On The Brink of the Fiscal Cliff, ViaSat Shifting Focus To Private Sector Satellite Services
With government defense contracts jeopardized by the potential of a “fiscal cliff” looming over the Federal budget. Wireless provider ViaSat Inc, based in Carlsbad, CA, reports that it is shifting attention to its consumer Satellite Internet services. Government agency now represents nearly 50 percent of sales. However, doubts have been voiced about ViaSat’s new strategy, since stock prices declined after it introduced Exede, the new high-speed network for utilizing its satellite assets, last January.
At $35, the stock has declined from $50 eight months ago, evidence of the lukewarm reaction by investors to the company’s new emphasis. However, ViaSat points out that 40 percent of its 20,000 subscribers between January and March have opted to adopt the new high-speed service. During that period, orders for satellite service increased over 30 percent. The company’s chief executive reports that theorder quantity is encouraging, with a single recent contract equivalent to the normal flow of orders. Earnings over a four-year time frame could increase significantly due to the high margins in home internet service, the company’s founder stated.
ViaSat’s reliance on the public sector is expected to change in the near term, mainly from slowing growth rather than cutbacks. In five years, the company projects that government sales will represent 35 percent of earnings compared to 45 percent currently. However, questions remain about whether the company can transition quickly enough into private sector satellite services to completely escape the impact of government reductions. One analyst noted disappointment in the market over the lagging pace of subscribers adopting the satellite services. ViaSat’s private sales, including Exede, account for about 25 percent of the company’s total income.
Exede offers subscribers download speeds of 12Mbps plus 3Mbps uploads, equivalent to most residential broadband connections. The satellite service, which utilizes a standard digital-size dish, can be a promising alternative to consumers in rural areas neglected by the large, copper-wire DSL providers.
The “fiscal cliff” phenomenon refers to the one-two punch of tax increases combined with government spending cuts if legislators are unable to craft a viable plan to cut the federal budget deficit. Should these measures be implemented in their entirety as currently proposed, economic forecasters predict that up to $600 billion could evaporate from the economy in 2013.