Welcome to ViaSat's Fiscal Year 2015 Second Quarter Earnings Conference Call. Your host for today's call is Mr. Mark Dankberg, Chairman and CEO. As a reminder, this call is being recorded. You may proceed, Mr. Dankberg.

Okay, thanks. Good afternoon everybody, and welcome to ViaSat's earnings conference call for our second quarter of fiscal year 2015. I'm Mark Dankberg, Chairman and CEO, and I've got with me Rick Baldridge, our President and Chief Operating Officer; Shawn Duffy, our Chief Financial Officer; and Keven Lippert, our General Counsel. Before we start, Keven will provide safe harbor disclosure.

Thanks, Mark. This discussion will contain forward-looking statements. This is a reminder that certain factors could cause actual results to differ materially. More information concerning these factors is contained in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q. Copies are available from the SEC or from our website. Back to you, Mark.

Okay. Thanks, Keven. So as usual, we'll be referring to slides that are available over the web. And I'll start with some highlights and a top-level business overview, and after that, Shawn will discuss our segment level and financial results -- consolidated financial results. And then I'll give a little more detail and color for the business. And finally, we'll summarize our outlook and we'll take some questions. So overall, we got good results for our second fiscal quarter of 2015, including record revenues, adjusted EBITDA and backlog. Our adjusted EBITDA was about $$110 million, including about $40 million of benefit associated with the legal settlement with Space Systems/Loral. Even without the effect of the settlement, adjusted EBITDA was $70 million, which is about a 29% year-over-year gain and a new company record as well as more than a 500 basis point improvement year-over-year. Year-to-date EBITDA was $170 million or about $130 million excluding the effects of the settlement. Shawn will go into more detail on the accounting treatment for the settlement later. Orders for the quarter were $499 million, and that results in firm backlog of over $1 billion. That's also a new record for us, and it's a 27% increase year-over-year. We added just over 16,000 net subscribers on our Exede consumer service. Gross adds were 68,000. We ended the quarter with a little over 657,000 subscribers, and about 553,000 of those are on ViaSat-1. Average revenue per subscriber continued to improve. We've been able to reduce unit operational costs and churn also improved. In our Aero business, we increased the number of in-service WiFi aircraft by almost 50%. So all of that combined to drive a 91% year-over-year gain in Satellite Services segment EBITDA, and that's before the benefits of the settlement. We were happy with the…

Thanks, Mark. Our fiscal 2015 second quarter results were quite strong. Top line revenue for the quarter was essentially flat compared to the prior period, but was up 6% sequentially and over 12%, including the effects of the settlement. In prior quarters, we noted the wind-down effect of NBN Co project in our Commercial segment and BFT program in our Government segment, which combined, accounted for nearly $50 million of year-over-year Q2 revenue reductions. However, the strength of our core diverse product and service portfolio was able to overcome these impacts, which you are seeing in our Q2 Government segment revenues, which grew $18.4 million or 16% from our first quarter. We had notably higher revenues in antenna systems, tactical data links, information assurance as well as higher service revenues associated with our Exede service offerings in both fixed and mobile broadband. Our Satellite Service segment continues to fuel our top line momentum, up $36 million or 35% year-over-year, and it expanded in many dimensions. Consumer ARPU grew to a record level of 53.07 per sub. Consumer subscriber count increased over 657,000. Commercial aircraft served grew to over 200 as of quarter end. And our average revenue per plane grew nearly 45% from the first quarter this year, all in addition to the $21 million Q2 revenue from this agreement with SS/L, which I will walk through a bit more later. Our Q2 adjusted EBITDA of $110 million also hit a new record, up 102% from last year, with Satellite Services being the largest element of growth, reporting a new EBITDA record of $75.1 million, which more than tripled year-over-year. Clearly, the Q2 settlement contribution of $37.5 million, net of the Q2 legal expenses, was significant. However, our core Satellite Services business also grew substantially, generating year-over-year EBITDA growth of…

Okay. Thanks, Shawn. So this next page summarizes key metrics for the Satellite Services segment. The top left chart shows the growth in consumer subscribers and Satellite Services segment EBITDA over the last 10 quarters. And the EBITDA value shown is without the effects of the settlement. And as we mentioned before, it's up about 91% on a year-over-year basis. As we've discussed in the past, we're focused on driving value in our satellite fleet, and we believe the earnings growth reflects that. Growing the absolute number of subscribers is a key part of that, and the chart shows that we added over 16,000 net this quarter to end at about 657,000. The right-hand chart shows gross additions for the year ago quarter -- previous quarter, Q1, and our current fiscal year '15 second quarter. Gross adds are down year-over-year but up sequentially. So that reflects a number of factors, including availability of satellite capacity in high-demand areas; variations in demand for our basic service plans across satellite beams on ViaSat-1; introductions and tests of new service plans in specific geographic markets; our efforts at filtering new additions to improve involuntary and voluntary churn; seasonal variations in demand; variances in our advertising and promotional spending; and changes in our retail, distribution and fulfillment channels. So in particular, the most recent quarter benefited from seasonality relative to the June quarter, increased advertising and promotions and introductions of new plans to lower demand markets in the middle of the quarter. We didn't show churn explicitly, but it's down somewhat both year-over-year and quarter-over-quarter. And if you can -- and if you'd like, you can derive it from the net and gross charts. The lower left chart shows steady increase in blended consumer ARPU on a year-over-year and a quarter-over-quarter basis. Consumer operating…

[Operator Instructions] Our first question comes from the line of Matt Robison of Wunderlich.

So you say the remaining $68.7 million, if my arithmetic is right, from this SS/L award, is that included in the satellite backlog or bookings?

Yes, the remaining value is in the Satellite Services backlog.

Our next question comes from the line of Tom Quillin of Stephens Inc.

Mark, I think you talked about the potential for subscriber growth to go even higher than 16,000 as you move into the third quarter. How much did the freedom plans contribute to the net additions in 2Q? And because they were introduced maybe mid-quarter, is the potential to go up quite a bit from 16,000 or just a little bit?

The -- those plans are only in our lowest-demand beams, so they're a pretty small fraction of the total gross adds that we had for the quarter. I'd say the opportunity for higher growth in the December quarter would come more from the increase in retail distribution that we got. We talked about Perfect 10 [ph] adding to our retail distribution. And probably a little bit stronger seasonality. And also, we'll benefit because the -- as -- in the fraction of the area, where we do have the freedom plans, we'll get them for a whole quarter instead of a half quarter. Those will be the main ingredients.

Got it. And then on churn, it's...

I would, Tim, I would say one thing, and one is that while we increased our advertising in that period to take advantage of the seasonality, we also pulled back out of the markets around the election time frame. So there's some mixed things going on in the quarter. That doesn't change anything Mark just said. I just wanted to make sure you understood that.

Right. Right. Yes, there wasn't any other commercials except political ads for a while.

Yes. Right.

Well, at least here. So on the churn -- so the churn, I think, is coming down very gradually, but still high. Can you talk about how that varies by channel and some of the things that -- some encouraging things that you might be seeing that suggest the churn will continue to come down?

Yes, the -- I mean, we've talked about churn in the past as having 2 components: the involuntary and voluntary churn. Involuntary churn mostly has to do with ability to pay, and so we've been trying to be careful at screening. I think this is sort of a -- we mentioned it last quarter as more of a industry-wide effect, and I think that seems to be the case. So we've made good progress there. The voluntary churn has more to do with, as we've talked about before, sort of matching expectations and fit of the service to the people that buy it. And so one of the things that we're learning through the -- especially through the freedom plan is that people who get to use as much bandwidth as they want are a lot happier. And so we're -- I think that, over time, one of the ways in which we'll be able to reduce the voluntary portion of churn, we think, fairly significantly, is through being able to make the plans better even if they're higher priced just to better match customer's expectation. Right now, since those plans are a small fraction of our subscriber base, that impact is not that high. The other factor that's been good for us in -- in voluntary churn is in the retail dealer channel. That is those dealers that not only sell the equipment, but install it and serve it -- service it. So the fact that we expanded that channel is likely to have, over time, a beneficial impact on our churn -- voluntary churn rate, as well.

Okay. Good. And then on ViaSat-2, can you tell us, as close as you can, what the launch timing might be? And do you see any risk of Jupiter-2 coming to market earlier and maybe have an ability for Hughes to raise caps before you're able to launch ViaSat-2 and raise caps on your own?

Okay. The schedule for ViaSat-2 hasn't changed, we're looking at completion during the middle of the second calendar quarter of 2016 and a launch, sort of, midyear 2016, that's sort of the time frame for that. It's possible that Jupiter-2 could be in service sooner. I think, at this point, sort of looking at the vagaries of the actual satellite integration and test schedules and the launches. But we should be prepared for that. I think that one of the things that we think is fundamental we've always talked about is the unit cost of the bandwidth is really the dominant factor in the amount of bandwidth that you can offer, not necessarily in the speeds that you can offer, but in the volumes of bandwidth. And we think that the unit bandwidth of Jupiter-2, from what we can tell, unit cost of bandwidth, is really, probably, not that much different from Jupiter-1 or ViaSat-1. It's one of the reasons that we took such care in the schedule and timing of ViaSat-2. We think it's substantially better at these -- at the unit bandwidth economics, which is what translates into volume of bandwidth. So basically, we don't -- it doesn't appear to us that, that really would change what Hughes could do with Jupiter-2 They could offer more bandwidth now or later. It's really more, I think, a competitive factor than an economic factor.

Okay. And then just the last question. When do you expect to start building ViaSat-3? And what might the bandwidth economics look like on that bird?

Okay. So we've -- we are very focused on the long term. One of the things we're excited about with our ViaSat-3 plans are that we -- we think we can do a lot better on bandwidth economics. And that again -- we think it's a really strong factor in the market. We don't really have anything else to say about ViaSat-3 at this point. I think, maybe next year we'll be able to talk about it more.

Our next question comes from the line of Rich Valera of Needham & Company.

I just wanted to understand the mechanics of the flow-through of the settlement money. So is it -- did I hear it right that it's $6.8 million you expect per quarter going forward?

It's about $6.9 million, yes.

$6.9 million. And so that will come through as revenue with no cost in the services revenue. Is that correct?

Yes. Predominantly, it's going to come in as product revenues in the Satellite Service segment, with a small amount of it going into interest income.

Right. Okay. And then you mentioned you plan to increase R&D, kind of, take some of that -- those funds effectively and reinvest them into sort of bandwidth enhancement technologies. So how should we think about the R&D line, going forward, relative to recent levels? And likewise, on SG&A, how should we think about the normalized level now that you're through with the legal side of things? And just if you could give us, sort of, a good baseline for those 2 lines, that would be really helpful.

Sure. The R&D line, I think, what Mark talked about a little bit was that we're going to be looking at -- we have some really good opportunities, both in payload technologies as well as in commercial mobility. So I would expect, in the second half, to see a lift to where we are today. And I think from the G&A perspective, looking at Q1 might be a better marker. And then probably just lift that a little bit with the additional SAC that we'll have in Q3.

Got you. That...

I do think -- Richard, this is Rick. I do think that -- and for everybody, we're, as Mark said, we're going to spend some of this -- the proceeds of the stuff on -- to accelerate some R&D. So we want to make sure you, but you just don't add it on top of what you had out there before.

You mean in terms of the proceeds?

Right.

Right. It doesn't just flow right through to the bottom line. I understand. That makes perfect sense. And then on the Commercial Network side, understanding you have -- you had the NBN headwind this year, but can you give us any sense of how you're looking at that business for the year as a whole? I mean, it looks like it's going to be down for the year. But any sort of fine tuning of that would be helpful, just to give us a sense of what you're looking for in the second half, or maybe second half relative to first half. Any color you'd be willing to give will be helpful.

I think that we've said it's coming down. We've got other projects that are increasing. Our XCI [ph] project is coming up. But -- and I think, in general, we gave you some aggregate guidance and we haven't been even giving that, Rich. So I think that -- I think we'll just going to not guide by each one of these elements here.

Okay. Fair enough. I figured I'd ask. And then just wanted to get a sense -- maybe this is for you, Mark. If you didn't have issues with some of your higher-demand beams filling up, essentially, if you had the same capacity you had on day 1 with ViaSat-1, can you give a sense of where you think your net adds would be today totally uninhibited by bandwidth restrictions? Just trying to get a sense of has the market changed? Or would you say the market opportunity is, sort of, the same as it was day 1 and that the slowing in additions is mainly a function of a restricted capacity? Just was hoping you could give some color on that.

No, okay. Sure, I'd be happy to. No, I wouldn't say that the main issue is just capacity. And the way to think about it is that when we offer -- when we brought the service to market, which is almost 3 years ago, 10 megabits, 10 meg -- let's say 12 megabits, which is where we are, is higher than the average speed for the country, and now it's probably a little bit lower. Also, bandwidth consumption has, in that 3 years, probably doubled. So I would say that probably the biggest factor is that if we didn't change the definition of our service plans, the demand for those plans would be lower. So the good thing is we're not locked into the definition of our service plans, we can increase them. And what we're trying to do, and we've sort of described this before, what we're doing right now is, I'd say, we're a little bit in an optimization mode, we're sort of -- can harvest the value of ViaSat-1 and try to do tests, which are really in more behavioral economics. And the way I'd describe it is one of the ways we could sort of neutralize the effects that I described before of growth in the terrestrial market as we could can say, "Well, instead of a 10 gigabyte plan, we have a 14- or a 16-gigabyte plan." Instead of 12 megabits, we're offering 15. But those, we think that those -- that subscribers don't necessarily value the incremental additions in gigabytes or speeds, the -- at a marginal cost. There's sort of a disconnect there. So what we're doing is we're coming up with plans that speak more to how subscribers think. And they do -- when we make more, say, more discrete steps in the value of the plans, especially in volume. So for instance, we've done evolution plans that have unlimited use except for streaming video. And we've done the freedom plans that have completely unlimited use. And we're trying -- doubling the volume caps as an example or tripling them. We're testing all those things. So I would say we'll implement some of those in selected markets in the way that sort of optimizes our revenue. We're driving -- we'll get higher value for those. That's probably what you'll see happening over the next couple of years. I think we'll be able to expand the areas in which we offer some of those plans, and we'll probably be able to offer higher speeds. And then we'll see a big step increase when we have ViaSat-2 in the geographic coverage of those plans and then the quality of the plans, and that's how we'll grow the market. Does that answer your question?

Got it. It does, that's helpful. It was -- yes.

Our next question comes from the line of Mike Crawford of B. Riley.

Can you talk about your global aero terminal and how the ability to offer Ku/Ka roaming to both commercial and government VIP aircraft? What you think that opportunity is for ViaSat? And also, how you're going to recognize that, given that some of that revenue has been in Government Systems in the past with the Yonder service as opposed to Satellite Services?

Okay. So I'll deal with the first part is one of the -- so one of the things that we did, and we talked about this as integrated Ka/Ku terminal, which we've been able to show to selected customers, especially government ones. And one of the most valuable things that, that did is we were able to show to customers that the quality of service that they -- satellite service that they could get was really a property of the satellite and not just the terminal. Because here we took the same terminal, Ka and Ku, and we show them here is what you can do with that terminal when you play it over Ku-band and here's what you can do with it when you play it over, say, an older Ka-band satellite like Anik F2 or AMC-15 or 16. Those are sort of 10-year-old vintage satellites. And then here's what happens when you play it over ViaSat-1. And that really helped people understand the value of using that type of satellite. So what that drove was people who would take the natural reactions as well. "What I want is I want to use those kind of satellites whenever I can, and that would be ViaSat-1, ViaSat-2, Eutelsat. And I'll use the other satellites when I have to." And that is exactly the reaction we're trying to evoke, and it worked really, really well when people can see it that clearly. So that has sparked a lot of demand in the Government market, we think that's going to -- that's -- we're only seeing sort of the start of that now, but we think, over the next year or 2, that will turn into equipment orders and services orders. And we're starting to get some of the commercial customers sort of understand the same effects. And I think, in terms of how we'll account for that revenue, Shawn, do you want to talk about where the different pieces will show up?

Sure. So product sales continued to be showed in the Government side of our business. And then the other side, from the service streams, if it's -- if they're the premium customers that are on the Ku/Ka network, that will show into Government, as well.

And those are more. Generally, they are private network users where we have specific contracts with those customers, delivering a level of service that is different than and quite a bit above what we provide to commercial airlines.

Yes.

Okay. That's helpful. So we didn't see any significant orders relative to that, yet, in the current bookings?

Well, we have had some orders, but we haven't called them out separately.

Okay. And then even broader question is -- what, if you can discuss, please, the opportunities and threats to your business that you see with both small satellites as an alternative or addition to and also terrestrial low-power service.

Let's see. Do you mean in the consumer space? Or in general?

I think it would primarily be in the consumer space, yes.

Yes. You know -- so we don't really see small satellites as a threat for quite a while. We're actually pretty interested in them and we are doing work on them. We worked a lot with O3b on their medium earth orbit satellites. It's an area we're interested in. We don't quite see it -- we don't see it as a threat. Maybe, in the future, we'd see it as an opportunity, more than a threat, I would say. In terms of the terrestrial services or terrestrial low-power service. The -- terrestrial wireless services like Verizon HomeFusion, and probably like -- along the lines that AT&T is talking about as expanding their footprint with the DIRECTV merger. I think those can make sense. I think that we never -- it's never say never. We don't know what those service providers will do. We don't think that the returns on those services and the use of that bandwidth is as good as mobile service. We'd be a little bit surprised to see them getting up in the 50-megabit unlimited service range or 25-megabit unlimited service range. So I think -- though, competition is always a factor, and we pay attention to it, but we don't see it fundamentally changing our outlook for our business.

Okay. And then last question relates to interests you are or aren't seeing in someone else taking up ViaSat and Boeing on your offer to supply a ViaSat-2 architected-type partial or full payload system.

Okay. So we continue to look at that. We have -- I would -- these are big-capital projects, $600 million projects. But we have a few candidates. We're also looking at a way to take our technology and deliver it in bite-size chunks. So chunks, that would be smaller than that, which is what you've seen other satellite operators do in the market recently, where they'll buy a satellite -- pick a number, satellite in orbit that might cost half of what ViaSat-2 could cost, but deliver 1/4 or 1/5 or 1/6 of the bandwidth. So the unit -- so the bite is smaller, the purchase price is smaller, but the unit economics are proportionately quite a bit worse. But that seems to be -- there seems to be a demand in the market for those project sizes. So one of the things that, again, that we wanted to be able to do with the settlement was to be able to turn our attention away from having to deal with our old technology and towards being able to come up with offers based on our new technology, so we're working on that. And I think, over the next couple quarters, we'll have more to say about those, about that, which we think is -- has probably a broader demand than the expensive ViaSat-2 class satellites that are -- have better unit economics but are daunting for a lot of operators.

Our next question comes from the line of Andrew DeGasperi of Macquarie Capital.

Just had a -- on the ARPU side. I was wondering if you could maybe map out for us what the impact would be, going forward, from the promotional activity on your unfilled beams versus your filled beams?

Okay. So those are adding to ARPU. First of all, we don't have any filled beams, so.

Oh, yes. Yes. Yes. Okay.

So we've talked high-demand, low-demand areas. Yes.

High demand.

Yes. High demand, low demand. Basically, the ARPU on those is higher. So even though they represent a relatively small fraction of the total plans, they have a good lift to ARPU. It's a measurable lift for ARPU as a whole.

Got it. And secondly, can you remind us what the opportunities would be if the FCC redefines broadband download speeds at the end of the year?

Yes. The FCC is looking at experiments for different speed tiers. They're trying to figure out what constitutes a good broadband. From our perspective, and I think this is part of the point of Chairman Wheeler's discussion and presentation, is that as those speeds go up, their minimum speeds go up. It makes the market of unserved and underserved look more attractive, bigger for us because it's pretty straightforward for us to be able to deliver 25- and 50-megabit per second speeds. So overall, we think that, that creates opportunity for us.

Our next question comes from the line of Michael Funk of Bank of America Merrill Lynch.

Just a few this afternoon. Maybe you could give us some color on the mix of wholesale and retail and gross adds. I mean, obviously, DISH had some commentary the other day about fill rates of beams now, it's kind of impacting their business. And then second, you commented on seasonality, I'm pretty familiar with seasonality across broadband, historically. Just wondering if most of what you're seeing is related to college students or snowbirds? And how we should think about maybe the quarter-over-quarter change there going from 3Q into 4Q?

Okay. So let's see. Just on the seasonality part, some of them may have to do with our distribution channels. But we see demand lower in the spring quarters, basically. I don't -- and I think maybe it has to do with people's moving -- movement patterns, having to do with school years. We see more of a lift in the summer and around the holiday seasons. Those -- sort of late summer holiday seasons tend to be the best times for us. Did you want to add anything, Rick?

No. I think that's right.

I mean, is there any quantification there what you think is seasonality versus just normal demand?

Well, for us, normal demand -- I mean...

Well, I mean, what you think will be [indiscernible] other than the seasonal trend. I'm just trying to think about the kind of the quarter-over-quarter change here and how you think about that.

Yes. So I think going quarter-over-quarter, the -- and I'll come back to -- I want to come back to the first part of the question. But going quarter-over-quarter, one of the things that we've seen is that the holiday season, people buying new devices or new computers tends to stimulate demand for broadband plans. Especially if you'll go into a home and get new tablets or iPads, and that drives demand for streaming. Basically, one of the things that works for us is we have a higher speed and if you have a lower-speed DSL -- going back to this whole issue of underserved stuff, if you have a low-speed DSL or low-speed wireless then you try to use 2 or 3 tablets at a time, it just doesn't work, right? You just don't have the speed to do that. And so that's one where, I think, people's awareness of satellite probably grows, especially if you advertise in that. That creates opportunities for us, especially around the holidays and maybe just after. But there are -- I try to -- I made up a long list of factors that contribute to what happens to us quarter-over-quarter. And I would say our business is so new in many ways and marketing dynamics are so new and changing that, that -- it's hard to ascribe pure seasonality to it because we're changing so many things. On the overall, though, I mean -- we are -- I think our mix of retail and wholesale might be trending up a little bit, but it hasn't really moved that much over the last 4 quarters. Some of that has to do with the way the legacy subs play off and the new subs come on. But it hasn't really changed that much. Of course, there's always a potential that, that can change. And that, in itself, given the numbers that we have, would make a meaningful difference in a quarter-over-quarter basis.

And I'm, kind of, just trying to get a sense, I guess, of the traction you're getting on the retail side and the efforts you put forth there, versus, maybe, DISH's dynamic shifting from Hughes to your satellites because of capacity issues. And obviously, they have different, I guess, meanings. So I was trying to get a sense of that.

Yes, it's -- what you would think in the long term is that in order to preserve the integrity of the service, in order to preserve the quality of the service, which not everybody might, but if you want to preserve the integrity of the service, there's only a certain amount of oversubscription or a certain amount of provisioning that you can support. So what you would think is that if one gets way ahead of the other in subscriber counts, if they want to preserve the integrity of that service, they're going to end of that -- DISH, if they're drawing from both of us, would eventually need to equalize that to some extent. That's -- I think that's the biggest macro effect. There are some assumptions based in there. And our overall footprints aren't exactly the same and the bandwidth allocations in the specific markets aren't exactly the same. So there's a bunch of factors in there, but the macro one is probably true. And maybe we'll see that next year, maybe we won't.

Our next question comes from the line of Chris Quilty of Raymond James.

Just wanted to start off with a clarification. I think your original guidance was for $300 million of EBITDA. And if I'm doing the math correctly, you're assuming settlement-related proceeds of about $54 million for this year. And you're raising your guidance to $340 million. So my question is am I doing that math right? And if so, where would you attribute the downward delta of $14 million in the core business?

What we said -- I think, basic idea, pretty close to correct. I mean what we've said is we will spend some of that in increased R&D, relative to what our plans were before. And at this point, that grossly would account for the difference.

Okay. Also just on the ARPUs, I know there is an effect in there with the Aero. Can you talk to -- if you exclude the contribution from the aeronautical, what were the core consumer ARPUs doing in terms of quarter-to-quarter or year-over-year?

Mike -- I mean, Chris, we don't have -- our ARPU that we've talked about doesn't include anything for Aero. It's really just residential and it's a blend between wholesale and retail.

Okay. Perfect. Also on the -- I guess, I'll call it the Yonder or the Ka/Ku effort, I know the Yonder Network is pretty reasonably global, but can you talk to whether if you were to sign up a commercial airline, is there enough capacity there on the network that you could support one or more airlines in a dual-mode capacity? Or would you have to beef up some of the beams beyond what you currently have in place?

We've been steadily adding capacity to the Yonder Network, based on what our subscriptions require, based on expected utilization of aircraft demand in the beams and the particular customers that we sign up. So we would take that into account if we've got commercial airlines. We absolutely are looking -- talking to commercial airlines about hybrid Ka/Ku, which would include either using capacity that we have available on the network or expanding that capacity.

Okay. And in terms of expansion capacity, a lot of the Ku capacity that's being built for Global Mobility tends to be high-throughput Ku, which, I guess, just a basic question, can you run your ArcLight modem across some of those satellites being built by Eutelsat and others? Or would you have to add a third modem into the aircraft in order to be able to use those type of beams?

So that's -- from a technical perspective, it supports it. From a business perspective, we're still talking to satellite operators to understand the most economical way for us to use their capacity. And it doesn't -- it doesn't necessarily require additional modems. It depends on the equipment that's onboard the aircraft and the modes in which it's used.

Okay. Back to the consumer for 2 final quick questions. One is can you give us the -- I think you you've indicated that the churn was down in the second quarter. Can you give us the churn, both sequentially and year-over-year? I think Shawn said it was in the charts, but I didn't see it, at least directly in the charts.

Sure. So for this quarter, the churn was about 2.7%. And that -- we said it was down from Q1, it was down a couple percentage points, 2.9% basis points, I should better say. So last quarter, about 2.9%.

Yes.

Okay. And then on the year-over-year period?

It was about the same last year, 2.9%.

Okay. And then the final question. Just in terms of the ViaSat-1 capacity. I think, in the past, you've said you've got a capacity of about 900,000. And I just wanted to clarify, is that a capacity at current rates or rate plans? Or is that the capacity, given what you anticipate the new rate plans to be with ViaSat-2 and the fact that you you'll likely have to step up the data rates for your existing customers, data rates and/or data caps?

Okay. Just to -- so just to review that, when we first announced ViaSat-1, we talked about 1 million subscribers. And that was at sort of at the nominal plans that we introduced, which were our Exede 12 plans, so about 1 million. Then what we said is we were going to take about 10% of that capacity away for other applications, especially things like our commercial and government Aero ones. And that left 900,000 for those plans at, sort of, remembering that, that was at a point somewhere around now to a year from now, based on expected bandwidth usage. Now what we've talked about since then is we found, wow, depending on how we package the plans, we can get more value from subscribers. And they -- it's a good trade. The subscribers actually like the plans better, and we can earn better returns on the satellite by doing that. So that was kind of the point of our equivalent subscriber discussion last quarter, which is we're not talking about a specific number of subscribers because we're trying to match up the -- this behavior economics effect that I described, which is the best fit of what the subscriber expects and what the prices would be. So the -- for your question, yes. What happens is that if we offer plans that have higher bandwidth consumption, the number of subscribers on those plans would be less. And so what we'll end up with is a blended amount of subscriber account that we'll end up with, and that number is going to constantly shift. And one of the things that we learned really, really well over the last few quarters is it's kind of silly to say we're going to just have x number of subscribers on one basic plan that we think we're way better off, not only on ViaSat-1 but on ViaSat-2, adapting our pricing and our provisioning to best fit the market. And that's what we're doing.

And I think the net effect of that is the actual number of subscribers becomes less and less meaningful. And it's really about EBITDA and value generation of the satellite.

Yes. That is basically what we're finding on a -- it seems to make sense on a theoretical basis. But certainly, out in the market, on an empirical basis, we're getting lots of validation of that.

Okay. And just a technical question again. I know -- I believe you're building out entirely new gateway infrastructure for ViaSat-2. Will the ViaSat-1 and ViaSat-2 be fully forward- and backward-compatible? Or will there be a requirement, if somebody wants to migrate up plan, to have to do an equipment swap? And then I guess the same question would hold for the aviation market.

Yes. So we're doing -- we are constantly evolving both our space and ground technology. And that's -- one of the things I was pretty careful to say is that we can do things on both space and ground that can achieve the market effects that we want. So what we're trying to do is make those bandwidths be interchangeable, and that involves gradual evolutions of what we do on the ground for ViaSat-1, as an example, which is exactly what we've done with the older satellites, Anik F2 and WildBlue-1, is that we can apply infrastructure improvements to those, which makes the terminals -- means the terminals can go back and forth, as an example. Or at least certain classes of those terminals can. So that's the approach that we're going to use. Technically, we'll be able to achieve the market effects we want on either satellite. And it will involve some migrations on the ground to give us the flexibility to do that the way we want. But I wouldn't think about -- what we won't end up with is big wholesale equipment swap-outs in order to achieve the effects that we want.

I think that's -- Mark, time's out. I think we were trying to get out of here in an hour. So I we'll wrap it up.

Okay. Good. So I guess, that concludes our time for this quarter. Look forward to speaking with you all next quarter, as well.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of your day.