DIRECTV 2003 Annual Report Download - page 19

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THE DIRECTV GROUP, INC.
PanAmSat’s backlog, which consists primarily of operating leases on satellite transponders, was about $4.56
billion as of December 31, 2003 compared to about $5.55 billion as of December 31, 2002. The change in
backlog is the result of customer contract activity during 2003 and a reduction to total backlog of approximately
$360 million as a result of the Xenon-Ion Propulsion Systems, or XIPS, failure and resulting shortened estimated
useful life of PAS-6B. See “Contractual Obligations, Off Balance Sheet Arrangements and Contingencies” in
Item 7 for additional information regarding the XIPS failure. Approximately $1.3 billion of backlog is for
contracts with the Company and News Corporation and its affiliates.
HUGHES NETWORK SYSTEMS
HNS, our wholly-owned subsidiary, is a leading supplier of broadband satellite networks, services and
products with a particular emphasis on providing broadband access to both the enterprise and residential markets
through its DIRECWAY brand. HNS designs, manufactures, installs and provides service for advanced
networking solutions for enterprises worldwide using VSATs. HNS is also a leading supplier of set-top receivers
for DIRECTV, a manufacturer of equipment for telecommunications carriers and the developer of SPACEWAY,
a more advanced satellite broadband communications platform.
HNS is the leading supplier of satellite-based VSAT private business networks in the world. Since 1987,
HNS has more than 500,000 VSATs shipped to or ordered from a variety of business customers worldwide.
VSATs are typically used by enterprises with a large number of geographically dispersed locations to provide
reliable, scalable and cost effective applications such as credit card verification, inventory tracking and control,
and video teleconferencing.
HNS expects to launch the first SPACEWAY satellite in North America in 2004 and expects to introduce
service in 2005. HNS views the SPACEWAY platform to be the next generation enterprise VSAT platform.
SPACEWAY 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 re-use spectrum and provide peer-to-
peer applications like video conferencing, distance learning and telemedicine. HNS plans on capitalizing on its
expertise in private business networks and advanced satellite-based communication technology and gradually
transitioning its current Ku-band enterprise VSAT customers to the SPACEWAY platform. SPACEWAY’s
superior bandwidth capacity, speed and value are expected to enable it to offer a competitive service to a much
larger market segment than its Ku-band enterprise broadband service can today.
As of December 31, 2003, excluding capitalized interest of about $174 million, approximately $1.5 billion
of the total $1.8 billion investment has been spent on the SPACEWAY system, which will consist of three in-
orbit satellites built by Boeing Satellite Systems, Inc. and ground systems provided by HNS.
HNS also provides broadband Internet access to the residential market. As of December 31, 2003, HNS had
180,000 DIRECWAY residential customers, nearly 95% of whom receive “two-way” service. We are pursuing a
“limited growth” strategy for HNS’ consumer broadband business in order to minimize cash requirements
associated with subscriber acquisition costs. As a result, HNS expects its consumer broadband business to begin
generating positive operating cash flows in 2004.
HNS is a leading supplier of DIRECTV set-top receivers with over 14 million units shipped through
December 31, 2003. In addition, HNS manufactures advanced equipment for DIRECTV, including HDTV set-
top receivers, DVRs and multi-satellite receiving equipment for local channels in certain DIRECTV markets.
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