With a Dish, Broadband Goes Rural
The town of Rindge, N.H., is just 70 miles from Boston, but to telephone and cable companies it might as well be at the end of the earth. Many of the town’s 5,500 residents cannot get broadband Internet access from the providers in the area, Verizon and Pine Tree Cable, even though communities nearby have had the service for years.
Craig Clark, who works from home in Rindge, made do with a sluggish dial-up line until he signed up for broadband service from the satellite provider WildBlue Communications last autumn. With a 26-inch dish outside his home and a modem inside, Mr. Clark now connects to the Internet at speeds similar to those offered by the phone company.
“It’s not a perfect technology, but it is one of the best options for those of us in rural areas,” he said.
In bringing Mr. Clark and others in rural America into the fast lane, WildBlue and its chief rivals — Hughes Network Systems, which markets under the name HughesNet, and Spacenet, which sells the StarBand service — are filling one of the biggest gaps in the country’s digital infrastructure. Roughly 15 million households cannot get broadband from their phone or cable provider because the companies have been slow to expand their high-speed networks in areas where there are not enough customers to generate what they regard as an adequate profit.
There are some drawbacks to the satellite approach that make it unlikely to be a serious rival to more common broadband options, as Mr. Clark has found.
WildBlue’s cheapest service costs $50 a month, about twice Verizon’s introductory offer, and the dish costs several hundred dollars. Heavy rain sometimes interrupts the signal and knocks out Mr. Clark’s service, and small delays are common as signals beam to and from a satellite orbiting 24,000 miles above the earth.
But alternative technologies, like wide-area wireless services and access over power lines, are still in their infancy. And demand for broadband in rural areas is as strong if not stronger than in suburbs and cities. Broadband is essential to distance-learning programs, health clinics that communicate with bigger hospitals and farmers who rely on the latest market and weather data. Second-home owners and resorts are potential customers, too.
“If you don’t have a broadband connection, you’ll be left in a backwater and won’t be able to take part in the economy,” said David J. Leonard, WildBlue’s chief executive. “There’s a growing unmet demand in these markets.”
While the subscriber numbers for satellite services are a fraction of what companies like Comcast and AT&T have, they are growing quickly. The number of households and businesses that use them is expected to hit 463,000 this year, up 34.5 percent from 2005, according to NSR, a telecom research firm. The number of subscribers will nearly double, to 897,000, by 2010, the group estimates.
Hughes, which got into the business about two decades ago by providing data links to gas stations, convenience stores and far-flung company offices, has dishes at about 500,000 sites. About 80 percent of the 10,000 or so new customers that sign up for its HughesNet service each month are consumers.
WildBlue, which is adding nearly 15,000 customers a month, expects to have 120,000 subscribers by the end of this year. StarBand has about 30,000 customers.
Operating margins at satellite broadband providers are about twice those at cable companies, which must pay heavily for programming and employ teams of workmen to handle installations.
WildBlue and Hughes, on the other hand, outsource the work to third-party installers and dealers. Their biggest constant expenses are for marketing and subsidies for the dishes and other equipment.
Both Hughes and WildBlue, however, will launch satellites in the coming months equipped with new technology to provide access to far more customers. Since these cost about $250 million each, a lot more customers will be needed to pay for them.
For now, customers with few alternatives appear willing to absorb the relatively high prices. WildBlue, StarBand and HughesNet offer several speeds of service for $50 to $130 a month. Installation fees and the dish can cost another $500, though discounts abound.
“People are willing to spend to get broadband,” said Pradman P. Kaul, chief executive of both Hughes Network Systems and its parent company, Hughes Communications. “The economics are not a hurdle,” he said, adding that nearly 40 percent of his new subscribers choose the faster plans.
The companies do not always keep all of that revenue. WildBlue, for instance, has struck deals to be a wholesale provider of Internet service for AT&T and the satellite television companies DirecTV and EchoStar. These companies market the service but keep a share of the monthly revenue and receive equipment at subsidized rates.
AT&T, which is using satellite broadband to reach the 20 percent of its customers who are unable to get its fixed-line service, brands its product “AT&T high-speed Internet powered by WildBlue.” Since May, it has signed up about 4,000 subscribers, according to Mr. Leonard.
Hughes bypasses the middleman by selling directly to consumers. But it has to pay for all its own marketing, which can be expensive when trying to reach small pockets of customers spread across the country. Satellite providers spend about $600 to find and sign up each new customer.
For now, the companies have plenty of money to keep them going. Hughes Communications went public in February, and its shares have nearly doubled since, giving it a market capitalization of nearly $840 million. In the second quarter it lost $4.4 million, far smaller than the $55.5 million loss in the first quarter.
WildBlue has been around for almost a decade, but really got going in 2003 when Liberty Media, Intelsat, the investment firm Kleiner Perkins Caufield & Byers and the National Rural Telecommunications Cooperative invested $156 million. In August, WildBlue issued $350 million in debt to help pay for the satellite that the company plans to launch before the end of the year.
Mr. Leonard said that while going public was an option, he first wanted WildBlue to turn a profit at least in terms of net cash flow.
Meeting that target will be a challenge. WildBlue had to set up waiting lists in Iowa, Kentucky, Missouri and Ohio, among other places, because the satellite beams that serve those areas are full. In contrast to satellite TV, the Internet service involves two-way signals that require more satellite capacity as more customers are added. Software upgrades and the new satellite will ease the bottleneck.
But at the same time, cable and phone companies are making a slow push into previously unserved areas, shrinking the pool of potential customers.
Atlantic Broadband, a small cable company with operations along the East Coast, has started selling broadband in rural southwestern Pennsylvania, where Kelly Rusinack, a HughesNet subscriber, lives. After she tried the cable service at her sister’s house next door, she decided to switch once her contract with HughesNet expires in January.
“My sister’s service is so much better than what I have, it’s disgusting,” she said, adding that cable broadband costs about $50 a month — half of what Hughes charges her — and the connection is more reliable.
There is little chance, however, that a cable company will make it to Dr. Brooke Swearingen’s second home in Rangeley, Me., about 20 miles from the Canadian border. His home is about 12 miles from town, too far from Verizon’s switching station to get its high-speed Internet service.
Dr. Swearingen and his wife, Marlene, are physicians from the Boston area, need a good connection to do research and check e-mail, and their dial-up line was too slow. Dr. Swearingen said he found WildBlue online and signed up for the $50 monthly service in August; the dish and installation were free.
The big hurdle was finding a direct shot to the sky, which required trimming a few tree branches.
The extra speed and always-on connection means the Swearingens are able to extend their getaways and avoid having to run home to get work done.
“If my wife didn’t have this and had to write a paper, she’d stay in Boston,” Dr. Swearingen said. “You’d love it to be faster, but compared to dial-up, it’s night and day. It lets us get away and still be connected.”