Hughes Network Systems (HNS) has completed a month of testing on its future Ka-band satellite-broadband service using a DirecTV spacecraft that resembles the Spaceway 3 satellite that HNS hopes to launch in early 2007.

Officials from the Germantown, Md., company said the trials, using prototype terminals located on the east and west coasts of the United States, confirmed the performance of the system's throughput, traffic management and stability.

"The tests met all our expectations," HNS Chief Financial Officer Grant Barber said April 20. "We stressed the system to determine its capabilities, and we used actual terminals. It was a success."

Spaceway 3, which is a near-identical copy of the Spaceway 1 and Spaceway 2 satellites operated by DirecTV Group for high-definition television, is nearing completion at Boeing Satellite Systems International in El Segundo, Calif., and is scheduled for launch in early 2007 aboard a Sea Launch LLC launch vehicle.

If Spaceway 3 lives up to its promise, it will transform the business of HNS and its owner, Hughes Communications Inc. In an April 17 filing with the U.S. Securities and Exchange Commission (SEC), Hughes says HNS's current addressable market in North America is valued at about $4 billion per year.

With Spaceway 3, that potential market rises to $26 billion a year. "We think it will open up a market that is not available to us now and is not met by the bent-pipe satellites," Barber said, referring to conventional Ku-band spacecraft.

Hughes reported a net profit in 2005 of $24 million on revenues of $806.9 million. Revenues were up 2 percent over 2004. Its current debt totals about $503 million.

In addition to some $120 million that Hughes needs to spend to complete construction and launch of Spaceway 3 and insure the launch, the company as of Dec. 31 had $817 million in satellite-lease contract obligations. Hughes leases satellite capacity today in contracts that typically range from three to five years in length.

Half of its $817 million in satellite-transponder lease obligations are due in 2006, according to the SEC filing.

Hughes currently has about 275,000 subscribers to its HughesNet Ku-band broadband services in North America, provided aboard satellites operated by Intelsat, PanAmSat, SES Americom and Satmex. HughesNet is a new name for HNS's DirecWay service. The DirecWay brand name is the property of DirecTV, which used to own Hughes, and Hughes was obliged to stop using the name April 22.

Hughes is working on the assumption that it can gradually move its current customer base off the conventional Ku-band satellites and onto Spaceway 3, thus removing these hefty transponder-lease payments from its balance sheet as the contracts expire. To switch from the current system to Spaceway 3, all Hughes customers will need new equipment that is operable with Ka-band signals.

Spaceway 3 will offer customers data throughput speeds up to eight times as fast as today's two-way satellite broadband systems, Hughes says, and the system's economies means that it "will be more competitive than terrestrial systems," according to the SEC filing.

Hughes and HNS still face unanswered questions about Spaceway 3's licensing. Under either the Hughes or HNS name, Spaceway 3 has been registered separately with the satellite regulatory authorities of the United States, Britain and Australia.

The Australian regulatory filing is best positioned at the International Telecommunication Union, a United Nations affiliate that regulates orbital slots and broadcast frequencies. The British reservation is the second-best placed, followed by Hughes' filing with the U.S. Federal Communications Commission (FCC).

Satellite orbital slot and frequency regulations are considered on a first-come, first-serve basis by international regulators. The Australian Ka-band reservation for the 95-degree slot came earlier than either the U.S. or British reservations and has precedence over them, according to Hughes.

Barber said Hughes is close to an agreement with an Australian company that is ahead of Hughes in the satellite-registration line that will permit Hughes to register Spaceway 3 through the Australian government. But registering through Britain or the United States has not been ruled out, Barber said.

Registering Spaceway 3 in Britain or Australia would mean re-registering with the FCC as a non-U.S. system, but Barber said Hughes does not expect this to pose problems. Spaceway 3 is intended to operate in geostationary orbit at the 95 degrees west location, regardless of which national regulator grants the license.

Hughes recently asked the FCC to permit it to move the satellite by 0.05 degrees, to 94.95 degrees west, to assure that its operation and the operation of PanAmSat's Galaxy 3C telecommunications satellite do not raise the risk of an in-orbit collision.

Operating in C- and Ku-band and in orbit since 2002, Galaxy 3C was registered at 95 degrees but received FCC permission to move 0.05 degrees in the other direction -- to 95.05 degrees west -- for the same collision-avoidance reasons.

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