At the beginning of October it was announced that ViaSat was buying WildBlue. What made this a good idea for ViaSat? What made it worth paying the $568 million needed to acquire WildBlue?

Primarily, ViaSat needed a retail marketing arm for the broadband business it is trying to create. I previously have discussed the difference between a wholesale sales model and a retail sales model. ViaSat is a seller of satellite hardware. The company developed the SurfBeam Ka-band technology used by WildBlue in the United States and by a number of Canadian broadband providers through Telesat. ViaSat also builds antennas, equipment for communications on the move, military satcom and many other satellite hardware products. ViaSat does not provide services; it provides satellite equipment and technology.

When ViaSat saw a business opportunity in the satellite broadband market it wisely chose to offer a wholesale service to retailers. This is the European model and the one followed by ViaSat’s European partner Eutelsat with it’s Tooway service. Neither of these companies has to deal with the ultimate users of their broadband services. Instead, they intended to create broadband networks that would be sold to the consumer by local retailers.

In Europe, this model has worked and it seems like a good idea for North America. A wholesale product would play to ViaSat’s strengths and would offload the sales and billing functions onto organizations designed for that purpose. All in all, it seemed like a really good idea. There was just one problem, ViaSat got an orbital slot, ordered a satellite (ViaSat-1) and prepared to produce improved terminals and then no one came to the party. You can’t wholesale without retailers, and ViaSat had none.

For WildBlue, things have been going well. WildBlue got its Ka-band service going before Hughes was able to launch Spaceway 3 (changes in ownership played a big part in this delay) and has added subscribers quickly enough to be approaching a 50 percent market share. Unfortunately, they kept running out of capacity in high-demand regions. WildBlue began service using part of the Ka-band payload on Telesat’s Anik F2 but certain spot beams ran out of capacity early. Then WildBlue launched WildBlue-1 and the same thing happened. Finally WildBlue leased the Ka-band payload on EchoStar’s AMC-15 satellite, initiating service in August. AMC-15 will be used to provide service to subscribers in Texas, Louisiana, Mississippi, Alabama, Tennessee, Kentucky, Georgia and Arkansas. Still, AMC-15 carries only 12 Ka-band transponders and the writing is on the wall. WildBlue will need more capacity and they don’t have another satellite on order.

For these reasons, this acquisition could be called a match made in heaven. Each party supplies what the other needs with little or no overlap. ViaSat has no retail arm to compete with WildBlue, WildBlue has no good option for the quantity of capacity it needs (a quantity validated by Hughes, which has ordered a satellite similar to ViaSat-1). As WildBlue has pointed out, nothing will change for its subscribers, as it is the resources behind WildBlue that will change not anything immediately obvious to the end users of WildBlue’s broadband service.

For ViaSat, it no longer is necessary to find a marketer for its product. If the business plan was valid to start with, it will not need to be modified, and the only possible problem is that WildBlue will be unable to move terminals as fast as the independent retailers would have. This seems rather unlikely, because the independents would have had to learn the same lessons WildBlue already has learned. Even if existing DTH providers had picked up the franchise they would still have been behind the curve when compared to WildBlue, which already is doing exactly what ViaSat needs.

In fact, this happy outcome is even of benefit to WildBlue’s competitor, Hughes. While it is nice when your competitors have problems, it is not so good if the public gets the idea that satellite broadband is not universally available. WildBlue’s capacity problems stood to hurt Hughes as well. Now both companies can work on the biggest problem they face, letting people know they really do have a remote broadband option.

Max Engel is and experienced satellite and telecom industry analyst and founder of The North Star Consultancy. He can be reached at maxengel@thenorthstarconsultancy.