DIRECTV 2004 Annual Report Download - page 23

THE DIRECTV GROUP, INC.
HUGHES NETWORK SYSTEMS
After two separate divestitures completed in 2004, HNS is now primarily focused on providing broadband satellite networks
and services via its core enterprise VSAT business. HNS’ other businesses include consumer DIRECWAY (a satellite
broadband service), mobile satellite and carrier networks, as well as the portion of the SPACEWAY satellite platform that is
under development and that will not be used for DIRECTV U.S.’ DTH business.
In June 2004, we completed the sale of HNS’ set-top receiver manufacturing operations to Thomson for $250.0 million in cash.
In connection with the sale, DIRECTV U.S. entered into a long-term purchase agreement with Thomson for the supply of set-
top receivers. Also in June 2004, we received $226.5 million in cash for the sale of HNS’ approximately 55% ownership
interest in HSS to Flextronics.
In December 2004, we announced an agreement to sell a 50% interest in a new entity that will own substantially all of the
remaining net assets of HNS to SkyTerra. We will receive $251.0 million in cash, which is subject to a closing adjustment, and
300,000 shares of SkyTerra common stock. We recorded a pre-tax charge of $190.6 million in the fourth quarter of 2004 related
to this transaction. We expect the SkyTerra transaction to close in the first half of 2005 and it is subject to certain regulatory
approvals, receipt of financing and other customary closing conditions.
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 optical fiber. HNS’ consumer DIRECWAY
business faces competition from satellite providers and other terrestrial providers like cable companies using cable modems, and
RBOCs using DSL technology.
ACQUISITIONS, STRATEGIC ALLIANCES AND DIVESTITURES
We review our competitive position on an ongoing basis and, from time to time, consider various acquisitions, strategic
alliances and divestitures in order to continue to compete effectively, improve our financial results, grow our business and
allocate our resources efficiently. We also consider periodically making equity investments in companies with which we can
jointly provide services to our customers.
REGULATION
We are subject to U.S. government regulation, primarily by the FCC and, to a certain extent, by Congress, other federal
agencies, state and local authorities and the International Telecommunications Union, or ITU, a specialized agency of the
United Nations within which governments and the private sector coordinate global telecommunications networks and services.
Depending upon the circumstances, noncompliance with legislation or regulations promulgated by these entities could result in
the suspension or revocation of our licenses or registrations, the termination or loss of contracts or the imposition of contractual
damages, civil fines or criminal penalties.
This section sets forth a summary of regulatory issues pertaining to our operations and is not intended to describe all present and
proposed government regulation and legislation affecting the MVPD industry or our business.
FCC Regulation Under the Communications Act. The Communications Act gives the FCC broad authority to regulate the
operations of our company.
The ownership and operation of our DBS/DTH system is regulated by the FCC primarily for:
•
the licensing of DBS and DTH satellites, earth stations and ancillary authorizations;
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