After over a year of questioning about who would be our new owners, what would happen to SPACEWAY™, and what changes might occur in our core business, spring arrived, and with it the clouds of uncertainty began to clear. Now, with the acquisition behind us and new opportunities ahead, it seemed the perfect time to sit down with CEO Pradman Kaul to discuss the new HNS, LLC.
What does the new ownership structure mean for HNS moving forward?
There are two important things to consider about our new ownership. First, DIRECTV has retained 50 percent ownership in HNS–demonstrating confidence in us and the potential for a strategic relationship between them and our consumer segment. Second, SkyTerra and Apollo have investments in other satellite companies, like Intelsat, MSV and Sirius, so there is a potential for synergies with these entities that will undoubtedly create new opportunities for growth.
And where do you see growth headed in 2005? In what segments do you see opportunity?
We’re expecting growth across all our segments.
In North America, we see continued steady growth in our core large enterprise segment, and now a rapidly expanding potential to penetrate small and medium enterprises (SMEs). Currently, we’ve installed about 40 to 45,000 terminals in that segment, but the opportunity is in the millions. There is a tremendous untapped market with SMEs, and we have to figure out how to best reach that market through our distribution and channel capabilities.
In the consumer segment, experts tell us there are about 10 million households in the US that will not have access to cable or DSL—even 5 years from today. So our strategy is to target this underserved market—and not compete directly against DSL and cable. We currently serve about 200,000 consumer customers, so this addressable market offers big opportunity for growth.
Internationally, we expect growth in the same segments as in the U.S., but at different rates in each region. We look to grow our own service companies in Europe, India, and Brazil and to grow other international areas, either through partnerships, or through other service providers that have invested in HNS products and services.
In the U.S., how will the rollout of Unified Broadband change or enhance HNS’ position in the marketplace?
What we’re seeing with Unified Broadband is the potential for a subtle change in our mission. Up to now, we’ve always been a leading provider of broadband satellite products and services. It’s clear as we look at the market today, and for opportunities for growth, many of our enterprise customers are looking for hybrid solutions, combining the strengths of satellite and terrestrial networks. They want the best overall solutions, and at each individual site. At the same time, our customers prefer having a single provider for their entire network.
Because of what our customers told us, six months ago we decided to start testing the waters and we received a tremendous response. We are therefore expanding our mission: from “satellite only” to “managed network” services provider.
On to the future of satellite and satellite technologies—what is HNS’s strategy for SPACEWAY?
We will keep one of the three SPACEWAY satellites that we were constructing. We plan to launch SPACEWAY 3 at the end of ’06 and we expect to be in service in ’07. As we’ve been saying for the last few years, we remain committed to and very excited about SPACEWAY. We believe that SPACEWAY’s fundamental advantages of increased capacity, through-put speeds and flexibility will expand the size of our addressable market by a factor of 4 to 8 times.
I’m also excited about the economics of SPACEWAY. Today, when we lease space segment capacity from a fixed satellite services provider, that provider bills us at relatively high gross margins, as much as 70 to 80 percent. However, when we become the owners of the satellite, those margins become part of our financials. Today, a transponder leases for about $1.5 million a year. If we reach our goal of employing the equivalent capacity of 65 to 70 transponders on SPACEWAY by 2009, we will therefore achieve an approximate $100 million margin enhancement to our P&L.
Looking to the launch of WildBlue, how do you see them as a competitor?
Obviously, when there’s competition, we expect that it’s going to make us work harder. However, I believe it might take them longer on the learning curve than they might expect. We’ve been in the market for about 5 years and have a lot of scars on our back as we’ve learned to deal with the consumer, which is very different from a business user. I’m sure WildBlue will do well, but it may take a little while to get there—just like it took us.
You’ve been a leader in the satellite broadband world for many years and seen a lot of changes over those years. Looking back, what do you see as the most significant changes in the industry?
When I started in satellite over 30 years ago, earth stations were 95 ft in diameter and cost $10 million. Today, we have earth stations that are .7 meters in diameter and cost $500. To me, that evolution is probably the best evidence of the significant changes that have occurred. And the fact that there are 27 million homes in the U.S. alone receiving TV by satellite, and another 250,000 getting broadband by satellite is truly incredible.
Now with the new ownership structure behind you, what do you have to say to HNS employees, business partners, and customers?
I think it’s very simple. We’ve had 3 to 4 years of turmoil and uncertainty. During this period I’ve been very proud of our employees for their loyalty and their ability to stick to their tasks. 2004 was a very good year for HNS financially, even under this cloud of uncertainty.
Now all that’s behind us and it’s clear where we are headed. The objectives of our owners are very closely aligned with ours. We know what we’ve got to do. We have to win in the market. We have to beat our competitors. And we have to provide our customers with the highest level of services and products. And that’s much easier than what we’ve been through.