Now 32 years old, the satellite operator reckons it is poised for lift-off in markets where terrestrial technologies simply do not measure up.

Iain Morris, International Editor

September 20, 2018

9 Min Read
How Viasat Keeps Its Satellites Flying After Others Crashed

Few industry executives fit the description of veteran as well as Mark Dankberg. He co-founded satellite company Viasat way back in the landline days of 1986, and has been its chairman and CEO ever since. In that 32-year period, the industry has seen the ascent and collapse of some of the most famous satellite companies of all time. Viasat has endured through it all.

Indeed, as possibly the longest-standing CEO in the telecom industry, Dankberg must have been a close-up witness to satellite's stratospheric ride through the late 1990s, when it was the most exciting thing in telecom, and its subsequent fall from grace in the early 2000s, as emerging terrestrial competition and flawed business plans drove pioneers like Globalstar, Iridium and Teledesic into bankruptcy proceedings. Now, as ViaSat Inc. (Nasdaq: VSAT) prepares to launch its next constellation of satellites, Dankberg may have cause to feel a renewed sense of optimism about satellite's prospects.

Not all satellites, though. Dankberg sounds downbeat when assessing the outlook for the broadcast segment of the market, in which Viasat does not play. "Over-the-top video is supplanting broadcast, and that is weakening demand and weighing on the satellite sector," he tells Light Reading on the sidelines of this week's VSAT & Next Generation Satellite Applications conference in London.

Figure 1: Satellite Veteran Mark Dankberg, the long-standing CEO of Viasat, says his business is growing fast in the markets for rural and in-flight connectivity. Mark Dankberg, the long-standing CEO of Viasat, says his business is growing fast in the markets for rural and in-flight connectivity.

But for companies using satellite to address broadband and other connectivity requirements, the story seems more positive. Take Viasat itself: Ten years ago, it was generating less than $600 million in annual sales; in its last fiscal year, ending in March, it was nudging $1.6 billion. And growth has continued into the first quarter of 2019, with sales up 15.5%, to about $439 million, compared with the same period last year.

So what's changed since terrestrial mobile originally burst onto the scene? How is Viasat now reporting topline growth that most cellular operators would envy, at a time when terrestrial broadband technologies seem to be everywhere?

Evidently, the likes of Viasat have had to settle for a more niche role than the one satellite's pioneers had first envisaged. But they have been helped by a wave of satellite innovation that has dramatically brought down connectivity costs for companies willing to take the investment plunge.

Burned by the experiences of Globalstar, Iridium and Teledesic, not many investors were keen. After those companies in their original guise went belly-up, satellite in the communications sector largely became a broadcasting phenomenon. "In the market for data, the main problem was that airtime was way too expensive, and that was to do with the satellites themselves and not the ground systems," says Dankberg. "There was no way you would get there by taking satellites designed for broadcast and using them for data."

Resistance to an overhaul was understandable. Satellite operators that had plowed money into expensive launches, and developed business plans based on the bandwidth and cost profile of those technologies, were unlikely to jump into similarly expensive next-generation systems that undermined their existing investments. "None of the satellite operators wanted to do it," says Dankberg. "It was risky and there was no proven economic model."

As a company whose focus had instead been on the development of ground systems, Viasat saw things differently. If it could reduce costs by a factor of 10, it would have a big impact on demand for satellite-based data services, Dankberg realized. "The data business couldn't just be a ground network playing through an existing satellite. We had to play through a data satellite. Everything had to change," he says.

Next page: We have lift-off

We have lift-off
Six years since its Viasat-1 constellation entered service, Dankberg's company claims to be thriving across a range of small but important markets. Its fastest-growing right now appears to be its nascent "in-flight connectivity" business, which provides satellite communications for airlines including Qantas, Finnair and American Airlines, the largest carrier in the world. This fiscal year, Dankberg expects to nearly double the number of connected airlines it can support, from around 600 to more than 1,000.

That market has taken off thanks partly to the relaxation of rules surrounding the use of in-flight communications. The launch of the Viasat-2 constellation in 2017 has also been a factor. "That created enough bandwidth to serve all the growth and the installation rate has ramped up," says Dankberg.

But in-flight connectivity has not come without some turbulence. In Europe, Viasat faces competition from the rival European Aviation Network (EAN) developed by the UK's Inmarsat plc (London: ISAT) and Germany's Deutsche Telekom AG (NYSE: DT), and the US company has been doing its utmost to have EAN's license revoked. (See Inmarsat, DT Launch WiFi-in-the-Sky Service.)

"Our position is that the license was for a satellite network augmented by terrestrial and yet the usage for EAN is 99% terrestrial," says Dankberg, who believes this heavy reliance on terrestrial contravenes the original terms of the license.

While the EAN partners might dispute the 99% figure, Deutsche Telekom's terrestrial network clearly forms an essential component of the service. At a press briefing in June last year, when the supporting satellite was launched, EAN representatives revealed that about 300 4G sites running over 2GHz spectrum would complement a 2GHz-based satellite service from Inmarsat.

Any decision that did revoke EAN's license would obviously give Viasat a much bigger opportunity in Europe, but Dankberg says the dispute could drag on for some time as it is kicked back and forth between the European Union (EU) and the region's national regulators. "The EU said this is really a national licensing question so we're referring it to each country, but the countries said the European Union must vet it," he laughs.

Want to know more about the mobile sector? Check out our dedicated mobile content channel here on Light Reading.

The other opportunity that really excites him at the moment is rural connectivity. In Mexico, Viasat has already installed small satellite terminals supporting WiFi connections in a number of towns poorly served by terrestrial infrastructure. "It can be priced in a way that is comparable to prepaid cellular," he says. "With Viasat-2 we expect to go into other countries in central America and the Caribbean and to make sure the governments look at this as a good thing." Earlier this year, Viasat also entered into an agreement with Telebras in Brazil to provide the same kind of service. (See US Rural Telcos Under Attack...Again.)

Dankberg claims that Viasat's latest satellite technology has reduced bandwidth costs in this scenario by a factor of 20 to 30. "There was no way governments could subsidize connectivity to bring costs down that low," he says.

Does the emerging 5G standard, and its use as a residential broadband technology, threaten Viasat's opportunity in this market? Dankberg says he is not worried, regarding 5G mainly as a data-centric small-cell technology that will have limited impact as a long-range service. "I don't see anyone going into a rural village in Mexico and doing 5G," he says.

But what about the spectrum challenge that 4G and 5G technologies pose, as governments rob the satellite community of frequency bands and redistribute these to the telcos? Dankberg now appears satisfied with the situation in the US market, where a compromise has led the FCC to open up additional spectrum for satellite on a shared basis, he says. He is less happy about circumstances in other parts of the world. (See FCC's Rosenworcel: US 'Falling Behind' on 5G.)

"What is concerning now is that one venue for doing this on a co-ordinated basis was the ITU [International Telecommunications Union], and we're seeing people with a vested interest in 5G who want hand-to-hand combat in 130 countries," Dankberg says. "Fortunately common sense prevailed in the US, but we had to make sure people understood all of the public benefit arguments associated with satellite."

Resolving these spectrum disputes may assume greater importance as Viasat moves toward the launch of its next-generation Viasat-3 constellation, with the first satellite expected to be in orbit at the end of 2020. That constellation should give Viasat a global footprint -- supporting its ambitions in the maritime, in-flight connectivity and other sectors -- and help to further reduce connectivity costs.

Dankberg says the new satellites will also pump up connection speeds to about 200-300 Mbit/s, from around 100 Mbit/s on Viasat-2, and allow it to to move bandwidth around more dynamically. "We've gone through the phase of building prototypes and testing functionality and we're now in the flight construction phase," he says. "We'll be in that phase for the next couple of years and then ready to launch." (See ViaSat Offering 25 Mbit/s With New Modem.)

In the meantime, investors are currently reserving judgement on Viasat, which swung to a net loss of $68 million in its recent fiscal year from a profit of $22 million a year earlier. At about $64 on the Nasdaq, its share price is trading at about the same level as five years ago. After climbing to $71 on August 9, it tumbled to less than $60 when results were published a day later: While sales were up, Viasat's net loss had widened to roughly $34 million, from $9 million a year earlier, as spending on satellite and ground technologies weighed on the bottom line. But with much of the investment activity now finished, an improvement may be right around the corner.

"Profitability is very high on the list of priorities and should come this year," says Dankberg. "As we add applications to the satellite you should see earnings grow faster than revenues."

— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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