page 1

1. Summary Hughes has continued its command of the enterprise VSAT market selling close to half the total enterprise VSATs globally over the past two years with annual shipments running at more than 165,000 units – around twice that of its nearest competitor. The company maintained its market leadership, not just through sales, but also with significant new developments on both the HN and HX platform - chief of which has been the introduction of the HX260 mesh and multi-gateway product. With a new product sales strategy centred on the flexibility and advanced features of the system, the HX is now viewed as the primary direct alternative to iDirect’s product platform. In the satellite consumer market Hughes is primarily focused on subscriber growth and this rose to a healthy 433,000 subscribers in the US by the end of 2008 – almost 50 per cent of the North American market. Since then, the company has posted record subscriber growth, increasing its market share and, at the end of 2009 had over 500,000 sites under its HughesNet® consumer service. In total, Hughes shipped almost 320,000 VSATs across its product lines in 2009 – over 26,000 each month. 2009 also brought the announcement of plans to launch Jupiter, a high-throughput, multi-spot beam Ka-band satellite for North America, with over 100 Gbps of capacity. With a product line that uses the same basic architecture to deliver internet access to almost half a million subscribers and yet is also powerful enough to deliver multi-megabit, high QoS meshed links to a specialist application, Hughes has managed to achieve the virtually impossible. Others can potentially match the company in different segments, but none can claim the flexibility and sheer application power across so many potential markets as Hughes can with its HN/HX family

DVB-RCS2.7%

IP Star2.2%

Discontinued3.5%Others

1.7%

iDirect5.9%

ViaSat8.7%

Gilat25.2%

Hughes50.2%

Interactive VSATs - Vendor Historical Enterprise Shipped Market Share

-

50

100

150

200

250

300

350

400

450

500

96 97 98 99 00 01 02 03 04 05 06 07 08 09*

Thou

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page 2

2. Market Performance

2.1. Data Sources & Methodology The information in this Executive Briefing was compiled from the latest 11th Edition of the COMSYS VSAT Report, unless expressly indicated. Apart from information and product data already held in our library, primary research was conducted with over 350 operators, manufacturers and users to gather up-to-date information. Visits have been made to a large number of existing and potential suppliers and service providers in Europe, Asia/Pacific, Africa and North America. COMSYS maintains extensive databases on both the interactive star and mesh DAMA VSAT markets and tracks a wide variety of information for all individual networks. This forms the basis of most of the statistical analysis in this report.

2.2. Financial Strength Hughes describes itself as the world leader in broadband satellite networks and services, bridging the best in satellite and terrestrial technologies. The company has dominated the interactive VSAT business since the early 1980s when it was instrumental in developing the technology which created the industry. In 2002, before the sale of some its businesses, it had revenues of approximately $1.2 billion and employed more than 2,500 staff worldwide. Today, the company is primarily focused on VSAT design, manufacture and service and has managed to break the billion dollar mark once again, recording revenues of $1.06 billion in 2008. Looking at the company’s trading results, it is clear that being a separate business has been a good move for Hughes. In addition to its VSAT product lines, Hughes also manufactures a range of carrier-class microwave systems and mobile satellite terminals, undertakes large scale technology development contracts and has interests in other software and services companies. The company is also the largest provider of shared hub VSAT services in the world with leading positions in the consumer and enterprise segments in North America, in Europe through Hughes Europe, in Latin America and Brazil through Hughes do Brasil and in Asia through its Hughes Communications India joint venture in India.

2.3. Global Presence Hughes is the 800 pound gorilla of the VSAT market and even the largest of the company’s competitors generally try and work around it rather than go head-to-head. Those companies that let their attention wander or make the mistake that theirs is a segment Hughes has no interest in, get a rude awakening. The fact of the matter is that VSAT is Hughes and, in many ways, Hughes is VSAT. The company lives and breathes the technology at all levels from chipsets to installation not least because it lays claim to have started the industry with its early work in the early to late 1980s. As its positive financial results have demonstrated every quarter since it went public in 2006, what sets the company apart today and drives its growth is the service business. Beyond technology and product innovation, over the past several years Hughes has successfully morphed into being the world’s leading broadband satellite service provider as well as

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02 03 04 05 06 07 08

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Total Revenues

Operating profit/loss Hughes HNS Annual Revenues and P&L, 2002-8

page 3

supplying a growing list of operators and service provider customers in the rest of the world with its broadband technologies and products. As market leader, the company theoretically has greater price latitude than any of its competitors. Up until the end of 2002, Hughes had won over half of all the contracts greater than 1,000 sites and accounted for eight of the ten largest corporate networks in service. The past two years have seen the company win 64 of the 161 largest corporate networking deals amounting to over 120,000 sites. The company has built a momentum in the corporate networking sector which is hard to challenge and in certain areas, such as the gas/convenience store business, it almost monopolises the segment. This helps it build specialisation and recognition in a particular industry, gives it an advantage when bidding for that same company’s business abroad and gives it a great reference list which inspires confidence in other potential customers. The past two years has seen Hughes continue to grow its US shared hub service against the market conditions and its competition. When a company dominates a market to the extent that Hughes does – holding three quarters of the managed enterprise VSAT business in North America – it becomes hard to imagine that it can grow its share much more, but it has. Its progress is inexorable and its customer list is a testament in itself. Its nearest competitor has significantly less than 25 per cent the number of sites in service. In the consumer market, Hughes has maintained its position as the largest high-speed Internet by satellite provider in North America. The past two years have seen the company up its game several times, first with the increased capabilities and greater bandwidth efficiencies of the HN7000S platform and then with the HN9000 SPACEWAY® 3 terminal. Both initiatives brought service prices down and significantly increased both speeds and data volumes. SPACEWAY 3 entered operational service in April 2008 and is an advanced multi-beam Ka-band satellite. On-board processing supports star, multi-star, mesh and point-to-point connectivity and allows the company to finally address the market for small networks of around 100 sites. Known as the mid-market, this segment is said to account for 90 per cent of all the enterprise networks in the US and so the potential is dramatic. Although Hughes began using its high performance SPACEWAY 3 satellite as part of its consumer service evolution, it has also begun to sell advanced video and bandwidth-on-demand services to meet some unique corporate and government customer needs.

StarBand1.7%

WildBlue43.4%

Telesat5.7%Hughes

49.2%

Hughes84.8%

SkyCasters1.1%

Spacenet1.4%

Novanet0.1%

Tachyon1.3%

Others2.8%

ViaSat1.0%

Telesat7.4%

Spacenet24.5%

Stratos0.7%

Telesat2.2%

USSC0.7%

Verizon1.2%

ViaSat1.7%

Others2.7%

Hughes64.7%

Mainstream0.4%

NSS0.3%

Infosat0.9%

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Internationally, the company also plays a leading role in all of the markets in which it competes and, where it does not have its own operation, it is usually the supplier to the dominant VSAT service provider. Hughes Communications India (HCIL) is one of the most successful of the Indian VSAT operators with almost 28,000 star data VSATs in service at the end of 2008 and booked orders for a further 20,000 sites. In total, Hughes has delivered almost 70,000 VSATs to India for shared and private services. Its service remains amongst the largest in the country. The company currently operates over 30,000 TDMA and broadband VSATs on its various managed service platforms. Mesh services, based on the HX system, and SCPC links account for a further 380 sites and more than 20 different customers including several large cellular backhaul networks. Hughes do Brasil informs us that, as of mid-2009, it serves almost 10,000 sites for both end-user and operator customers – up from 6,200 in 2006. The company has grown by almost 50 per cent annually since 2006. Brazil has been a real success story for Hughes and through careful and intuitive management, the company has grown from nothing to eclipse former leaders in the VSAT networking business. Hughes Europe is the largest provider of enterprise VSAT networks and satellite broadband services in Europe. The company currently has approximately 10 enterprise accounts with approximately 31,000 enterprise sites in service and 5,300 broadband subscribers sold through a network of value added resellers. Enterprise reference accounts include Shell, Camelot, General Motors, Volkswagen, BP and Asda. Hughes Europe introduced its own version of Hughes’ Unified Broadband service during 2006 and, since that time has signed four major contracts to provide this hybrid VSAT/DSL solution. In total, the company now supports almost 50,000 managed sites.

Bharti27.8%

Essel2.5%

Hughes31.2%

TataNet4.7%

Others0.4%

BSNL2.7%

HCL Comnet30.7%

Hughes42.4%

Others17.3%

Hispasat3.3%

Avanti3.7%

Telefónica Data9.1%

Ufinet3.1%

AGN4.6% Dexar

Multimedya2.9%

Eutelsat4.1%

Satlynx9.5%

StarOne10.7%

Primesys12.0%

Hughes17.9%

Embratel32.5%

BT-LA Brazil19.0%

Telespazio5.7% Others

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2.4. Vertical Specialisation As a consequence of its own leading consumer and SME satellite broadband services as well as those of its operator customers, Hughes is well known for its ability to serve internet access on both a mass and niche market scale. Something that is sometimes less obvious is the company’s focus on more specific enterprise and application vertical segments:

Banking: Hughes VSAT platforms are in use in networks for many of the world’s largest banks including several national central banks. At a service level, the company is believed to have around 35 per cent of the Indian banking market where it expects to see a huge growth in the number of offsite ATMs – all of which are only served by VSAT which is the most cost-effective, reliable and responsive solution. In Brazil, Hughes systems are in use at nine out of ten of the country’s largest banks. Across the world around 50,000 bank branches rely on Hughes VSATs from Azerbaijan to Zimbabwe.

Lottery networks have, over the past ten years, moved from hybrid terrestrial/wireless/satellite solutions to almost pure VSAT. The giant in the lottery business is GTECH which is not only Hughes’ largest customer, but the largest user of VSAT terminals in the world. Hughes now has more than 100,000 sites in service for GTECH and it was significant that 2008 saw GTECH move its 70,000 lottery sites in the United States to Hughes’ managed services in a deal worth several tens of millions of dollars. In addition, Hughes has supplied another 35,000 in other countries around the world, including the single largest enterprise account ever signed with Camelot in the UK for 28,000 which Hughes itself installed in record time.

Media Distribution began as a focus area in North America, leveraged off the company’s dominance in the retail and automotive segments. Hughes acquired Helius, a specialist applications provider that focuses on the IP video market, in 2008 and integrated this technology into its managed service infrastructure to support digital signage and other IP video applications. The results were a considerable success with several thousand sites being sold during the first half of 2007 and major networks provided to the US government’s Social Security Administration and GETN networks in 2008. Hughes India has also been extremely aggressive in the segment with a total domination of the digital movie distribution market in the country through customers like UFO Moviez. The company supports a range of customers with media distribution applications such as FM radio broadcasts to transmitter towers, consumer and business IPTV that can be booked on an occasional use basis and specific content on private channels. Retail display digital

Gilat32.8%

iDirect7.6%

ViaSat7.9%

Others8.9%

Hughes42.9%

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Others0.1%

ViaSat1.6%

Gilat36.1%

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page 6

signage is another area of development for the company in Asia, Europe, the US and Latin America.

GSM Backhaul has been a high growth area for many operators and Hughes has participated strongly with its own service operations, particularly in India and Brazil, but also in other markets where operators use its systems in Africa, Latin America and Asia/Pacific. The company has positioned its HX system as a specialised, cost-effective and flexible solution for cellular backhaul.

Education is a further segment of specialisation for Hughes. In India the company began its own HughesNet Global Education service in 2002 which now cover 500 classrooms and 5,000 students at any point in time. HCIL has also supplied 15 hubs for the Indian government’s EDUSAT program as well as services to other private educational enterprises. In Brazil Hughes manages over 2,000 sites running distance education for federal, state, and private universities and technical colleges. In China Hughes systems are used by possibly the most successful distance education specialist in the world – ChinaCast which has more than 6,500 sites reaching over 131,000 university students. Other highly specialised uses for which Hughes has adapted its systems and services include mobility applications such as its partnership with Row 44 to service the aeronautical industry, a maritime service covering North America and the defence market where its HX280 system supports features specifically designed to meet the military’s need for highly customised comms-on-the-move (COTM) mobile terminals capable of supporting multi-megabit mission critical applications.

Gilat26.4%

ViaSat19.8%

Others25.2%

Hughes27.4%

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2.5. Service Efficiency The company continues to outperform in all aspects of the business - new sales, major upgrades and contract extensions – and its momentum and expertise make it a hard competitor to beat. As the enterprise market has become harder with lower cost DSL services, Hughes has met the challenge with an integrated managed VSAT/terrestrial service, leveraging on its years of experience running enterprise networks. The following figure attempts to give an operator’s view of the shared hub market, offering a comparison between manufacturers of the number of hubs they have sold to service providers and, on average, how many active, billing terminals each hub supports. As can be seen from the chart, Hughes leads in this area maintaining a significant advantage over all of the other vendors. Customers purchase Hughes VSAT systems because it is the market leader, understands competitive pricing and has cutting edge products, but also because there is a confidence that the company will always overcome any problems and the system will work reliably. Furthermore, being a leading service provider that uses its own products adds immeasurably to Hughes’ advantage when operators are deciding on Hughes technology versus the competition. Hughes has managed to walk the tightrope between innovation and proven reliability which service providers in the enterprise business require to the exclusion of almost anything else. The company’s delivery of DVB-S2 ACM on its platform more than a year ahead of anyone else and the recent release of groundbreaking mesh and multi-star capabilities on the HX system are cases in point and there are examples of operators who have gained a critical advantage in the markets as a result.

2.6. System Leadership Hughes’ presence casts a shadow over almost every player in the market. Its dominance of the enterprise VSAT industry is remarkable in the fact that the company has been able to sustain its lead for over twenty years and that it has rolled with the punches and constantly responded with new developments which has kept it at the forefront of an intensely competitive market. Looking back, the company’s product releases either catch the wave or begin it in the first place and the engineering machine which lies at the core of the business is continually advancing the platform and introducing new features. It doesn’t like to abandon a product line and is committed to maintaining its customers’ investment in its infrastructure through backwards compatibility. Hughes is the only company which has been able to demonstrate sustained leadership in technology, market share and financial results in the VSAT business. Whereas GE, NEC, AT&T, GTE, Contel, Qualcomm and Scientific-Atlanta have all fallen by the wayside, Hughes has powered on through both their successors as well as newcomers. This undoubtedly gives its customers a confidence which cannot be matched by others.

0

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page 8

iDirect9.8%

ViaSat4.2%

DVB-RCS5.1%

Others4.7%

Hughes48.0%

Gilat28.3%

iDirect11.2%

ViaSat9.4%

DVB-RCS2.1%

Others6.9%

Discontnd0.1%

Hughes48.6%

Gilat21.6%

2007 2008

Interactive VSATs - Vendor Enterprise Shipped Market Share Almost invariably Hughes’ partners and operators have been strong, well connected and have sold well. It is no coincidence that operators of Hughes hubs have, on average, many more billing VSATs on their systems than their competitors or that the company’s ship to service ratio is the highest of any of the major vendors. Another advantage of being number one in the market and first into new regions has been that it has had the pick of the partners on offer. However, Hughes has also proved itself to be perfectly capable of managing foreign business on its own and in many of its ventures it has either bought out its original partner or assumed complete management control of the business. The only times when it has had an obvious problem have been almost exclusively when it had a minority position and in most cases it has exited from these ventures. In terms of simply running its VSAT business from a basic value perspective, the company has managed the two parts - international and North America - almost flawlessly. Historically, it has of course, made mistakes including taking its attention away from customer support, assuming an arrogant stance on some occasions and taking its foot off the development pedal when, we assume, the demands on resources of SPACEWAY increased during 2000. However, all these issues have largely been temporary and the company continues to march forward seemingly inexorably. Hughes has consolidated its early lead in the satellite broadband Internet access market and, together with its enterprise business, the company has now manufactured and shipped more than 1.9 million Hughes broadband terminals. Combined with the PES system, over 2 million units have been produced. This market is one which feeds on volume and, once again, Hughes stands head and shoulders above its rivals. It alone has a highly successful service business that fuels its manufacturing arm and challenges its engineers to improve product performance and quality while driving down cost. The threat from the standards-based DVB-RCS system vendors has evaporated, but iDirect continues to be strong in the small network segment, Gilat remains extremely aggressive in the enterprise and ViaSat is a focused and very worthwhile competitor in the consumer market. All are credible competitors and, we would argue, essential to keeping Hughes on its toes, but it is interesting to note that in each different segment of the market, all these companies have the same thing in common – their biggest competitor is Hughes.

page 9

3. Platform Features Hughes is the only vendor with both a strong hardware business and a large service operation with strength at all levels - technical, operational, sales and financial - to make a real difference in the VSAT and the satellite marketplace. It faces competition from many sides, but this is no different from how it has always been and now some of the newcomers need to look over their shoulders to see what’s coming up behind them. This is especially so for those in the specialised, high value, niche markets which Hughes has clearly targeted for its substantially enhanced HX platform. One of the most impressive points about Hughes and its product line is that, from a consumer to an oil rig, the same basic system is able to deliver world class performance and consistently win half of the business on offer across so many different segments of the market. It is easy to criticise a market leader, but market dominance of this magnitude does not come from doing things wrong.

3.1. The Hughes Product Family There is a differentiation between the HN and HX, although it is not necessarily immediately obvious. Originally designed to meet the needs of large enterprise networks and the mass consumer market, the HN System nevertheless shares substantially all of its architectural DNA with the HX. The HX System is positioned as a more scalable system with enhanced quality of service features, offering greater granularity than the HN System along with higher transmit data rates and support for specialised applications. The HN/HX is a powerful platform which combines the functionality of greater processing power with high inbound speeds and yet manages to retain the price points which have made Hughes’ products such a compelling value proposition for so many operators and networks across the world. When we first reviewed the system in 2005 we suggested that it would be a hard product to beat. Since then Hughes has won more than 45 per cent of the orders placed in the global enterprise market and shipped more than 380 hubs. It is all too easy to forget the scale of Hughes’ achievement with the HN architecture. This is a product that scales from networks of a handful of high-value sites demanding individual QoS to millions of consumer subscribers – no other vendor is able to come close to such a claim. By rights, this should be a system of compromises, kludges and shortcomings, but instead it commands around half of annual global sales and leads each market in which it plays in terms of features, performance and price. With such a competitively positioned product and a reputation for delivering advanced features on time and providing a high level of support, Hughes is very hard to beat.

IP Routing: The Hughes remote terminal is a fully featured IP router with almost too many standards-based IP protocols, services, performance and security features to list out. One protocol that the company did not support until relatively recently was BGP – an essential component required to integrate with MPLS. In a major bid the customer specified that BGP must be an option and a competing vendor believed that their product held a critical technical advantage over Hughes – it having taken them over a year to add BGP to their platform. However, within a few months Hughes was able to turn in and demonstrate fully featured support for BGP, illustrating the sheer strength in depth of Hughes’ engineering resources and its strong IP expertise. IPv6 is also on the roadmap for a future release.

Cost of Ownership: One of Hughes’ initial design criteria for the HN system was to minimise cost, especially considering the product had originally been intended for developed world consumer markets. Even today this remains the case, but functionality and capability have increasingly been integrated into the terminal. Bandwidth efficiency has also become a key element in new systems. Hughes has committed major R&D efforts in this area, working towards substantially improving the operational cost of owning its system as well as further enhancing its efficiencies. The HN7000 is now available in three packages – the base HN7000 which has a single Ethernet port, the HN7700 enterprise version and the HN7740 VOIP version. The terminal introduced

page 10

several important new features including inbound transmit rates up to 1.6 Mbps, turbo coding on the inroute and DVB-S2 with ACM on the outbound channel as well as expanding the capability to support all the fixed satellite frequency bands. It also incorporated more processing power and greater memory, so more concurrent advanced and data intensive applications can be run through the terminal.

Bandwidth Efficiency: Hughes has committed major R&D efforts to further improving its platform, working towards substantially improving the operational cost of owning its system as well as further enhancing its efficiencies. The HN architecture employs a high speed DVB-S2 outbound carrier which is scaleable from 1 to a maximum 121 Mbps, depending on the transponder and the link budget. DVB-S2 with adaptive coding and modulation (ACM) was a key development and Hughes delivered the technology a full year before any of its competitors. The past two years have seen Hughes continually add new features to the HN/HX Systems. It brought in integrated encryption of traffic over both the inbound as well as outbound channels and AIS – Adaptive Inroute Selection - a form of ACM for the inbound channel. Hughes’ design incorporates adaptive inbound FEC coding, automatic alternate symbol rate changes, by frequency hopping the remote to a different inbound channel, and dynamic uplink power control. The last of these has also allowed the company to decrease the minimum required spacing between the return channels. With this closed loop control between the hub and remote, the system continually and automatically seeks out the most efficient transmission based on the link between each individual remote and the hub. The inbound channels consist of a series of receive demodulators and the access scheme supports dynamic load levelling which provides optimised utilisation for Internet access. In 2008 Hughes introduced a new range of configurable burst demodulators for its hubs – compatible with both the HN and HX platforms. These take the name Configurable Demodulator System (CDS) and support multiple channel demodulation across a defined frequency range. The CDS comes in two basic flavours – 10 Msps and 2.5 Msps. – with each able to demodulate up to 9 channels simultaneously, all of which can be configured with different modulation and FEC rates. Not only does this approach bring the total cost of ownership for an inbound channel down substantially, it also further enhances Hughes’ AIS feature. Further bandwidth efficiency improvements are planned with the addition of 8PSK modulation on the inbound channel.

Backwards Compatibility: The HN7000 is fully backwards compatible with all the products since the 4000 series and requires only a software upgrade to the NOC. Maintaining the value of a customer’s infrastructure has always been an important issue for Hughes and it managed to maintain backwards compatibility on its original legacy ISBN/PES system for 15 years before the trend towards IP finally forced it to break away with a completely new design in what is now the HN system. This entire branch of Hughes’ VSAT family tree, from the original 4000 to the latest HN7000S and HX50 terminals, operate on the same hub equipment, network management system and back office (OSS and BSS) software. Only the specialised HX200, HX260 and HX280 units are limited to the HX platform. On the hub side, both Hughes systems – the HN and HX – are able to support CDS and older RCD (Receive Channel Demodulators) in the same hub and same network so existing users can simply expand their systems without any costly hardware upgrades.

3.1.1. The HN System

Efficient Scaleable Internet Access: Alongside the HN’s secure and scaleable DVB-S2/ACM forward channel, the inbound channels access scheme supports dynamic load levelling which provides optimised utilisation for Internet access. The HughesNet inbound architecture provides for a variety of Inbound Quality of Service (IQOS) features including guaranteed minimum bandwidth for a remote or group of remotes. The IQOS features were developed to address particular QOS requirements in the large scale consumer and enterprise markets. Hughes believes that its method of supporting Internet access services is more efficient than its competitors. In the first instance, the fact that the terminal is inactive when not used for a long

page 11

period of time means that the system overhead is low in comparison with systems which require the transmission of regular timing bursts. The company claims efficiencies in excess of 90 per cent - in contrast to the theoretical maximum loading of 36 per cent and practical limit of 20 per cent for a contentious access TDMA slotted Aloha scheme. It believes that systems which use a mix of contentious access and reservation modes cannot reach its level of bandwidth efficiency.

Manageability: Another area of development on the system has been with respect to the network management system. This has taken two main thrusts. The first is improved usability with a better front end and new GUI interface allowing an operator to monitor the health of the network more quickly and in a more understandable and intuitive way. The second revolves around increased configuration and control, with simplified and appropriately grouped tools. The HN NMS has never been short on functionality or capability – this is not an area of concern for operators of the system that we have interviewed – but the knowledge and training required to reach the functions, which are often buried deep in the system, has been a source of complaint. Hughes aims to remove these issues with its new NMS software, the configuration and control elements of which were released at the end of 2009 to compliment the new “dashboard” that was delivered earlier in the year.

Application Reach: Hughes’ core market remains the enterprise and one of its real triumphs has been in its delivery of a system and terminal which leads both the consumer and enterprise segments of the market in functionality and price competitiveness. Its abilities in the enterprise network are demonstrated by the evolution of the platform to what is now a high speed IP networking device in the form of the HN7700S. The enterprise market has changed considerably over the past few years with the provision of basic broadband access for both large and small businesses now a significant market. Larger corporations continue to require higher levels of application support, yet are also beginning to demand broadband as a basic service to underpin many of the web-based applications they are either running or plan to introduce. Clearly, the HN7000S range of terminals represent Hughes’ integrated product suite to meet this demand. The system is no less competitive in the consumer world and the addition of integrated VOIP support is likely to be increasingly important as more operators attempt to reach further down the market from the SME to the larger consumer opportunity. As this happens, particularly outside North America, Hughes expects that its Ka-band capabilities will allow it to continue to play a strong role as Ka-band capacity comes online.

3.1.2. The HX System The HX system designed specifically for smaller networks with a high quality of service requirement. Hughes took the basic structure of the larger HN system – including the DVB-S2 ACM outbound, inbound access schemes and the management system – as the core of the HX. For this reason, observers can be forgiven for initially thinking the HX is little more than a cost reduced version of its larger brother, but this is not the case.

Quality of Service: The ability to delivery high levels of guaranteed service in a much more granular way that large scale enterprise systems need, or can even cope with, is one key feature and this was possibly the largest task that Hughes set out to deliver in its HX system. As a consequence, despite the fact that the company had a great deal of technology which could simply be lifted out of the HN system, most if not all of the QoS software systems, including the algorithms, needed to be completely re-designed. The company also wanted to raise the maximum transmit rate of the remote terminal and to design an architecture that was both low cost and yet scaleable. Traditionally, Hughes has been highly focused on maintaining backwards compatibility in its systems, but as the HX system was targeted at new markets it was released from this constraint and had a clean slate on which to start.

Low Cost with High Functionality: As a consequence, the HX offers an almost unique combination made up from the advantages of highly scaleable, efficient, low cost technology taken from a proven and successful product coupled with a hub systems and IP architecture designed from the

page 12

ground up. Hughes has long term plans for the system, but in the present version there are several major differences between the HX and the HN:

Quality of Service capabilities are significantly expanded with the ability to set service guarantees by individual remote terminal and specific application. These include:

Constant bit rate providing a uniform transmission rate to avoid jitter in applications such as voice and video.

Minimum committed information rate (CIR), guaranteeing the throughput of a connection, with fixed steps to a maximum limited rate.

Minimum CIR with best effort to a maximum limited rate

Best efforts services - weighted fair queuing

Class-based weighted prioritisation

QoS is also tied to an operator-defined priority queue which sets four levels of IP traffic and allows the system to prioritise and rate limit the least critical traffic in an ordered fashion.

Inbound transmission speeds have been raised from the maximum of 1.6 Mbps on the HN7000S terminals to 3.2 Mbps on the HX terminals.

Optional 256 bit AES encryption and other security features

Optional spread spectrum operation for mobile applications.

Terminal Range: Hughes currently supports four HX terminal models all of which operate off the same hub chassis with the HX50 serving as the base model.

HX50: uses the same enclosure as the HN series, operates with the standard Hughes proprietary RF range, has one serial and two Ethernet ports and can be expanded with the same range of appliances available in the HN series.

HX200: differs from the HX50 in that it can support higher symbol transmission rates (up to 6 Msps versus 1 Msps) and comes in an enclosure which is both stand-alone and rack-mountable. It is able to operate with either the Hughes proprietary saturated RF unit or industry standard linear L-band BUCs. The terminal can also support spread spectrum inbound channels as an option (which requires additional equipment at the hub) and has the ability to take a GPS reference for mobile services.

HX260: is where things become really interesting because the terminal supports all the attributes of the HX200, but adds a fully featured mesh capability.

HX280: is the “Rolls Royce” of the range, incorporating all the features of the HX system as standard as well as several specific capabilities. These include spread spectrum and other mobility functions, AES256-based FIPS 140-2 cryptographic security and Enhanced Signalling Security which protects all data, management and signalling traffic.

Vertical Market Application: The HX system provides a solution platform for operators focused in

highly defined market segments such as the booming maritime stabilised business, oil & gas, embassy network, GSM backhaul and multi-national corporate segments. Specific features have been incorporated for high speed satellite backhaul circuits from the GSM operators and the military’s need for highly customised mobile terminals capable of supporting multi-megabit mission critical applications. The combination of a low entry point and a DVB-S2 ACM outbound channel, especially in a market struggling with rising prices across the world and a real lack of satellite capacity in some regions, has proven to be an attractive one. Additionally, the system offers many of the advantages of the HN in that the HX50 terminal is priced similarly to the HN7700 due to the fact that it comes from a heritage of huge manufacturing scale.

Unparalleled Flexibility: The HX hub sub-systems incorporate a greater level of integration which reduces the cost and size of the NOC. This was achieved by combining the IP and satellite gateways, consolidation of ports and reducing the number of servers. The development of a standalone, frequency scanning demodulator – the Configurable Demodulator System (CDS) – which is able to support multiple inbound channels is the main foundation for the technology which underlies the HX mesh networking abilities. When we reported about the HX in our last report

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the direction and ambition that Hughes had for the platform was clearly laid out. However, when Hughes announced the HX260 at the beginning of 2009, the mesh feature surprised even us with its level of functionality and cost effectiveness. The new platform is designed to operate not just as a full mesh, peer-to-peer network, but as a multi-star or hybrid network. The system uses the CDS technology as its basic building block, although for mesh a 2 Msps unit is used rather than the 2.5 or 10 Msps units available for the hub. The HX260 demodulator incorporates the same technology as a hub station CDS which allows it to receive and demodulate up to four channels simultaneously, each with different data rates, modulation and FEC. Thus, a network can be quickly set up, controlled ultimately by the HX hub, with any-to-any connectivity between HX260 remotes. Additionally, the low cost star terminals – the HX50 and HX200 – can be integrated seamlessly into a hybrid mesh/star solution all employing the latest, most efficient systems in the market.

Multi-Gateway/Multi-Star: The HX has another trick up its sleeve, however, with a separate gateway option. An HX gateway consists of a Traffic Manager (two for a redundant arrangement) and up to eight mesh units (based on the CDS technology) – HX260 routers – which together can support 16 Msps of capacity running up to 32 channels. The system can start small with a Master Traffic Manager and a single HX260 (CDS) and grow incrementally, adding redundancy if required. Several HX gateways can also be used in the same network controlled by an HX DVB-S2/ACM hub. This allows multi-star networks to be deployed extremely cost effectively because (we have left the best bit to last) the list price on the HX260 modem is $3,500 – effectively less than 25 per cent of the cost of other TDMA mesh modems. Towards the end of 2009, Hughes also released a software upgrade increasing the maximum inbound channel rate from 2 Msps to 6 Msps offering the ability to raise carrier rates for the star element of a network to around 9 Mbps.

Start Small: Of almost equal importance, the combination of the CDS and Hughes’ release of its own hub modulator, has allowed the company to re-package its IF channel hub hardware components. From a point a few years ago where a new IF chain would effectively require an operator to purchase another hub, Hughes is now able to provide this capability for around $70,000 – making it the first vendor to meet iDirect’s strategy head-on with an alternative product. Considering the HX also has its mesh and multi-star capabilities, it is clear that iDirect now has a serious competitor in the market segments which it has dominated and essentially made its own for the past six years. Without question the HX system has breathed new life into Hughes’ ability to address the total potential market rather than just the medium to large scale opportunities. It also makes the Hughes product suite much more attractive to smaller operators who are able to enter service with less upfront investment, grow different service offers incrementally, flexibly and cost-effectively and yet have the potential to scale up to serve massive networks if required. Operators who have bought the system, several as a replacement or service platform upgrade to competing products Hughes has targeted, tell us the HX’s capabilities are impressive and it delivers exactly the kind of service that it was designed for. What is more, many operators are looking for some kind of technical differentiation and, as a new product with a strong heritage, the HX offers this as well as the security of stability. Hughes is a bankable name in this business and its engineering capabilities are well known and respected, giving the customers we have interviewed a sense of assurance with respect to the future of the platform and the support from its manufacturer. Now the HX has industry-leading mesh and multi-star capabilities, it will simply have to be on the shortlist of every procurement

3.1.3. Ka-band Platforms It is hard to consider the HughesNet consumer service anything other than a great result for Hughes. Over 500,000 subscribers is a considerable achievement and one that proves that a market for consumer satellite broadband services undoubtedly does exist. The company’s advanced OBP Ka-band spot-beam satellite, SPACEWAY 3, now serves as the primary satellite for

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the service and was supporting almost 150,000 subscribers at the beginning of 2009. Hughes has a defined and viable roadmap for the next few years as well as a truly integrated business – from the design, manufacture and supply of the terminal to the ownership of the satellite and provision of the service. As a consequence it would seem to us that Hughes has finally reached the summit of a strategy which its vision put in place many years ago. SPACEWAY 3 cannot be described individually as either a ground or a space platform, it is a converged solution with the satellite and terminals integrated in a single design. It provides coverage of all US states and most of Canada’s population. The satellite can be configured with a capacity plan allowing between zero and 50 Mbps of capacity for each uplink cell to optimise the spread of its available bandwidth across the system coverage. Each uplink cell has seven downlink micro-cells – 784 in all – which the satellite sweeps constantly to deliver up to 440 Mbps. When there is no data destined for a cell, the satellite bypasses it, thus automatically delivering the downlink bandwidth where required. All user terminals are able to communicate directly in mesh configuration with traffic being switched and routed on-board the satellite. We like to think of this as “liquid bandwidth”, but Hughes describes the service as “Broadband Dialtone”. Whichever is a better description, SPACEWAY 3 is possibly the most advanced commercial spacecraft ever to be launched and has the potential to make a huge impact on the VSAT market in North America. In June 2009, Hughes announced its plans to launch Jupiter, a high-throughput, multi-spot beam Ka-band satellite for North America. Jupiter will support more than 100 Gbps of capacity over the United States and Canada when it is launched in early 2012 and will significantly augment SPACEWAY 3’s capacity, becoming the primary consumer platform and freeing up SPACEWAY 3 for more enterprise and government services. In Canada, Barrett Xplore, the largest reseller of satellite broadband service in the country which already has a SPACEWAY hub in service, signed a $100 million agreement with Hughes to acquire approximately ten per cent of the capacity on Jupiter to deliver broadband services in Canada. Hughes’ HughesNet consumer service shows the value of its strategic positioning as the company is able to carry its consumer service through the resources that it has in place for its enterprise business which, in turn, feeds off the volume generated in the consumer business. Longer term, Hughes’ VSAT platform development is most likely to focus on the next generation Ka-band terminal and COMSYS expects that most new functions and features for this will also be incorporated into an equivalent Ku-band platform.

4. About this Report This Report was created for Hughes by comsys from extracts from The VSAT Report, 11th Edition. No new material was generated for these extracts which are wholly-based on comsys‘s independent, third-party analysis. The information, facts and opinions expressed in this report belong to comsys and have not been written for or sponsored by any company or party mentioned. More information on comsys, the 11th Edition of The VSAT Report and how to purchase it can be found at www.comsys.co.uk.