DIRECTV 2002 Annual Report Download - page 14

HUGHES ELECTRONICS CORPORATION
2002, DIRECTV Holdings LLC (“DIRECTV” or “DIRECTV U.S.”) had approximately 11.2 million
subscribers in the United States and DIRECTV Latin America, LLC (“DLA” or “DIRECTV Latin
America”) had approximately 1.6 million subscribers in Latin America. Average monthly revenue
per subscriber (commonly referred to as “ARPU”) for DIRECTV U.S. subscribers was about
$59.80 in 2002, which Hughes believes is the highest video related ARPU in the U.S. multi-
channel video program distribution (“MVPD”) industry. DIRECTV Latin America’s ARPU during
2002 was approximately $35 per month which includes about $27 from programming
subscriptions, with the remainder derived from fees associated with leased equipment. On
December 13, 2002, Hughes announced that DIRECTV Broadband, Inc. (“DIRECTV
Broadband”), formerly known as Telocity Delaware, Inc. (“Telocity”), would close its high-speed
Internet service business in the first quarter of 2003 and transition existing customers to
alternative service providers.
•Hughes Network Systems, the world’s leading provider of broadband satellite networks
and services to both consumers and enterprises. Hughes Network Systems, Inc. (“HNS”),
which has more than a 50% share of the global market for very small aperture terminal
(“VSAT”) private business networks and 158,000 DIRECWAY broadband consumer customers
as of December 31, 2002, constitutes the Network Systems segment of Hughes. HNS is one of
the two largest manufacturers of DIRECTV®subscriber equipment, having shipped over 10
million units. HNS is also leading the development of the SPACEWAY®service, a next-
generation satellite-based broadband communications platform that is expected to provide
customers with high-speed, two-way data communications on a more cost-efficient basis than
systems that are currently available. SPACEWAY is expected to begin commercial service in
North America in 2004.
•PanAmSat, the owner and operator of one of the world’s largest commercial satellite
fleets. PanAmSat, a publicly held company of which Hughes owns approximately 81%,
constitutes Hughes’ Satellite Services segment. PanAmSat owns and operates 21 satellites that
are capable of transmitting signals to geographic areas covering 98% of the world’s population.
PanAmSat provides satellite capacity for the transmission of cable and broadcast television
programming from the content source to the cable operator or to the consumer’s home.
PanAmSat’s satellites serving the U.S. deliver more than 100 of the leading cable television
channels to and is capable of reaching 10,000 cable head-ends, representing approximately 69
million cable households. PanAmSat’s global fleet also serves as transmission platforms for
eight direct-to-home services worldwide. In addition, PanAmSat provides satellite services to
telecommunications carriers, corporations and Internet service providers (“ISPs”), for the
provision of satellite-based communications networks, including private business networks
employing VSATs and international access to the U.S. Internet backbone.
Corporate Strategy
There have been several recent developments and changes in strategy affecting Hughes’
businesses that Hughes believes will result in stronger operational and financial performance and help
to maximize its opportunity to create shareholder value:
•Focus on Profitable Growth. Hughes’ strategy is to place a much greater focus on
increasing profitability and cash flow while simultaneously growing its businesses. For example,
in 2002, DIRECTV U.S. capitalized on the significant operating leverage resulting from the more
than 11 million subscribers on its platform and increased its operating profit by $437 million,
while also adding 1,050,000 net new owned and operated subscribers.
•Restructure Unprofitable Businesses and Reduce Cash Requirements. Hughes is
moving aggressively to restructure or shutdown those businesses which are not operating
4