there’s a lot of other opportunities as well.
    It’s not a bet-the-company for us, but it’s a big bet. It would really hurt us if it’s not successful.

Satellite News: When do you hope to reach profitability using ViaSat-1?

Dankberg: It depends on the uptake rates. If you look at the sell rates that WildBlue had in the first month that they went out with their last satellite — remember that this is a quality of service three or four times worse than ours — if we have the same uptake rate, it would be profitable in a year. WildBlue had a good distribution. It was driven by one good distributor. If we can get one really good one or a few pretty good ones, we have a pretty good chance of reaching that. You can see why — given the break even point — why it’s reasonable to believe that we could have 300,000 or so subscribers in a year, which would be a little faster than WildBlue, but it would be selling to people who are already customers of one service or another.

Satellite News: Will ViaSat and Eutelsat look to develop other satellite broadband markets if Europe and North America prove to be successful?

Dankberg: We have absolutely had inquiries from a bunch of other places in the world. I think you’ll see some announcements coming in the next year or so.