The word Mark Dankberg used on 8 January in describing the impact on ViaSat of their announcement of the new Viasat-1 satellite was “transformational”. In many ways, Viasat-1 has the potential to remake the company from a manufacturer of specialized satellite and wireless communications equipment to that of an infrastructure business that owns the underlying technological asset that gives rise to a large array of services, from consumer satellite broadband to mobile to video services possible.



It seems some on Wall Street are having a hard time swallowing this change. They hammered down ViaSat’s stock price simply because they cannot see past the immediate capital cost impact this will have on the company. Though, in all honesty, it is hard to judge today just how prescient Mark Dankberg and the ViaSat team will be. More than one large new satellite initiative has been announced with great fanfare, only to stumble badly in the months and years ahead. Conversely, the industry and Wall Street have been too quick on numerous occasions to write off the efforts of true visionaries as they sought to “transform” a company and an entire industry sector. In the end, history will have to judge the ultimate success or failure of the endeavor—the rest of us will just sit back and watch events play out. However, not everyone will have this luxury.

Clearly, ViaSat has its work cut out for it. Even though the list of partners that ViaSat has already lined up for this project and the coordination that is being demonstrated between it and Eutelsat is almost unprecedented in the industry, the lack of WildBlue on the list is just as prominent. NSR expects that more details on exactly why WildBlue is not yet a key partner in the Viasat-1 project will surface in the days and weeks ahead. Without speculating on these reasons, NSR does believe that the sooner the position of WildBlue can be resolved, the sooner the industry as a whole, and Wall Street specifically, can better judge the true impact of the Viasat-1 project. Too many in the industry will remember the hype of the 1990s surrounding Ka-band satellite services. Whether WildBlue is in or out is critical as to how the project will be ultimately received, most especially in the financial community.

Beyond ViaSat, a number of others will also be hard at work, with Eutelsat being far from the least of them. Being a well-established satellite operator (e.g. infrastructure company), Eutelsat has the advantage of not having to transform its company. It is doing what it has always done, but just in a different way. Still, the European market for consumer satellite broadband services is far from proven, even if few doubt that there is unmet demand. The dynamics of broadband services are different in Europe than North America with typical DSL and cable modem, where it exists, faster and less costly than in North America. Another challenge is the lining up of many service distributors in so many countries. This has been the Achilles heel of efforts in years past to sell satellite broadband services in the region.

Interestingly, another company that has its work cut out for it is SES. The combined investment being made by ViaSat and Eutelsat into the future of satellite broadband is well over US$500 million. To date, SES’s funding for its ASTRA2Connect offer pales in comparison. And importantly, a telco or major ISP that is trying to decide which service (ASTRA2Connect or Tooway) they wish to resell in their respective market checks how much capital a company has infused into their product as a direct measure of their commitment to the service.

SES and Eutelsat have had a history of trying to gain an advantage over the other, and SES is now faced with the decision of how, or even whether, they want to match Eutelsat’s latest move. SES could essentially imitate Eutelsat and launch a Ka-band satellite for broadband services on its own because it seems unlikely that Ku-band services based on classic FSS satellite designs will be sufficient for the long haul. However, this runs the detrimental risk of overbuilding for the satellite broadband market in Europe, especially if the companies have overestimated the true potential for satellite broadband uptake. On the other hand, SES might cede the Ka-band market to Eutelsat if they don’t believe the returns justify the investment. Yet, this does not appear to be a path that would be typical of someone like Romain Bausch, who has never been known to take a backseat in the industry. Perhaps a third option would be a joint effort such as Eutelsat and SES agreed to on S-band services. Moreover, of course, SES also must decide on its course of action in the North American market for Ka-band services.

Another company that may come into play in the coming months is Intelsat. It is yet unclear if Intelsat’s financial stake in WildBlue played some role, or not, in WildBlue’s visible absence from the Viasat-1 announcement. Still, the upper management will no doubt be seriously considering if now is the time to get into the Ka-band market on the same level as ViaSat or Eutelsat. Some will certainly claim that Intelsat simply does not have the financial wherewithal at the moment to jump into the still risky Ka-band market, and any available capital in the company is better spent on its core C- and Ku-band fleet. Conversely, failing to act now may mean that Intelsat will effectively forfeit the North American Ka-band market for years to come. There are certainly no easy decisions for the world’s largest satellite operator.

Finally, the Viasat-1 announcement will put an enormous amount of pressure on Hughes to perform on its plan to migrate its business to the new Spaceway-3 satellite. With WildBlue faced with capacity constraints in key markets and Viasat-1 probably not becoming operational until the second half of 2011, Hughes essentially has a 3-1/2 year window within which to build on its current lead in the consumer satellite broadband market. It is unlikely that the market will be very forgiving to Hughes for any slips it may have in the coming years. Still, a strong showing by Hughes could do much to take the sheen off ViaSat’s plans for this market. Mark Dankberg clearly alluded that there was little compatibility between ViaSat’s service and HughesNet, so one can expect to see a classic free market battle build up between Viasat-1/SurfBeam and Spaceway-3/HughesNet in the coming years as each company tries to dissect the competitor and put its own strengths to the fore.

Overall, the coordinated ViaSat and Eutelsat announcements of Ka-band satellite construction contracts plus ground infrastructure and mutual partnerships stands a good chance of shaking up the satellite industry. It is critical for the industry to avoid over speculating on what the eventual impact will be as more than one large satellite project launched to great fanfare in the past has come to naught. Still, one must give credit to Eutelsat and ViaSat and in particular, ViaSat, which for over a year has made no great secret of the frustration it has had with the unwillingness of the industry to move to meet the future bandwidth needs for the rapidly growing consumer satellite broadband market. ViaSat has proven that it is willing to put “its money where its mouth is” and, hopefully, the end result will turn out to be beneficial for entire industry, maybe even in some completely unexpected ways.

Information for this article was extracted from a new NSR report entitled:
Broadband Satellite Markets, 6th Edition

To order, access… http://www.nsr.com/Reports/SatelliteReports/BBSM6/BBSM6_ISB4.html