Viasat Working to Cut Exede Churn, Drops Some Distributors

Exede’s monthly churn rose to 3 percent in Q3, from 2.5 percent the previous quarter, as it added a net 41,000 subscribers to end Q3 with 591,000, said Stephens Inc. analyst Tim Quillin. The Q3 churn raised the implied annualized churn rate to 37 percent from 30 percent, Quillin said. The total included 430,000 customers receiving Exede from the ViaSat-1 satellite at 115 degrees west and another 160,000 getting it from WildBlue-1 and Telesat Canada’s Anik F2 satellites, Dankberg said.

Exede’s Q2 churn was “higher than we would like it to be in the long term” and ViaSat is moving to improve the customer qualification process at its call centers, Dankberg said. Some customer confusion has stemmed from Exede’s monthly data caps, which start at 10 GB for the entry-level service that provides 12 Mbps/3 Mbps download/upload speeds for a $49 monthly fee, Exede officials said. To help counter churn, ViaSat launched Exede Revolution in limited markets where the data cap is dropped for services other than “media consumption,” Dankberg said. The Revolution package is a “first step” in offering customers options “beyond fixed usage caps,” Dankberg said. “The initial results have been promising,” he said.

ViaSat also has scrapped an agreement with some Exede distributors that “accounted for a way disproportionate amount of the churn,” including those that weren’t taking “steps to really deal with the issue,” Dankberg said. Some of the issues were tied to the manner in which information was presented to prospective customers at the call centers, Dankberg said.

"We are doing a good job and we'll get there” in terms of lowering churn, but “it’s probably not going to be turned around in a quarter,” Dankberg said. Even Exede’s “worst channels” of distribution were “profitable and they can be positive,” President Richard Baldridge said. The percentage of subscribers being attracted to Exede who also have cable or DSL options is above 40 percent, Dankberg said.

"The problem is people who are high-bandwidth users who come from good choices tend to churn more quickly,” Dankberg said. “It’s a question of how do we find subscribers that are good fits for us that are substantially beyond just this unserved segment? We're taking steps to more accurately predict which subs would be good matches, better informing those subscribers about the trade-offs involved and eventually tailoring plans to make them a good choice for even more people."

To attract new subscribers, Exede launched a VoIP service in June on a limited basis bundled with broadband. Attach rates and subscriber response have so far been “encouraging,” Dankberg said. ViaSat isn’t marketing the bundle broadly and “we're still working on scaling fulfillment, he said.

ViaSat’s Q2 also marked the first quarter in which Exede shared its distribution with DirecTV and EchoStar’s Hughes Communications, analysts following the company said. “I think DirecTV and Dish are realizing that satellite broadband is a good companion to satellite TV and they're both interested in having that work well across both suppliers,” Dankberg said.

Exede will benefit from the launch of ViaSat-2 satellite in mid-2016, ViaSat officials said. The increased bandwidth supplied by Boeing-built ViaSat-2 will enable Exede to “cast a wider net” for subscribers, Dankberg said. ViaSat spent $52 million on ViaSat-2 through Q2, ViaSat Corporate Controller Shawn Lynn Duffy said.

Meanwhile, ViaSat had a $1.9 million Q3 profit vs. $7.9 million a year earlier, as revenue rose to $353.9 million from $282.8 million. ViaSat secured $391.1 million in new contracts in Q3, bringing its six-month total to $645.1 million, down from $880.6 million a year earlier. ViaSat expects satellite-based service to launch with JetBlue by year-end. ViaSat has a contract to install its service on former Continental Airlines planes within the United Airlines fleet. United Airlines planes have an agreement with Panasonic to add its Ku-band satellite-based service, Dankberg said. United Airlines has begun advertising the Panasonic-based Ku-band broadband service on ESPN and other channels.

ViaSat’s patent infringement lawsuit against Space Systems Loral is scheduled for trial March 18, Quillin said. ViaSat has a “reasonable chance” of prevailing against Space Systems Loral, a verdict that could result in the company’s being awarded “hundreds of millions” of dollars in monetary damages, Quillin said. The case involves allegations that Space Systems Loral used confidential information gained from building a satellite for ViaSat to make a similar one for Hughes. ViaSat-1, which launched in October 2012, was made by Space Systems Loral using patents it is alleged to have infringed.