DALLAS — The United States is home to the two most successful broadband satellite operators in the world: Hughes and Viasat.
Both companies redefined high-throughput satellites by launching spacecraft with more than 100 gigabits per second of Ka-band capacity over North America around the beginning of the decade. Both companies also filled those satellites to the brim with customers — mostly residential subscribers — then launched new satellites with two or more times the capacity, and ordered next-generation satellites with another jump in throughput.
This year Hughes’ international expansion leaped forward, first with the entry into service of a leased Ka-band payload on Telesat’s Telstar-19 Vantage over Latin America, and second with a $100 million investment in an Africa-focused joint venture with Yahsat.
Pradman Kaul, president of Hughes Network Systems, says the company’s entrance into Africa gives it a head start over Viasat, which has similarly expanded first into Latin America while having eyes on Africa and the globe. Viasat plans to launch a 1 terabit-per-second throughput ViaSat-3 satellite over Africa, Europe and the Middle East in 2020 or 2021.
“The first mover gets the first dealers and distribution capabilities,” Kaul said in an interview. “One of the reasons we decided to become partners with Yahsat was they had already been in that market for about four years and consequently had signed up some of the best dealers and distributors in Africa. We get to now work with them to use those folks to sell our services.”
Hughes’ global ambitions face challenges despite that success. Indian regulators have not approved the company’s eight-year-old license request for a purpose-built broadband satellite over the country. OneWeb, the low-Earth-orbit broadband startup Hughes invested in and intends to resell capacity from, is dealing with a protracted financing gap and the repeat loss of executives. And Hughes’ next satellite, Jupiter-3, faces unforeseen risks as its manufacturer Space Systems Loral downsizes and potentially closes its geostationary satellite production business.
SpaceNews spoke to Kaul about these challenges and the potential for satellite consumer broadband around the world.
You’ve previously sized the U.S. satellite broadband market as 18 million households. Do you have similar estimates for other countries Hughes is now in, like Brazil?
No, we have various numbers floating around, but as we go into each country we do market research. You never get one number, you get multiple numbers and you use your knowledge and instinct to coalesce around a number. The reason the 18 million number is something we have publicized is that clearly the size of the U.S. market is very interesting to us and the investment that we have made in the United States is very interesting.
If you take the 1.3 million subs that we have in the United States and you take the subs that our competition [Viasat] has, there’s 2 million, so it is our view that there has only been a 10 percent penetration so far, so there is plenty of room to grow.
The U.S. and Canadian markets have, between you and Viasat, shown the ability to support direct-to-consumer broadband. Do you think that model will also play out elsewhere or will it have to be something different?
I think depending on the country and the region it will be different. To get [average revenues per user] of $60 to $70 a month in all the countries of the world is not possible. We are doing well in Canada with going directly to subscribers homes. We are doing well in Brazil where our business is still the same model, but as we go into some of the more emerging markets, I think we have to do some aggregation. We expect community Wi-Fi, cellular backhaul, internet kiosks, these methods of aggregation to be a big piece of the existing market because the number of people that will be able to afford owning a complete service is probably not going to be as widespread as it is in the United States.
How does that carry over into Africa with the Yahsat joint venture?
The markets that we serve there will be the ones I just talked about where we will have cellular backhaul, community Wi-Fi solutions, applications like education, et cetera, that will allow us to aggregate 20 to 30 subscribers into one carrier that goes up into one of our networks.
And in India would it also be the same?
I think India is going to be a mix. India is growing rapidly. I think some of the market will consist of community Wi-Fi and cellular backhaul, et cetera, but there is a middle class in India of almost 300 million people. I’m sure a portion of that middle class will be able to afford service to their homes. Exactly how many I don’t know today, but there will be some because that middle class is growing rapidly.
It’s been eight years since you applied for a license to operate a broadband satellite over India. Do you think it will ever be possible to put a broadband satellite over India?
Oh yeah, I’m sure it will be possible. Right now for the enterprise world we have a very successful company providing broadband access. We have leased capacity from satellites either owned by [the Indian Space Research Organization] or by foreign satellite companies like Intelsat and SES. Our hope is that someday we would be allowed to put up our own satellite over India so that we could provide a vertically integrated service. We are working hard to do it. It’s tough and difficult, but I think we will get there eventually.
What gives you that confidence?
The fact that we know the Indian environment … we have to work our way through the channels to basically get the landing rights and the license to provide the service. If we had to change the policy, it would be an almost impossible task, but since our objectives are consistent with the policies of the government, I think eventually we will break through the processes and get the final paperwork.
Since EchoStar Chairman Charlie Ergen mentioned the need for scale, it wasn’t a surprise to see a joint venture between Hughes and Yahsat, but your two companies will work together in Africa and compete in Brazil. Was there a desire for a full-on acquisition that just couldn’t be realized?
We did discuss it … it’s just the old cliche you learn to walk before you run. We are learning to walk as partners.
Are there ways Hughes is pursuing to work together with Inmarsat after the EchoStar merger failed?
I think you’ll have to ask Charlie that.
There was a lot of discussion at World Satellite Business Week about OneWeb’s troubles. Do their financing delays and high executive turnover concern you?
No. Any startup ends up with unforeseen problems. They are going through some of the teething issues that pop up in almost every startup that I’ve been knowledgeable of. We are not only a partner but a vendor, so we wish them the best and are trying to help them to the extent we can.
Is Hughes prepared to invest more in OneWeb if debt financing continues to prove hard to come by?
We would obviously take a look at it, but we are not committing to anything. We have no intentions at the present to invest any more money in them.
How is progress going on the OneWeb gateways?
It’s going very well. We shipped the first ground gateway, which will work with the pilot satellites when they go up at the end of the year or early next year. We are excited to be a vendor. It is fantastic new technology. The next couple of years will be exciting as we get the constellation up.
Will Hughes resell OneWeb capacity?
We definitely expect to be a reseller of OneWeb capacity.
Hughes’ next satellite, Jupiter-3, will have 500 Gbps of capacity. Why not a terabit like the ViaSat-3s?
We did a significant amount of work for almost a year to optimize the right point for the satellite in terms of mass, speeds and bits, and we came up with a number somewhere between 500 and 600. We thought his was optimum operating point. The other thing you have to be careful about is the definition of a bit. The way we define it, we are pretty much using all the spectrum that we have available. It is a pretty big satellite and we didn’t think it was worth it to push capacity and bits beyond where we are with today’s technology. It’s more than two and a half times the capacity of [the 220 Gbps] Jupiter-2. That is a big enough jump. We want to be sure when we build the satellite and launch it that it works well and stays on schedule. All those factors came into play.
Are you worried that Jupiter-3 will have issues as SSL downsizes and possibly ends its GEO business?
It is natural for us to be concerned, but I am confident. They have assured us that they will build a satellite that [works]. They are operating with all cylinders firing to get the satellite built. We are pleased with their progress so far, but we are obviously concerned too.
How do those concerns translate into making sure the satellite stays on track?
We do reviews. Our program managers are constantly talking to them and we are monitoring the progress. We are working very closely with them. It’s a great relationship: open and transparent. We just have to be careful that we are right on top of it, but we would do that in any case for an investment of this magnitude.
You have said that by the time Jupiter-3 is in orbit in 2021, you’ll probably have maxed out a lot of the capacity on Jupiter-2, which started service last year. What do you think that says about the 15-year business model for these satellites? Should they still last that long?
That’s an interesting question. There are a lot of discussions going on as to what is the optimum lifetime of a satellite. Then obviously you have the conflict of trying to get your [internal rate of return] to improve by keeping the satellite up for a long period versus having a much shorter life. Depending on the business case, if you are going to a banker to get money, you want to show the best IRR, so you want to keep the satellite for as long as you can. Even though the satellite’s life can easily be 15 years, the only reason to change it out is if the new satellite would have such a significant technology advantage that it would make it economically worthwhile. To this day every time we look at it, it is not clear that that condition is being met.
How is Jupiter-2’s ramp up progressing?
Outstanding. It’s exceeding our expectations. Many of the beams are already approaching saturation. I don’t think we give specific numbers, but all in all we are very pleased with the ramp up of subscribers and the performance of the satellite.
Hughes had discussed the Connect America program as an area of interest but the award among satellite operators went solely to Viasat —
We didn’t bid. We looked at it very seriously. We did a lot of homework and just felt that the rules they had set up were not very favorable for satellites. We decided it would be better off this particular round to not bid, to look for the right opportunity in the future to participate in some other programs.
Hughes wasn’t alone in voicing concern about FCC criteria. Is there a specific component of the Connect America Fund that made it unfair?
It made it very difficult for satellite operators to win. Fairness is in the eye of the beholder, but there were a number of technical performance markers that put satellite operators at a disadvantage and we argued about them in public forums, but we couldn’t convince people that it didn’t make sense.
Will there be other public opportunities like that in the future that Hughes will pursue?
I think so, [just] don’t ask me what and when.