Rural Broadband Providers Look Skyward

Companies such as Hughes Communications are launching satellites in an effort to reach millions of people without high-speed Internet connections

by Tim Catts

Just after nightfall on Aug. 14, a new state-of-the-art satellite owned by Hughes Communications (HUGH) will blast off from Kourou, French Guiana, into an orbit more than 22,000 miles above earth. The satellite, Spaceway 3, is part of the company's bid to reach a bigger slice of a sizable but untapped U.S. broadband market that remains beyond the reach of cable or DSL Internet service providers.

For years, as major telecom and cable operators such as Comcast (CMCSA), AT&T (T), Verizon Communications (VZ), and Time Warner (TWX) have rolled out a bevy of new bundled telephone and Internet packages for urban centers, many rural regions languished with dial-up access as just about the only option for Internet access. For the most part, investments in the hinterlands bear considerable risks: Absent the economies of scale that come with densely packed customers, providers are forced to hope that their services are widely adopted. If not, such investments may never pay off.

That leaves a potentially huge market without high-speed Internet access. Hughes Chief Executive Pradman Kaul estimates there may be as many as 15 million homes and small businesses in areas deemed too remote for cable modem or DSL connections. Less than 2.5% of those potential customers are current subscribers, leaving plenty of room for Hughes to grow.

Huge Market

Hughes' launch follows less than a year after its chief competitor, WildBlue Communications, launched its own new satellite. Like Hughes, WildBlue had been leasing space on another satellite, but since it launched its own last December, it has seen subscriptions grow briskly, CEO David Leonard says. WildBlue, based in Greenwood Village, Colo., has added 1,000 to 1,500 new users per day since the satellite became operational in March, says Leonard.

Of those households and businesses without access to DSL or cable Internet services, Hughes and WildBlue serve only a tiny fraction of that market: Hughes had about 353,000 subscribers at the end of June, and WildBlue has between 225,000 and 235,000. By Kaul's reckoning, there is more than enough room for both companies to grow without crowding each other: "If we each get a couple million subscribers, we'll both be very happy campers."

The size of this untapped market may be a boon to Hughes and WildBlue, but it exposes a trend that some analysts believe portends ill for the U.S.'s global competitiveness. While the U.S. boasts more than 58 million broadband users—more than any other nation—it trails many smaller countries in penetration, according to a study performed last December by the Organization for Economic Cooperation & Development (OECD). For example: Denmark, first in the world in per-capita broadband use, boasts 31.9 subscribers per 100 residents, while the U.S. ranks 15th behind Iceland, Belgium, and Luxembourg, among others, with 19.6 users per 100 people.