Hughes Communications: Boondocks Broadband

When rural customers can't get DSL or cable modem service, they often look to high-speed Internet via satellite

By Arik Hesseldahl

(Editor's note: this is the second in a series of articles on the lack of broadband access in the U.S.)

When Debra and Lee Sherbeyn first moved to rural Virginia 14 years ago, they didn't own a computer, much less fret over access to the Web. It wasn't long before they had a machine and were logging onto the Internet using a dial-up modem. The arrangement suited them fine until family members started sending pictures by e-mail. It became downright untenable in 2004 when Lee entered the real estate business in their home in Bealeton, Va., about 58 miles southwest of Washington. "You can't wait all day for a picture of a house to download," Debra says.

Nor can you get a Digital Subscriber Line or cable modem service in their part of Bealeton. So the Sherbeyns settled on a satellite broadband connection from Hughes Communications (HUGH). At $69 a month, it costs more than comparable services from phone and cable providers, but the Sherbeyns don't mind. "It's been totally worth it," Debra says.

While most urban and suburban U.S. households have access to cable modem service from a cable TV company or DSL from a phone carrier—or both—the majority of residents of rural areas have neither. According to a July study by the Pew Internet & American Life Project, only 38% of rural American households have access to high-speed Internet connections, compared with 60% for suburban dwellers (BusinessWeek.com, 9/18/08).

Satellite Solution

Cable and telephone companies usually build their networks in areas where the population is dense enough that they can expect a profit on their investment. Those like the Sherbeyns, who live outside cable or phone service areas and eschew dial-up service, often look to satellite. More often than not, they buy it from Hughes, the biggest provider of satellite broadband services, a small but surprisingly healthy sliver of the broadband business.

Hughes traces its roots to 1971, when it was created in a Gaithersburg (Md.) garage as Digital Communication Corp. and specialized in satellite modems. The company has gone through an array of incarnations under owners as varied as General Motors (GM), News Corp. (NWS), and—early on—the Hughes defense and aerospace giant built by the late billionaire Howard Hughes. Today it delivers Internet access by way of a satellite orbiting the Earth at an altitude of 20,000 miles.

And satellite isn't just for people living in the middle of nowhere. "We have more subscribers in suburban areas of Virginia and Maryland, where people commute to Washington, D.C., and Baltimore, than we do in places like Montana and South Dakota," says Hughes CEO Pradman Kaul. "Our customers often tend to live right on the outskirts of rural areas where the suburbs meet the country."

Room for Growth

In all, Hughes serves some 420,00 households in 50 states. Most of its subscribers are concentrated east of the Mississippi River, usually within commuting distance of major population centers. Geographically, some 44% of Hughes' customers live in counties that account for about 70% of the U.S. population.