EchoStar Corporation (SATS) Q4 2016 Earnings Report, Transcript and Summary

Good morning. My name is Brandy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the EchoStar Fourth Quarter 2016 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Deepak Dutt, the Vice President of Investor Relations. You may begin your conference.

Thank you, Brandy, and good day, everybody. Welcome to our earnings call for the fourth quarter and full year of 2016. I'm joined today by Mike Dugan, our CEO; Dave Rayner, COO and CFO; Pradman Kaul, President of Hughes; Anders Johnson, Chief Strategy Officer and President of EchoStar Satellite Services; Vivek Khemka, President of EchoStar Technologies; and Dean Manson, Executive Vice President and General Counsel. As usual, we invite media to participate in a listen-only mode on the call and ask that you not identify participants on the phones in your reports. We also do not allow audio recording, which we ask that you respect. Let me now turn this over to Dean for the safe harbor disclosure.

Thanks, Deepak, and hello, everyone. All statements we make during this call other than statements of historical fact constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by those forward-looking statements. For a list of those factors and risks, please refer to our Annual Report on Form 10-K filed in connection with our earnings. All cautionary statements we make during the call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our report and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements. I'll now turn the call over to Mike Dugan.

Thanks a lot, Dean. Good morning, everyone, and welcome. We appreciate you joining us on the call. 2016 was a good year for EchoStar overall. To name a few of the significant accomplishments, EchoStar XIX or Jupiter 2, was launched successfully and it's going to provide capacity to resume growth in Hughes consumer business in North America. We launched our HughesNet consumer service in Brazil. Construction was completed on 3 additional satellites for which we are now awaiting launches, and we made good progress on various other initiatives. In addition, we announced an important share exchange transaction with DISH Network in January this year. Our segment presidents will share with you details of their other highlights of their specific businesses, so let me start off by handing this over to Anders, who will talk about ESS and some of the satellite progress. He'll then be followed by Pradman Kaul, on Hughes and finally, Vivek Khemka. Vivek will join us on ETC's progress, and this will be the last time we talk about ETC as it morphs into DTC on the DISH side. Dave Rayner will follow then with a financial overview of the entire company, and then we'll get into questions and answers. So Anders, take it away.

Thank you, Mike. ESS's fourth quarter revenue was $102 million compared to $116 million for the fourth quarter of last year. EBITDA in the fourth quarter of 2016 was $84 million compared to $98 million last year. As Mike mentioned, the highlight of the quarter was the successful launch of EchoStar XIX on December 18. It has completed in-orbit testing and was handed over to us by SSL on February 2. Partly in parallel with SSL's in-orbit testing, we commenced immigrating our gateways with the satellite. To date, we have activated all of the user beams and all of the gateways. Alpha testing will begin on February 25 and beta testing is scheduled for early March. All systems are working well, and Hughes is on track to commence service by the end of this quarter. Echo XXI, our S-band satellite to provide MSS services through EchoStar Mobile in the European Union, was days away from its scheduled December 28 launch on the Proton launch vehicle from Baikonur, when the vehicle was effectively grounded by the Russian government. An investigation triggered by the failure of a different Russian launch vehicle back in early December uncovered manufacturing and quality control issues with one of the subcontractors common to both systems. We are currently working with ILS and its parent Khrunichev in developing a recovery plan, which should get us launched sometime later this year. At this point, we have had the opportunity to explain all these events in detail to most of the European regulators to whom EML's licenses are answerable and are comfortable that they will continue to support us as we await the final launch of the satellite and, ultimately, the launch of our services across the European Union. EchoStar XXIII, our flexible Ku BSS satellite designed to fulfill multiple mission profiles, after a few additional delays associated with how SpaceX's manifest policy functions, is now scheduled for launch in mid-March on Falcon's -- on SpaceX's Falcon 9 launch vehicle off Pad 39A at Kennedy Space Center. EchoStar XXIII will initially be deployed at the 45-degree west orbital position over Brazil. Our third satellite, EchoStar 105, is also slated to launch on a Falcon 9 in either the second or third quarter of 2017. This hybrid Ku-, Ka- and C-band satellite will replace AMC-15 at the 105-degree west orbital slot. I'll now turn it over to Pradman.

Thank you, Anders. First, a few financial highlights. Q4 2016 revenue for the Hughes segment was $371 million, a 7% growth over the same quarter last year. And Hughes' EBITDA for Q4 was $110 million, a 10% growth over Q4 of last year. The fourth quarter of 2016 represents the 12th consecutive quarter of year-to-year revenue growth and the 13th consecutive quarter of year-to-year EBITDA growth. In our Consumer business, we ended Q4 with 1,036,000 subs compared to 1,018,000 at the end of Q3 and 1,035,000 at the end of Q4 last year. As you know, Echo XVII continues to be at capacity in many beams thus constraining growth in the North American subscriber base. As Anders mentioned, IoT and ground system testing of Echo XIX and the Jupiter 2 infrastructure are proceeding very well, and we are on track to commence service on Echo XIX by the end of this quarter. In conjunction with our new Jupiter 2 system and infrastructure, Echo XIX will provide capacity of approximately 220 gigabits per second, a significant increase over the capacity of Echo XVII. Echo XIX will be used primarily for our consumer business in the U.S., as well as Canada, Mexico and a few countries in Central America, to help resume the growth of our subscriber base. The new Jupiter 2 system in Echo XIX will allow us to offer a range of enhanced services, which will be marketed to residential and business users as HughesNet Gen5. The new plans will all offer 25 megabits download speeds and data allowances will start from 10 gigabytes per month and range as high 250 gigabits -- gigabytes per month for some business plans. Pricing will start at $49.99 for an entry-level 10-gigabyte plan. We're introducing new features such as soft caps that allow users to continue service at a lower speed and priority after their allowance is exceeded. That will help our customers get the most out of their service and, compared to the Gen4 services, they'll now enjoy significantly enhanced experience if their usage goes beyond their monthly data allowance. We will also be adding new features to our recently launched HughesNet mobile app, which will give customers more visibility and control of their data from a convenient personal device. All new customers will also receive a built-in dual-band high-performance Wi-Fi router, and existing businesses will have the option to upgrade to the new plans. The new plans will also be phased in for customers on Echo XVII. We are proud to announce that HughesNet Gen5 will be the first ubiquitous coast-to-coast internet service that meets the FCC 25/3 broadband standards. While on the subject of the FCC, I would like to draw your attention to the FCC report Measuring Broadband America 2016 issued on December 1, 2016, which ranked HughesNet as the leader in exceeding advertised download and upload speeds for the second year in a row. The report evaluated 16 satellites, DSL, cable and fiber Internet service providers. Showing our commitment to providing high-quality service, HughesNet also ranks first among satellite ISPs in 9 out of 10 performance categories, including delivering advertised speeds, consistency of speed and web browsing performance. HughesNet continues to be the market leader in providing satellite-based Internet access. We're also very excited with the success we've had thus far with our HughesNet business and are looking forward to the additional subscribers and corresponding future revenues that we'll generate. Our target markets continue [ph] to be those that are unserved by cable and fiber, and the new HughesNet Gen5 will be a strong and viable alternative for approximately 9 million households across the U.S. that are limited today to unreliable slow-speed DSL. We commenced HughesNet service in Brazil in July using our hosted payload on EUTELSAT 65 West and are very pleased with the progress. We had an outstanding ramp up in subscriber additions in December, and this trend appears to be continuing in 2017. We now have approximately 500 dealers and sales agents selling our service in Brazil. We are especially pleased that our plan of replicating the successful network business systems, customer care infrastructure and strategies in North America have played out very well in Brazil. Updating you now on our aeronautical business. Our equipment is in service now on over 750 aircraft, and we continue to expand our systems, both domestically and internationally. We are particularly pleased to report that we are on track to launch our next-generation Jupiter Aero System as well as services on Echo XIX in the third quarter of 2017, and we look forward to announcing our first customers in the very near future. Additionally, we have already delivered preproduction versions of our next-generation high-speed Jupiter Aero terminal capable of exceeding 200 megabits per second per plane for initial partner testing and advanced integration into their systems. It should be noted that while Echo XIX will be a tremendous asset for the North American Aero market, the new Jupiter Aero terminal is fully compatible with both Ku- and other Ka-band satellites. And thus, will enable our clients and partners to offer aero services throughout the world. As part of this global service strategy, we are also bringing to market an advanced new dual-band Ku/Ka aero antenna that will give service operators superior capability to serve airlines that have routes that span multiple satellite footprints. Continuing our strategy for expanding broadband services internationally, our hosted Ka payload on the Telesat T19V satellite is scheduled for launch in the second quarter of 2018. This payload will further enhance our presence in Brazil and allow us to expand broadband services to other parts of South America. Our enterprise business continues to do well both domestically and abroad. Key enterprise orders in Q4 were from General Atomics, Xplornet, Walgreens, Body Shop, Kohl's, iGT, BP Retailers, Murphy Oil and OneWeb. Key international orders were from Abhimata in Indonesia, Broadband for Africa, Cemig in Brazil, Bank of India, Airbus and Thuraya. We ended the fourth quarter with $1.5 billion of enterprise backlog, an increase of 6% over the backlog at the same time last year. Our work on the large development contract with OneWeb is now in full swing. We continue to be excited about the potential of LEO satellites in our various markets. To summarize, I'm very pleased with our performance in Q4, and we are looking forward to strong growth going forward. Let me now hand it over to Vivek.

Thank you, Pradman, and good morning, everyone. ETC revenue in the fourth quarter of 2016 was $266 million compared to the $325 million in the fourth quarter of 2015. EBITDA was $32 million compared to $26 million in the fourth quarter of 2015. 2016 was a very busy year for EchoStar Technologies in terms of our product launches in support of the Hopper product line and our continued innovations. HopperGO debuted in 2016 and lets users to securely transfer up to 100 hours of recorded TV shows and movies from a Hopper 3 or Hopper 2 DVR for offline viewing. This revolutionary solution creates its own wireless cloud to support up to 5 devices via DISH Anywhere, and users can watch the shows with no Internet connection required. Similarly, the new Voice Remote that was announced is a simple-to-use yet incredibly accurate remote. It features a voice search, a touchpad and a backlight. These 2 solutions were well-received in 2016 by the DISH customer base. As was recently announced, DISH Network and EchoStar executed an agreement that will transfer certain EchoStar Technologies businesses, assets and operations to DISH in exchange for DISH's 80% economic interest in the Hughes retail group. Dave will talk more about this transaction. As such, this is my final earnings call with EchoStar, and I would like to express my appreciation to the rest of the executive team for their support during the short time I've been here and look forward to the future success of both companies. Thank you. And I will now hand it over to Dave Rayner.

Thank you, Vivek. Before I get to our financial performance, let me recap the highlights of the transaction we announced on January 31. We will be exchanging our equity interests in our EchoStar Technologies businesses and certain other assets for DISH's interest in Tracking Stock, which represents 80% of the economic interest in the Hughes retail group. While there can be no assurance, we expect to close the transaction at the end of this month. As a result of this transaction, we will be able to realize the full economic value of the high-growth retail consumer broadband business while divesting the less strategic set-top box businesses. It will result in a much cleaner and dedicated focus on our core Satellite Services and Broadband businesses. Finally, the transaction simplifies EchoStar's capital and ownership structure and provides us with an improved platform to pursue strategic opportunities. Now to our financial results for Q4. EchoStar revenue for the fourth quarter 2016 was $740 million compared to $791 million in the fourth quarter of 2015. EchoStar Technologies was lower by $59 million due to lower equipment sales to DISH and others, somewhat offset by increased service fees to DISH. EchoStar Satellite Service revenue was lower by $15 million due to the termination of 2 satellite leases in Q4 of 2015. These decreases were partially offset by an increase of $24 million in the Hughes revenue from higher equipment sales as well as improved consumer revenue. EBITDA for the entire company was $229 million for the fourth quarter compared with $223 million in the fourth quarter of last year. Hughes increased by $10 million, driven by higher margins on increased domestic sales. ESS EBITDA declined by $15 million on the lower revenue, and ETC increased $6 million as a result of the increased service revenue as well as a reduction in the development costs associated with our now discontinued home automation product. Net income attributable to EchoStar common stock was $38.2 million in the fourth quarter of 2016 compared to $66.3 million in the fourth quarter of 2015. And diluted earnings per share were $0.40 compared to $0.71 last year. The increase in net income -- I'm sorry, the decrease in net income was primarily due to higher interest expense from the debt issuances in July of 2016 and a higher effective tax rate offsetting the higher EBITDA. Capital expenditures for the quarter were $189 million compared to $223 million for the same quarter last year, primarily due to decreased satellite expenditures. Free cash flow, which we define as EBITDA minus CapEx was $40 million for the fourth quarter compared to a negative $600,000 last year, the change primarily due to the lower CapEx this year. We continue to have a strong balance sheet and ended the quarter with approximately $3.1 billion of cash and marketable securities. As you know, we do not provide forward-looking guidance, but I wanted to highlight a couple of things for consideration in your modeling. The first is, obviously, the elimination of the ETC segment after February assuming we close as expected. ETC represented $90 million of EBITDA in 2016. This was after the application of approximately $47 million of corporate overhead. While much but not all this overhead will be eliminated over time, it will have a negative impact on relative EBITDA for the immediate future. Second, with the additional broadband capacity availed [ph] by the Hughes from Echo XIX starting in the second quarter, while we expect consumer revenue growth to accelerate, EBITDA will lag somewhat due to the increased subscriber acquisition costs. I would expect that these short-term impacts will be more than offset in the long term as a result of the higher growth -- revenue growth and margins in the remaining businesses post this -- post the transaction. Finally, we expect CapEx to be in the $350 million to $400 million range in 2017, which includes the impact of amounts delayed from last year due to the launch delays. This does not include any CapEx for new satellite programs we may pursue. Let me turn it back to Mike now. Thank you.

Thank you, Dave. In closing, first, I have to recognize all the hard work Dave and the team put in to get to the point where we're very close to closing this transaction with DISH. There was a lot of late nights and I appreciate it. Second, it's been a real pleasure working with Vivek and his support in running ETC over the last six months. I wish him and ETC very well going forward. I do have to admit that I am saddened by the transfer of the ETC business to DISH in some ways given that it's a business that I have devoted a significant part of my EchoStar career in creating and developing. However, I am very excited by the opportunities presented by a more focused and cleaner EchoStar business structure. And I also believe that integrating ETC within the DISH community will give them broader opportunity to participate in all of the exciting things DISH is up to. We are in an industry -- EchoStar is in an industry that is going through and will continue to go through significant shifts driven by technology and customer need. We believe that our satellite assets, engineering expertise and balance sheet, we are in unique position to take advantage of all the changes that are happening pretty much worldwide. Let me now turn it back over to the operator and we'll start our question-and-answer session.

[Operator Instructions] Your first question comes from Ric Prentiss of Raymond James.

I wanted to focus on the Hughes side, the growth business. Appreciate the color on addressing what you think the market is in the U.S., the 9 million households. And as you think of the Brazil operations which ramped nicely in the quarter, how would you think about that addressable market which you might be attacking?

Pradman, do you want to take that question?

Yes, yes. The market is probably in the range -- same kind of range in the 5 million to 10 million households. Our experience currently is limited. We've just started. And the satellite capacity that we have there is significantly lower than what we have in the CONUS United States. So have a capacity of 300,000 subscribers on 65 West, and we'll have some more when we launch DET [ph]. So we're very comfortable we'll fill those up in the next 3 years or so, and the market is much, much larger than that.

Great. And then on the launch schedule, the EchoStar XXI looking like -- can you hear me okay? Yes, so just looking at the launch schedule for the 3 satellites that you've constructed, so EchoStar XXI later this year, how long should those future satellites, EchoStar XXI, EchoStar XXIII and the 105, take from the time they're launched to being in service? Just trying to update our model for the kind of the schedule.

Well, EchoStar XXI is an S-band satellite that actually is controlled by a ground-based beamformer. So the commissioning of that asset will take longer than a typical satellite asset just requiring in-orbit testing. But generally speaking, the in-orbit testing on a satellite is about 6 weeks once the satellite gets on station. So right now, we do not have a launch date for Echo XXI. We're working very closely with Khrunichev and ILS in making sure we fully understand the strategy as to when we will be launching that satellite to assure mission success, but we expect that to occur sometime later this year. Echo XXIII at this point, we have a somewhat firm launch date with SpaceX. We're awaiting confirmation from the Air Force of a range assignment, but we're pretty confident that we will be launching in the middle of March. And Echo 105, we await notification from SpaceX as to how their launch manifest policy will work. But we expect that it will occur sometime this summer.

Yes, just to be clear, none of the satellites we have the queue are going to rely on electronic orbit raising, which tends to extend the amount of time after launch to get on station. So that's good news as well.

Okay. And then one quick one. DISH mentioned that they're going to probably not renew EchoStar XII. Can you give us a range of what that revenue might be? And then DISH also mentioned that they were going to extend the Echo VII, so that was good to see. Just wanting to kind of frame what Echo XII might mean as far as revenue impact.

Yes, we -- Ric, we don't talk about the specific revenue coming off of each satellite. As we get closer to those renewals or potential nonrenewals, we'll try and give you an indication at that point in time.

Your next question comes from the line of Andrew DeGasperi of Macquarie.

First, congrats in the launch and the testing of Echo XIX. I guess I, first, wanted to ask you, as far as the Gen5 plans are concerned, how should we think about your existing subscriber base on Jupiter 1? How are you going to manage that transition? And then, secondly, can you maybe tell us how the SAC is going to work? I mean, when someone upgrades, let's say, from your Echo XVII to Echo XIX service, I mean, Gen4 to Gen5, is the SAC impact similar? Or is it less than what we would consider a new customer?

Well, I'll let Pradman chime in here. But first of all, the challenge we have is more on infield. What we would know is the infield in the SPACEWAY satellite. So we're really focused heavily on making sure those guys get the better plan. As I think Pradman pointed out, Jupiter 1 customers are generally very happy with the service that we're providing over and above what they're asking for. And we definitely have a great plan there. Now I don't know whether Paul or Pradman want to speak more to the SAC issues. Obviously, we're not going to talk on specifics on that.

Right. It's -- I think, Mike, you're right. It's a complex question. There's a whole set of subscribers in different situations. Some in the infield, some not in the infield, some on older plans. And we are working out methods of upgrading and selecting subs to be upgraded. We have designed the modems to be backward compatible in many cases. So whether a subscriber is on Jupiter 1 or Jupiter 2, he can use the same equipment, which means that the SAC is significantly reduced for them. And so we're sorting through all those issues and have plans to handle that very carefully.

Yes. And then just a follow-up. On the -- as far as dishNET resuming marketing nationwide of the Gen5 plan, I'm assuming that will likely happen when you launch services at the end of the month, March. Can you maybe tell us as far as historically, maybe remind us historically what was the wholesale/retail mix whenever you launch -- when you launched Jupiter 1?

Well, you can't -- first of all, we don't publicly announce a lot of those numbers -- specific numbers. The deal for -- we believe DISH Network will continue to support the dishNET-type service off of Jupiter 2 and with Jupiter 2 technology. But that deal is not finalized yet, and we're still under negotiations. But we will be launching the retail services, as I said, by the end of the quarter. We expect them to be in alignment with that, but we don't have anything further to discuss at this time.

Got it. And last question for me. I mean, obviously you have been explaining to the EU about the delay in Echo XXI. I'm just curious to know how was that received generally? And maybe can you also update us on the CGC approvals in that region?

Well, at this point, we've met with the EU level body that's responsible for oversight of EML, which is called -- an organization called COCOM in Brussels and many of the member states were in attendance. And we had a discussion of what our situation is and outlook going forward and all of our efforts to date. And they are generally sympathetic to our situation, and we believe will support us on a going-forward basis in working with our launch service provider in establishing a path forward and ultimately launching the satellite and commissioning the network. So at this point, we think we have the necessary support to endeavor forth here in 2017. As far as the CGC, we continue to discuss both with the European Commission as well as the member states what we refer to as the harmonization of the CGC regulations because each member state generally has a different interpretation or its own interpretation of exactly what our license permits and doesn't permit. So that's a conversation that we continue to have. But many of the CGC licenses that we currently have in hand or are available to us at such time that we seek to get them gives us the flexibility that we're looking forward to having when we ultimately finalize our plans to how we develop those networks and how we're going to deploy utilizing those licenses.

Your next question comes from the line of Jason Bazinet of Citi.

I just had a question about Echo XIX. As I think about sort of ways you could use that 220 gigabits a second of capacity, there's sort of at least 5 buckets that I can think of. And if you could just sort of directionally sort of that one is most important to that's least important, I think it would be helpful. But the buckets are: one, the capacity is pointed towards an area where you already have fallow capacity on Echo XVII, so it can't be used. Bucket 2, migrating off of SPACEWAY as that satellite comes to its end. Bucket 3 is going after new subs. Bucket 4 is going after new markets like the airline market you talked about. And then the last bucket is just trying to get more ARPU off of your existing subsidies' higher data caps. As you think about that capacity of those 5, which one is most important and which is the least important?

Well, I mean, first of all, there's very little fallow capacity on XVII. So it's pretty darn full, and we were very careful -- the Hughes guys were extremely careful with the beam design and the coverage design on XIX, where we knew that we weren't going to, say, have a beam that's totally full. We don't provide a lot of additional capacity off of XIX. XIX's really heavily focused in full-beam areas of the East Coast and, certainly, well-prepared to fill in the infield and get the end customers in the rural areas in the infield upgraded with great plans and great performance. So I'd say our 2 focuses are the infield and new customers from a consumer standpoint, for sure. And then I think that first bucket is irrelevant. And then the rest -- the other 2 buckets I think that you pointed out are certainly -- we're going after all buckets, but we really want to service our current customers within the infield and go after new customers as quickly as possible. And we're -- the guys are set up to attack all of those places [ph].

Your next question comes from the line of Chris Quilty of Quilty Analytics.

Unless I did incorrect math, it looks like you actually added subscribers in the quarter which was a bit unexpected. Can you give us a sense of what were the factors enabling you to add subs in the quarter? Was it more of an improvement in gross adds, decrease in churn? Or any kind of a different marketing strategy?

Well, should I take that Mike?

Yes, go ahead, Pradman.

Well, there are 2 elements to it. One, we kicked off the Brazilian service, so we got new subs in Brazil which helped the subscriber count. And secondly in North America, we have created some extra space in some of the heavily populated beams, so that our retail subscriber adds look better than we expected. A combination of the 2 of these 2 elements accounted for the increase in subs.

And so, I guess for Dave, do you guys intend, on a go-forward basis, to eventually give us a breakout of what's happening domestic versus international with the sub count?

I think we'll evaluate that, Chris. As -- Brazil, as Pradman indicated, did contribute to Q4 growth. But still, in total, is a relatively small number compared to the U.S. subscriber count. I think as we continue to expand in Brazil and then next year into other markets with the launch of the satellite going to 63 West and it becomes a more meaningful part of the total, I think we'll evaluate it going forward.

Okay. And Pradman, have you seen any changes worth noting in either the gross adds, the ARPU trend or churn?

No, I don't think so. Things have been pretty consistent with what we've been seeing over the last couple of years.

The only inconsistency is things have been -- were very positive last quarter, so it's hard to argue with the results.

Got you. And big question here. I think this is the first time that you guys have laid out your HughesNet 5 plans. And when I contrast them against what ViaSat has talked about doing 50, 75, 100 megabits per second, no data caps, is it possible to compete on a direct basis if in fact they do rollout plans that are that generous?

I think if we went back in history, you'd look at ViaSat's comments about what they're going to with ViaSat-1 versus Jupiter 1. And as Pradman pointed out, the proof's in the pudding. They -- we've been rated very well. We do the right things for the customers. The Jupiter 2 system is certainly prepared to do whatever is required in the consumer marketplace going forward. But the guys have done a great job so far and I think the preparation right now for the -- I think the plan structure is correct. And let's just see how it goes. But I don't -- Pradman, I don't know what you want to say, but I'm not worried about some of their announcements.

Yes. No, we are not. The things that drove our Gen5 plan, for example, the 25 megabits down and 3 megabits back, is that is the definition by the FCC for broadband. They've sort of set that mark. So we're meeting that mark. If tomorrow competition requires us to go more than 25, Jupiter 2 can do it. And we're just trying to meet the regulatory requirements and the market requirements, and we'll see how it works out. But at this stage, we have consistently maintained above 60% market share in the U.S. consumer market, and we hope to continue to add that leadership position in the market.

But your core question was can we compete in that market. And the answer is absolutely yes.

Okay. Also just focusing on the Hughes business. You mentioned some good growth in the consumer. Can you give us a sense -- I mean, did the enterprise business, overall, grow in 2016? And what kind of growth?

Yes. I think the -- it's single-digit growth, but it did grow. And we are very pleased with that. We are seeing some encouraging signs in some specific markets. And internationally, some countries are struggling because of the strong dollar. So it's a balance between -- we are very diverse. We're doing business not only the United States in the enterprise world, but all across the world. So in some markets, we're seeing good growth. In other markets, we're seeing -- because of the external environment, the fact is we're seeing a downturn. But all in all, when you put it all together, we're seeing single-digit growth.

Okay. And final question, you mentioned that you hope to have an aviation customer to announce soon. Should we assume that, that is done in partnership with a deal? Or are you guys getting into the direct sales business?

We're not ready to make an announcement yet right now. But hopefully, we will have a new customer very soon. And as soon as we sign it and dot the i's and cross the t's, we'll let you guys know.

Your next question comes from Andrew Spinola of Wells Fargo.

Could you possibly share if you were able to meet or exceed your initial sub guidance for Brazil of 25,000 subs in the H2 '16?

We came up just slightly short of that. We got off to a little bit of a slow start intentionally and a little bit cautiously, but ramped quite nicely at the end of year. So we ended up just slightly short on that.

Great. Pradman, any progress on a TV distribution -- or direct-to-home TV distribution partner in Brazil?

We are in discussions with -- serious discussions with 1 potential partner. But at the same time, we're not unhappy that we haven't done it because our returns on the retail distribution channel is a lot better than the wholesale approach. And I think we do well with our dealer leading the way and selling our service. So with the limited capacity we have in Brazil, if we get the right partner and the right deal, we'll do it. If we don't, I think that will still be fine.

Understood. And Pradman, your comment before that you were able to create space on the full beams in North America, could you maybe elaborate? Was there a business that had to roll off to create that space? Was it a material increase in subs that came from that? Or was this just a fairly small increase?

No, it's small. And it's really a combination of technology improvement and maybe some of the churn that have [indiscernible] those beams. And we freed up that capacity and signed up new subs to fill that capacity.

Got it. And wanted to ask a question on Jupiter 3. I think I asked this question on the prior call. But right now, I guess, if we look at your main competitor in the U.S., they're saying that they plan to be in the market in mid-2019. So I would think you would need to be procure -- already building a satellite today to sort of meet that timeframe if you wanted to have capacity in the market at the same time that ViaSat-3 arrives. I'm trying to understand why you haven't and what that might mean for your approach to the U.S. market.

Well, our approach is to be aggressive. And we have been looking at different strategies and different architectures and haven't converged on a solution that we believe makes total sense. So we're continuing to work very hard on that. And as soon as we have -- as soon as we make the final decision, we'll announce it to all of you.

Okay. One last question from me. Pradman, just on the entry-level plan that you described for the U.S., the $49 and 10 gigabytes. I guess, if I try to think about that plan and 25 megabits speeds, it's interesting that the speeds are doubling, but the capacity usage is not increasing for the basic plan versus what's out there in the Gen4 plan. I would have always thought it was the monthly usage that was the bigger constraint and not the speed. Is this maybe an indication that you just think there's enough demand for the existing types of plans? Or is my read on speed versus capacity maybe not entirely correct?

Your read is absolutely correct. The capacity is the issue, generally, within certain limits and not the speed. But people do want speed because the browsing, et cetera, is important as to how fast you get the response. But in the end, the limiting factor is the amount of bits we give you for data.

[Operator Instructions] And there are no further questions at this time.

Operator, it looks like we don't have any more questions?

Correct. There are no further questions.

Yes. I'm going to say let's end the call, operator.

Thank you. That does conclude today's conference call. You may now disconnect.