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Rocket man

Tue, 08/31/2004 - 8:00pm
Jeff Baumgartner

After a series of fits and starts, WildBlue's plans for a Ka-band-based satellite broadband service literally got off the ground in mid-July following the successful launch of the Anik F2 satellite from a pad in French Guiana. Among the most relieved to see WildBlue get to that important point in company history was CEO Tom Moore.

Moore hopes to lead WildBlue to another important step: Launching the service to rural areas yet untouched by high-speed DSL and cable lines. Although WildBlue could compete with cable for customers, its technology, in an interesting twist, is partly based on DOCSIS, a decision that should keep WildBlue's performance high and costs low. But using DOCSIS is not a big surprise, considering Moore used to work at CableLabs, which played a big role in making the platform into a household name in broadband technology circles.CED Editor Jeff Baumgartner recently caught up with Moore to find out what's next for him and WildBlue. An edited transcript follows.

(Left) Anik F2, which carried WildBlue’s payload,
launched from French Guiana on July 17.
(Right) Moore poses with a model of the rocket
that carried WildBlue’s hopes and dreams into orbit.

CED:

What was it like for you to finally see this rocket launching on July 17? It seems like this moment has been a long time coming for you.

Moore:Launching our first satellite payload is a huge milestone for us and, as you said, one that's taken us a long time to achieve. Unfortunately, satellites are expensive and complex so it takes a long time to raise the money necessary to build one and it takes a long time to complete construction. That, combined with the financial market collapse surrounding 9/11 (2001) and the proposed consolidation of the satellite TV industry–all of those things have affected the time it took to get here. But our business plan has remained the same. There's still a huge target market to go after. Our architecture hasn't changed, nor our business focus.

So, being down in South America with my family and watching the satellite launch and having it successfully make it to orbit was a pretty cool high, no question about it.

CED: Now that you've made it to this point, walk me through what will happen over the next six months and when you hope to launch the service commercially.

Moore:Although we had a successful launch...it takes another 90 days or so for the satellite to successfully get to its final orbit and be tested. We gain access from an operational perspective to the satellite in mid-October. Then we begin an extensive alpha and beta test of our system. We start that here in the Rocky Mountains off our gateway in Cheyenne (Wyo.). Then we roll out into a commercial offering sometime early next year–I'd say the first quarter of next year–and reach a national foot print shortly thereafter.

CED: Do you need multiple gateways to expand your footprint on the ground?

Moore:The satellite covers the whole United States. In fact, it covers Canada as well, but we're only focused on the United States. The satellite is a spot-beam satellite, so multiple spots–let's say five or six spots–are tied to each gateway. There are five gateways needed to support all the capacity on Anik F2. Each gateway represents a region of the U.S. We plan to roll out our service across these five different regions of the U.S. following our single-region beta trial. That can happen very quickly once we get the first region stable. The length of beta will depend on how long it takes to get all of the bugs out of the system, but I would say by the end of the first quarter next year we should be well on our way to a national service launch.

CED: How do you anticipate marketing the service?

Moore:Our goal is to have a product that is equivalent–both in terms of monthly pricing and performance–to what you see in the DSL or cable market. But that doesn't mean we plan to compete with DSL or cable. We think that today there are probably about 25 million homes–maybe one in four homes in the U.S. mostly in rural America–that don't have access to cable modems or DSL. Those are the customers we want to go after.

So, how do we effectively do that? We have a three-part distribution strategy. One of our largest shareholders is the NRTC (National Rural Telecom Co-op). They have about 1,000 utility and telephone company members...in rural America. They also have a huge amount of experience in marketing satellite TV as a reseller of the DirecTV service. I think they will be a very aggressive partner for us and a very attractive distributor. These are people with real skin in the game who want to aggressively go out and distribute the product.

Second, we will also have a retail offering that we plan to support through master distributors. In the satellite TV world there are master distributors that manage anywhere from several hundred to thousands of local satellite TV dealers. That distribution network was set up by the satellite TV players in the early days, and we can take advantage of it. These dealers have installed and sold and serviced satellite TV for many years and are also supporting other satellite broadband products from StarBand and DirecWay.

Third, at some point we hope to have a comprehensive relationship with either EchoStar and/or DirecTV. EchoStar is currently a shareholder in WildBlue and we have a distribution agreement with them. That deal was signed some time ago when things were different, so how much traction we will get from it remains to be seen, but regardless I think it is our strong desire to have a long-term relationship with either EchoStar and/or DirecTV.

CED: What will the equipment requirements be for the subscriber and can you give some guidance on the anticipated monthly fees and other costs?

Moore:The equipment that the subscriber has is a combination of a small dish on the roof, one that looks very much like the [EchoStar] Dish 500. It might be an inch or two larger than that. That's then coupled over coax cable with a modem that sits in your house next to your PC or next to where you plug in your local area network. The modem looks a lot like a cable modem.

CED: Is it a cable modem or does it have some special sauce in there to make it different?

Moore:It's a cable modem with some special sauce. A lot of the technology we are using is DOCSIS-based, but we need to do some special things to make it work over satellite. It's not an off-the-shelf cable modem.

We haven't settled on a monthly price, but our goal is to be close–it doesn't have to be identical–to what you would pay for a similar service from a DSL provider or a cable company. [The service will sell in] the high $40s per month to start with, I would suspect.

In terms of the equipment, I would say $200 or $300 upfront for equipment plus installation. I don't think our plan is to be free up front. We want them to make an investment in this, but we want it also to be consumer electronics pricing–something that's not out of their reach.

CED: As for speed, you're offering 1.5 Mbps down and how much in the upstream?

Moore:The interesting thing about our platform is that we can turn the knobs up and down. We could offer you as a customer 30 Mbps if you were willing to pay for it. That's not what we're planning on doing, but we have quite a bit of flexibility in terms of what we offer.

I think we'll start with two or three different tiers of service, probably a 500 kbps service, a 1 Mbps service and maybe a 1.5 Mbps service. In the upstream, probably something like 256 kbps. That seems to be a sweet spot particularly for cable.

CED: On the financial side of the fence, how much has been invested in the company?

Moore:We've raised almost a half a billion dollars. Our most recent round was about $156 million (in December 2003).

CED: How long do you think it will take to turn the corner and a profit?

Moore:Back when that investment was made, and I think it still holds true today, investors demanded a fully-funded business plan. Our last financing was enough to get us to "fully-funded status." We are spending that money finishing up Anik F2 and launching it, finishing WildBlue 1, our second satellite, and that will be ready to launch in September. How quickly we launch that depends on market conditions and capacity requirements.

We are also spending to build out all of our infrastructure, our gateways, our data center and our network operations center and so forth. We will then enter into the market with the distribution strategy that I just described, and enough money left over to reach cash flow break-even. To get to cash flow break-even in our business, it doesn't take a huge number of subscribers like in other subscriber businesses like satellite TV or satellite radio mainly because we don't pay 55 percent of every dollar we get to content providers. The margins are quite different.

CED: Do you have a ballpark figure on how many subscribers you'll need to go cash flow break-even?

Moore:It is somewhat dependent on how aggressive we get from a marketing perspective and how quickly we want to ramp our growth. But in any event, it is hundreds of thousands of subscribers, not millions.

CED: On the Internet, people can of course subscribe to content services, but for the most part, they access free content. We're starting to see the MSOs beef up their portals with content partnerships and aggregating video. Do you see yourself investing in something similar?

Moore:Trying to differentiate your broadband service with content offerings is the holy grail of the broadband business. Every day it becomes more important as competition heats up. I don't think that will be required from us for awhile because, again, we're going after customers who won't have another alternative. Having said that, is it something we think about and focus on? The answer is, sure. Obviously, our biggest shareholder is Liberty Media, and they have all kinds of content that could be interesting. They have desires to distribute it well beyond WildBlue, so getting exclusivity is probably not reasonable, but I think there are some things there that could come into play.

CED:

WildBlue CEO: Tom Moore
WildBlue will use DOCSIS technology
to keep costs low.
When I look back, there was a time when there was a big group of companies that were starting up and had plans to launch high-speed services over satellite. Many of them altered course or didn't even make it off the ground. Why is it that you made it to this point while others have not? Is it strictly about being fully-funded or is there more to it than that?

Moore:There really is. Part of the reason we are fully-funded and have made it this far is because our plan is fundamentally different than the others. I don't think we would've survived otherwise.

When we came into fruition in the late 1990s, we were one of 22 different Ka-band licensees in the United States. Out of that group, there were probably a dozen or so really big companies–Hughes, Loral, AstroLink–big, well-capitalized projects. Some of those companies have spent $1.5 billion, $2 billion creating space segments to do essentially what we're doing for a fraction of that amount. Our whole architectural approach is focused first on getting low-cost consumer equipment.

We took the approach of not saying, 'let's build the neatest satellite in the world and figure out what we need to do on the ground to make that work.' We took the approach that we have to have low-cost, standardized consumer electronics pricing, and then let's figure out what the rest of the architecture has to look like to support that. Given our background, we picked DOCSIS technology. We didn't have to. There are other things we could've picked, but DOCSIS existed, and it fits our needs.

Our satellites are bent pipe satellites–no on-board processing and that sort of stuff. They are spot-beam satellites, so they are brand new in that regard. But in terms of high-tech switching and processing on-board...we did not go down that path, which reduced our risk dramatically and saved us billions. We put the technically risky stuff on the ground.

Most, if not all, of the other companies were satellite companies to start with. They tried to figure out how to fly the most advanced, whiz-bang satellites and didn't really focus on the consumer need. People aren't going to pay $1,000 or $1,500 or $2,000 for a terminal, even if the satellite is the most advanced thing.

We also have some really great orbital assets. Our first payload, Anik F2, is headed for 111.1 West Longitude. We also have the 109.2 W.L. slot. If you think about satellite TV with satellites spread from 101 W.L. to 119 W.L., our slots are right in the center of that orbital arc, which means we can bundle our service on a single small dish with either DirecTV or EchoStar.

CED: As you look back, what's been the easiest and hardest part of this journey?

Moore:When we got started, being an engineer, I was very focused on the technology. A lot of people told us that this was impossible to do technically. Could we get DOCSIS to work over satellite? Could we get a transceiver and outdoor electronics down to consumer pricing? Early on, the risk to me was very much technical in nature.

What ended up being the biggest risk and the hardest thing to get over was financing. We raised the first $300 million during the hey-day very quickly and it was easy to come by even with a pre-revenue, high-risk story. Once 9/11/2001 came with the fall of the financial markets, and that coupled with the fact that for a while it looked like EchoStar and DirecTV were going to be one, changing the whole competitive landscape, it was very difficult to convince anybody that a stand-alone satellite broadband player could make it in that kind of environment. We did everything right on the technical side, and yet it was very difficult to make it through the woods on the financing side. Fortunately, things improved and we did. Now we are excited about launching our service as our business opportunity still looks incredible.

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