At the beginning of 2008 Carlsbad, CA-based equipment manufacturer ViaSat startled the world with the announcement of ViaSat-1. Startling not only because of the capacity of the satellite, announced at 100Gbps, (but now increased to 125Gbps) represented a ten fold increase on existing Ka-Band satellites, but also because ViaSat with no operating experience was planning to enter a market dominated by two major players: WildBlue and Hughes. These two operators currently have just under one million subscribers between them.
In 2009, ViaSat made another surprising, but very logical move, when in October it announced that it would acquire WildBlue for $568 million. Or maybe not so surprising; from the beginning Mark Dankberg had indicated that ViaSat 1 would provide wholesale services and he would be happy to have WildBlue (a current customer) as a retail service provider. Couple this with the fact that Tom Moore, President of ViaSat-1 - and from the end of December now President of WildBlue again - was one of the co-founders of WildBlue and its President and CEO until 2005 and remained on the Board until he joined ViaSat just after ViaSat-1 was announced and suddenly the move doesn’t seem so surprising after all.
WildBlue meanwhile was busy being too successful and upgrading its ground equipment in order to increase capacity in certain beams, leasing capacity on AMC-15 and also looking for means to fund a second satellite. So from WildBlue’s point of view, a potential giant competitor who was threatening to seriously undercut consumer broadband pricing has been eliminated and if all goes according to plan it will have a next generation satellite early in 2011, a year ahead of Hughes. Meanwhile from ViaSat’s point of view, it now has an experienced operator – WildBlue was named "Broadband Operator of the Year" at Satellite Business Week earlier this year - as part of the team, gateways and access to a well established distribution system. I think that is what is known as "win-win" situation.
The ViaSat-WildBlue move was well publicized and details can be found on both companies’ websites. There have however been several other less publicized strategic moves in the satellite broadband world. These are the partnerships that have been formed in order to apply for funding under ARRA (American Recovery and Reinvestment Act).
Under this Act $7.2 billion was allocated to provide broadband for under and unserved areas, $2.5 billion is to be distributed under the auspices of Rural Utilities Service (RUS) of the USDA. This program is known as BIP (Broadband Initiatives Program). $4.7 billion is to be distributed by the NTIA (National Telecommunications and Information Administration) and their program is known as BTOP (Broadband Telecommunications Opportunities Program).
Over 2,200 applications seeking over $28 billion in funding were received in the first round which closed in August. Interestingly the major telcos were noticeable only by their absence. The large volume of applications caused delays in the approval process but the first awards totaling $182.7M were announced on December 17th. $173M of this is for middle and last mile projects. Approximately one third of the awards came from the RUS. Given that the magnitude of the awards is relatively low it is hardly surprising that none of the awards announced so far involved satellite communications. However it was originally stated that up to $4 billion was to be awarded in this round, so we can expect more announcements in the coming weeks.
Originally it was intended to have three funding rounds, but this has now been reduced to two, but as yet there is no date for the beginning of the second. The RUS and NTIA issued a joint RFI (request for information) seeking public comments on issues relating to the first round. These comments had to be submitted by 11/30, so presumably the dates and procedures for the next round will not be announced until comments have been considered. The four major satellite contenders (Echostar, Hughes, ViaSat and WildBlue) submitted joint comments in response to this RFI. It is still intended to award all funds by September 2010.
Between them, ViaSat, WildBlue and Echostar and Hughes applied for just over $1.8 billion in funding. The level of detail supplied in the summary applications varies considerably.
ViaSat joined forces with Echostar and submitted an application under the imaginative name of Satellite Broadband ARRA Application LLC. This was to fund ViaSat-1a. The application states that the design of the satellite which will have a 15 fold capacity increase over existing satellites (ViaSat-1 was announced at more than 10 fold) has been completed, a manufacturing contract is in place and the satellite has been fully licensed with the FCC. ViaSat-1a is intended to provide service to 20 states, mainly west of the Mississippi, including 15 of the 18 with lowest population densities and 7 of the 11 with the lowest primary health care shortage. The companies requested funding from BIP (a loan of $276M and a grant of $207M) or BTOP (a grant of $415M). Four levels of service are proposed ranging from a lifeline service of 1Mbps down and 512kbps up costing either $8.75 if funded by BTOP or $13.75 a month if funded by BIP to a T2 Plus service providing 6Mbps in both directions. Subscriber projections provided in the summary application project just over 1 million households, 124,000 businesses and 10,000 strategic institutions by 2016. Costs are calculated at $114 per underserved home passed and $350 per home served.
Echostar had another dance partner and also submitted an application with WildBlue. This went under the somewhat more creative name of EchoBlue Rural Broadband. Echoblue’s satellite would have the capacity to serve over 1.5 million subscribers in the 48 contiguous states and provide speeds of up to 15Mbps down and 5Mbps up. Infrastructure costs work out at less than $35 per rural unserved home passed and less than $366 per home served. The application was filed with BIP and requested a grant of $130 million and a loan of $400 million.
Both Echostar and WildBlue also submitted smaller independent applications to provide immediate service. Echostar asking for $100 million split equally between a loan and a grant. It appears that the application is to BIP in the first instance, with a request to BTOP if BIP rejects the application. Under this program Echostar will use unused capacity on AMC 15 and 16 to serve approximately 100,000 households. In a second application for $28 million Echostar asked for a grant from BTOP for a training and equipment program to increase awareness and availability of broadband. WildBlue submitted two BTOP applications both for $15 million to provide education, training and subsidized equipment in CO, WY and AZ. For both these applications WildBlue partnered with One Economy.
Since all these applications were submitted before the announcement of ViaSat’s purchase of WildBlue, by default ViaSat now has an interest in projects totaling over $1 billion – as does Echostar.
Although Hughes and WildBlue submitted joint comments prior to the submission of applications, there were no joint applications from the two companies; Hughes submitting three applications on its own. Two of these would provide service on the existing Spaceway satellite subsidizing equipment, installation and subscription fees. Reading the summary applications it is hard to see (but much is blacked out) if the offering differs in any way from the standard Spaceway service. There is however in both applications a reference to a pool of service credits to be applied on a state by state basis in proportion to the number of terminals provisioned under the program. The application filed with BIP is for a grant of $74 million and a loan of $76 million, and the one filed with BTOP is for a grant of $398 million.
The third application is with BTOP and is for $101 million for a next generation 100Gbps satellite providing download speeds of 5 to 20Mbps. This is the same satellite that Hughes announced in June giving a launch date of Q1 2012. Since one of the criteria for approval is that an applicant has to demonstrate that the project wouldn’t be completed in the timescale (3 years) without federal funding Hughes must feel they have some pretty convincing reasons why two months later the launch date couldn’t actually be met. Customers filed a lawsuit against Hughes in June of this year alleging that broadband speeds received were much slower than promised. It remains to be seen whether this will have any impact on their application or those of the other satellite applicants.
Spacenet submitted applications totaling $86 million for grants to provide service in MT, TX, CO and ID from existing satellites. There were also several other relatively small applications including one for $37 million from SkyTerra for handheld equipment for public safety.
Two applications for new satellites came from relatively unknown companies. One was from AtContact who are asking BIP for a loan of $286 million to build StimUSAt to serve the 48 contiguous states. AtContact was founded by David Drucker (co-founder of WildBlue) and therefore cannot be ignored. The second application came from Native Broadband Satellite who are seeking a grant of $221 million to provide service in Alaska and Hawaii. Strangely there is no summary of their application available. Native Broadband’s Application lists an email address at Council Tree Investors who show Alaska Native Broadband as one of their portfolio. Alaska Native Broadband was formed as joint venture with Cricket and acquired PCS licenses in 9 markets. Cricket subsequently acquired the subsidiary of ANB that held the licenses. Council Tree have not responded to my request for more information about Native Broadband Satellite.
Conclusion
Obviously not all and maybe not any of these applications will be funded so it will be interesting to see how enduring these new alliances prove to be.
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Elisabeth Tweedie has over 20 years experience at the cutting edge of new communication and entertainment technologies. She is the founder and President of Definitive Direction a consultancy that focuses on researching and evaluating the long term potential for new ventures, initiating their development and identifying and developing appropriate alliances. During her 10 years at Hughes Electronics she worked on every acquisition and new business that the company considered during her time there. (www.definitivedirection.com) She can be reached at: etweedie@definitivedirection.com +1 310-292-0755 or +44 (0)7768 610574.
