DIRECTV 2002 Annual Report Download - page 23

HUGHES ELECTRONICS CORPORATION
In 1997, HNS introduced DirecPC®, a consumer Internet access service, which receives high-
speed data transmissions from a satellite through a small dish antenna and transmits data out through
a telephone line. In 2001, HNS introduced a “two-way” service marketed under the DIRECWAY®brand
where the data is both received and transmitted over the satellite through a small transmit/receive dish
antenna. For consumers, the advantages of two-way communications are important because it
eliminates the need for a second telephone line, eliminates the tedious log-on process by providing an
“always-on” connection, and provides faster download speeds. Primarily due to the high upfront costs
incurred by HNS to add new subscribers to the DIRECWAY consumer service, HNS will pursue a
limited growth strategy until the economics of the business improve. As of December 31, 2002, HNS
had signed up 158,000 one-way and two-way DIRECWAY consumer customers.
As part of its broadband strategy, HNS intends to launch the SPACEWAY system in
North America in 2004. As of December 31, 2002, approximately $1.4 billion of the total $1.8 billion
investment had been spent on the SPACEWAY system, which will consist of three in-orbit satellites
built by Boeing Satellite Systems, Inc. (“BSS”), and ground systems provided by HNS.
The SPACEWAY platform will enable HNS to offer high-speed “bandwidth-on-demand” providing
customers with the ability to transmit and receive via satellite any combination of data, video, audio,
and multimedia while paying only for the amount of bandwidth they use. Utilizing the Ka-band
spectrum, the SPACEWAY platform will have additional features such as spot-beam technology and
on-board processing that allow the satellites to efficiently reuse spectrum and provide peer-to-peer
applications like video conferencing, distance learning and telemedicine. Utilizing its expertise in
private business networks and advanced satellite-based communications technology, HNS plans to
offer new broadband services via the SPACEWAY platform primarily to its “blue-chip” enterprise
customer base.
Set-top Box Products. HNS began manufacturing subscriber equipment for DIRECTV in 1996
and is now a leading supplier of this equipment with over 10 million units shipped through
December 31, 2002. HNS is able, on short notice, to increase its production of DIRECTV receivers to
enable DIRECTV to meet subscriber demand. HNS intends to continue helping DIRECTV meet its
objectives through the production of DIRECTV receiving equipment including high-definition television
set-top boxes, digital video recorders, multi-satellite receiving equipment for local channels in certain
DIRECTV markets and Wink-enabled set-top boxes.
Carrier Services and Products. HNS believes that its advanced technology and extensive
experience position it to be a leading provider of satellite/wireless based communications equipment
and services. In recent years, HNS has been awarded contracts to deliver ground equipment and
handsets for the Thuraya and Inmarsat mobile telephony businesses, and terrestrial repeaters for XM
Satellite Radio. HNS intends to continue in this market on a profitable and opportunistic basis by
leveraging its technology and system integration leadership.
Competition. HNS faces global competition in the enterprise VSAT market, principally from Gilat
Satellite Networks Ltd., and ViaSat Inc., as well as from competitors employing terrestrial technologies
such as frame relay and fiber. The consumer DIRECWAY business faces competition from satellite
providers and from other terrestrial providers like cable companies (using cable modems) and the
regional bell operating companies using DSL technology. HNS faces competition primarily from RCA/
Thomson Consumer Electronics, Samsung Electronics, and Sony Corporation in the sale of DIRECTV
set-top products.
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