By Supantha Mukherjee and Soham Chatterjee
(Reuters) - After being plagued by delays, U.S. satellite and wireless communications systems maker ViaSat Inc plans to send its most advanced satellite into orbit.
The satellite, which will launch on Wednesday from the Baikonur Cosmodrome in Kazakhstan on an ILS Proton rocket, is expected to boost ViaSat's bandwidth capabilities, allowing it to tap into the booming demand for Internet communications -- provided that the launch is a success.
The ViaSat-1 satellite, expected to be the most efficient and highest-capacity Ka band satellite in the world, was supposed to launch earlier this year, but was delayed for nine months because of problems at satellite manufacturer Space Systems Loral and a Proton rocket failure to put another satellite in the correct orbit.
"At no fault of ViaSat, the ViaSat-1 satellite has not had the easiest development and launch process," said Wedbush analyst Kenneth Herbert.
The demand for broadband Internet by satellite has been growing so fast that ViaSat's WildBlue unit -- which provides high-speed Internet access service for homes and small businesses in the United States -- has stopped taking orders in some parts of the country.
ViaSat estimates that it will add a million subscribers to its customer base of around 400,000 by the fourth year after the satellite's launch.
Whenever a new broadband satellite launches, a big increase in satellite Internet subscribers often follows. Within a few months, however, capacity in key geographic areas gets sold out, capping subscriber growth, according to industry experts.
"ViaSat may get more aggressive on its initial pricing plans to accelerate the subscriber ramp and partially compensate for the delays in the satellite launch," Herbert said.
END OF DELAYS?
So far, the delays to ViaSat-1 have added more costs to the $400 million price ViaSat is paying for making and launching the satellite. A ViaSat spokesman said the total investment is close to $1 billion, including the satellite, launch, infrastructure, network operations upgrades and rollout.
"Costs are extensive because of the delays. They have to amortize the interest and lot of other expenses... But it is difficult to quantify them," said Herbert.
The delays increased costs and reduced ViaSat's time-to-market advantage over rival Hughes Communications, which will launch its satellite in 2012, said Raymond James analyst Chris Quilty. Hughes is owned by Echostar.
More delays or a launch failure would increase pressure on ViaSat, which is experiencing a squeeze in its defense business. But a successful launch would give ViaSat more capacity than its current North American fleet of two-way Ka, C and Ku band satellites combined.
Wunderlich Securities analyst Matthew Robinson thinks that ViaSat could start using the satellite in the fourth quarter.
"The cycle time the company targets for bringing up ViaSat-1 is less than what other networks have required for new satellites (two to six months), but we believe ViaSat has used the launch delay of about six months to stage a lot of the effort required," he said.
ViaSat said the service on the new satellite will begin rolling out early next year.
The ViaSat-1 satellite likely will help raise revenue and improve margins beginning in fiscal 2013, said Oppenheimer analyst Yair Reiner.
Present satellite systems are not designed for the high-bandwidth applications such as high-definition television, graphics, Internet telephone calls and peer-to-peer networking. ViaSat and Hughes are betting that Ka band -- a high-capacity, but cheap spectrum -- will be the next area of U.S. expansion.
"What Ka band does is lets you drive down your bandwidth costs," said ViaSat CEO Mark Dankberg. "In ViaSat 1, it is about 100 times more efficient or cost-effective producing satellite bandwidth than conventional Ku band satellites."
Market research firm NSR anticipates that global satellite broadband Internet access revenue will reach $3.9 billion by 2017, up from $823 million in 2007.
"I think the Ka band market will be a competitive one much similar to the satellite TV market, which is a duopoly," Quilty said, adding that ViaSat and Hughes have a time-to-market advantage that would make it hard for new competitors.
The Ka band technology also holds potential for the airplane passengers. ViaSat has already partnered with JetBlue Airways to offer cheap broadband Internet service when the new satellite is launched.
(Reporting by Supantha Mukherjee in New York and Soham Chatterjee in Bangalore. Editing by Peter Lauria and Robert MacMillan)