11.16.09
Posted in Globalstar, Inmarsat, Iridium, LDR, LightSquared, Operators, Orbcomm, Services at 12:37 pm by timfarrar
Inmarsat revealed in its 2009Q3 results that it is in negotiations to acquire a satellite services provider that generated more than $50 million in revenue in 2008, is currently profitable and will have no material indebtedness at closing, in a purchase that would cost less than $150M. There are very few companies in the MSS space that fit the profile given by Inmarsat, but one that does is SkyBitz, which Inmarsat noted in its June 2009 investor day presentation was one of the “key competitors” in the satellite Low Data Rate (LDR) market. Inmarsat also noted that one of its objectives in investing in SkyWave was to “stimulate consolidation in the [satellite LDR] market”.
Indeed, back in July we speculated that a possible resolution to the fight between Inmarsat and SkyBitz over what SkyBitz characterized as “restrictive trade covenants included by Inmarsat” in its SkyWave investment would be for Inmarsat to facilitate a buyout of SkyBitz. An Inmarsat acquisition of SkyBitz would have the added benefit (for Inmarsat) of taking out another of SkyTerra’s key LDR customers, in addition to the 50K GlobalWave customers who were moved from SkyTerra’s satellites to Inmarsat’s I4 satellite network in October 2009.
***We’ve now been reliably informed that Inmarsat’s current acquisition target isn’t SkyBitz. We understand it is most likely a system integrator focused on government business. We don’t have a name at this point, but one company in this area that would fit the disclosed parameters is Segovia. There are likely several other similar possibilities as well.***
We’ve lamented previously that no-one ever seems to leave the MSS industry, but if Inmarsat does eventually follow through on its stated ambitions to stimulate consolidation in the LDR market, then perhaps that sector could be one place where much needed MSS industry consolidation finally begins.
In that context, with Orbcomm having yet another disappointing quarter, we wonder if now is the time for a competitor to make a bid for Orbcomm. After all, the company expects to settle the $50M insurance claim for the failure of all of its QuickLaunch satellites “imminently”, at which point Orbcomm will not have spent too much on its second generation constellation and will still have a reasonable amount of cash on its balance sheet. That might be particularly attractive to Globalstar or Iridium, either of which would benefit greatly from moving Orbcomm’s subscribers over to their own networks (albeit with significant costs for terminal upgrades), and could allay investor concerns about whether Orbcomm can fund the rest of its second generation satellite constellation (which would be exacerbated if the company fails to receive something close to $50M from its insurance claim in the near future). With its partners postponing some new service offerings until messaging delays are resolved, Orbcomm will need these new satellites sooner rather than later if it to build a sustainable business and generate the rapid growth that has been promised ever since the company’s IPO in 2006, but to date has failed to materialize.
Permalink
10.16.09
Posted in Globalstar, Handheld, Iridium, Services, TerreStar at 12:07 pm by timfarrar
At the SATCON conference in New York this week, TerreStar was showing its Elektrobit Genus phone. The company had conducted live demos of calls over the satellite at the IACP conference in Denver the previous week (with reportedly very good results in terms of call quality), but unfortunately a similar opportunity wasn’t available in New York. Nevertheless a few interesting facts emerged about the phone.
Firstly you have to switch manually into satellite mode (via a menu selection) in order to use either voice or data over the satellite. This was not necessary from a technical perspective (the phone could have roamed automatically since the satellite is basically treated like an international GSM network), but was insisted on by AT&T so that users know they will incur roaming charges, and that they will not be able to get the same quality of service that they would expect from a terrestrial network (i.e. they will have to stand outside, and not be inside a building or a car).
Secondly, as shown in the picture below, there is an external antenna port, enabling a cradle-type device with an external antenna to be connected, so that adequate link margin is available in Northern Canada and Alaska. The external antenna is a quad helix antenna about 0.3 inches in diameter (about the size of the Thuraya antenna) and 3 inches in length which swings up from the back of the cradle in the same manner as the rotating antenna on the old Iridium 9505 phone. These cradles will be sold separately (pricing is unclear but we’d guess in the $100-$200 range) and will increase the handset volume by about 60%.
In the lower 48 states and southern Canada (i.e. below the red line in the map above) the Genus phone uses an internal patch antenna located at the right upper corner of the phone in the picture above. It will be particularly interesting to see how sensitive the call quality is to the orientation of the phone when it is being used in practice – users are instructed to hold the phone so that their fingers do not obstruct the link (per the sticker on the back of the phone), but if you are moving around, then inevitably your head will come between the phone and the satellite some of the time. TerreStar’s very large (i.e. very sensitive) satellite antenna will certainly help to close the link, but given how many arguments there have been on conference panels we’ve chaired in the past between proponents of getting the antenna clear of the head (i.e. Globalstar, Inmarsat and Iridium) and those who don’t believe an external antenna is needed (i.e. TerreStar and SkyTerra), this will be one of the first things to examine when the phones become available for testing.
Permalink
09.30.09
Posted in Financials, Handheld, Operators, Spectrum, TerreStar at 4:38 pm by timfarrar
TerreStar and AT&T have now announced that AT&T will distribute TerreStar’s Genus (Elektrobit) phone to “government, first responders, public safety, energy, utility, transportation and maritime users” and given additional details of the expected pricing for this satellite-cellular roaming service. The phone will cost $800 to $900 (subsidies were not mentioned, which is perhaps not too surprising given that the service is not being targeted at consumers initially), and then in addition to a standard voice plan, subscribers will need to pay $24.99/month for satellite access and an additional usage fee for satellite roaming (in the United States) of $0.65/minute for voice and $5/Mbyte for data.
TerreStar and AT&T are basically targeting the existing handheld MSS market, but expect that the phone will be deployed more widely, because it will become an “everyday” phone for end users, rather than being a shared phone which is kept in a cupboard for emergencies. In our view, the size of the potential addressable market is probably not too far off that for Land Mobile Radio, where we estimate there are around 2.5M to 3M handsets in use in the US today, with about half in public safety and the rest in other government and private sector market segments (parks, utilities, railroads, energy, etc.). Of course only a fraction of those users also carry a employer-provided cellphone, and at this point in time, TerreStar’s solution is more likely to be a replacement for that device rather than for an LMR radio itself. So let’s assume AT&T and TerreStar are targeting a potential market of say 1M people. For comparison, today there are about 170K MSS phones in use in the US and Canada (including many Globalstar phones with limited two-way service at present), of which probably just under 100K are in the lower 48 states (and remember that the TerreStar phone is unlikely to work as reliably as Iridium or Globalstar in Alaska or Northern Canada).
In that context, TerreStar would be doing amazingly well if it could gain 50K subscribers by the end of 2010 and 100K-150K subscribers by the end of 2011 (when SkyTerra also expects to be offering next generation services, and Globalstar will be back in full two-way service). Remember also that in 1999-2000, despite massive advertising (at least in Iridium’s case), Iridium and Globalstar only managed to gain a few tens of thousands of users on a global basis in their first year of commercial service. TerreStar will probably share the end user revenue about 50/50 with AT&T (Iridium and Inmarsat expect to get about 70% of retail revenue but AT&T would likely want a bigger incentive to promote the service) and monthly retail ARPUs (including the satellite access fee but excluding any terrestrial voice plan) might be expected to be between $40 and $50. So let’s assume TerreStar receives $25 per user per month. If there are (in the most optimistic scenario) an average of 20K subs in 2010 (assuming deployment ramps up towards the end of the year) and 100K subs in 2011, then that would generate service revenues for TerreStar of $6M in 2010 and $30M in 2011. There would presumably be additional equipment revenues (although we doubt TerreStar is looking to make a profit on equipment sales) and perhaps revenue from some other services like M2M data (once chipsets are available, which means only a limited amount of revenue could be produced even in 2011).
However, its pretty clear that TerreStar is going to need to raise additional funds to cover its operating costs in the near future, since its cash burn rate even before going into full commercial service is about $25M per quarter, and excluding the money purchase agreement for the second satellite (not part of this $25M cash burn), TerreStar had $110M of cash at the end of June 2009. Thus regardless of what happens to the $430M of preferred shares (which must be redeemed or converted next April), TerreStar will need to raise more money by mid 2010. From mid 2011, TerreStar will also need to begin paying cash interest on its debt, at an annual rate of more than $150M per year in 2012.
Given the relatively limited opportunity in professional markets (at best a few hundred thousand subscribers for TerreStar, once the overall market is shared with SkyTerra and other MSS operators), TerreStar will eventually need to either achieve considerable success in consumer markets (requiring a dramatically different price point for both equipment and airtime) or find a strategic partner interested in buying or leasing the company’s 20MHz of spectrum for a terrestrial ATC deployment (which doesn’t look likely in the near term, not least because TerreStar doesn’t even have an ATC license as yet). In this context, its probably most appropriate to look at TerreStar’s initial service offering as a proof-of-concept (and a means to justify further funding) for one of these two longer term possibilities, rather than as the means to generate an immediate financial return on its own. We’ll see over the next 12 months whether TerreStar is able to provide the proof that both the financial markets and potential strategic partners will be looking for.
Permalink
09.14.09
Posted in Aeronautical, Financials, Inmarsat, Operators, Services at 12:26 pm by timfarrar
It seems that people are now coming round to the view, which we’ve expressed since 2006, that there won’t be enough paying users of in-flight broadband for both network providers and airlines to make a profit on the costs of deploying equipment and running a network (as Boeing found out after spending somewhere between $1B and $2B on Connexion). Our view was that only airlines who are interested in offering a differentiated service would be able to justify the costs involved. However, to date the leading service providers (Aircell and Row44) have apparently not only been installing the equipment for free, but have also been offering a cut of revenues to the airline. Its no wonder that this “no lose” proposition has led to fleetwide installation commitments from most of the major US airlines. In comparison, installations of Inmarsat equipment for in-flight cellular services on aircraft in other parts of the world have slowed dramatically over the last 18 months, as most airlines no longer have the money to pay for fleetwide upgrades (with the possible exception of Ryanair, which we suspect may have a similarly attractive deal from OnAir).
Lost in the noise of Southwest’s commitment to install Row44 service across its entire fleet of 540 aircraft was the footnote that there isn’t “a solid timeframe for [installation]” because “certain specific details concerning the cost and financing of equipage are still being worked out”. From what we’ve heard, Row44 needs to raise a lot more money very soon in order to move forward with full-scale deployment (pretty obviously, since fitting equipment on 500 planes at $250K+ each would cost $125M), and presumably Southwest’s announcement was timed to help them secure that funding. However, with Southwest also demanding “control [over] the price point that our customer sees”, it seems a pretty unpalatable deal for potential investors if Row44 must front the installation costs and pay for the network and then let Southwest set the pricing to maximize its own return (probably more dictated by customer loyalty) rather than Row44′s revenues. Similarly unreasonable expectations appear to have been the reason why the oft-mentioned return of Connexion service on Lufthansa (who refused to provide any revenue guarantee to the network provider but wanted to make the provider liable for any future equipment deinstallations) has not happened to date.
What is the solution to achieving a sustainable business model for in-flight broadband? Whether it lies in airlines providing connectivity for free as a differentiator for their customers, or airlines using the link to the aircraft as a means to reduce their own operating costs, what we’re ultimately going to have to see is a change in the direction that the money flows. Instead of airlines getting the equipment for free and receiving a share of the service revenues, the airline is going to have to pay for the equipment and maybe in some cases even offer a revenue guarantee to the network provider (particularly on long-haul international routes where the cost of providing Ku-band coverage is much greater).
How palatable will in-flight connectivity be then to airlines that are currently losing hundreds of millions of dollars a year? At the very least we’d expect them to be a lot more discriminating in deciding whether to provide connectivity or not (who needs it on a one hour shuttle flight?). Perhaps its only if one of the providers goes bust that we’ll see a return to rationality in pricing (of course, it would be very unlikely for the service itself to disappear completely as Connexion did, because the costs of operating either Aircell or Row44′s networks domestically aren’t that high). Until that point is reached, expect airlines to continue to scramble to get something for nothing with their in-flight connectivity installations. In the meantime we’ll be watching carefully to see if the discussions over “cost and financing of equipage” between Southwest and Row44 get resolved and if investors are willing to put more money into in-flight connectivity providers.
Permalink
09.09.09
Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services, TerreStar, Thuraya at 12:43 pm by timfarrar
Unfortunately its not new services, but the prices of current and future satellite phones and airtime that seem to be headed upwards. The last year has seen Iridium introduce its new, improved 9555 handset at a higher price than the 9505A that it replaced, with phones now selling for about $1500, while Thuraya has “simplified” (i.e. increased) its airtime pricing and introduced the more expensive ruggedized XT phone. Inmarsat admitted in June that its new GSPS handset may sell for up to $750 at launch in 2010, compared to the $500 retail price point it suggested previously. Even TerreStar has now indicated that its new handset may cost up to $800, with airtime pricing at “less than $1 per minute”.
We’ve commented before on how satellite phone revenues have been falling since 2005, and competition has certainly diminished as Globalstar has experienced problems with its two-way services over the last couple of years. However, it seems the consensus amongst current participants in the handheld MSS market is that there is little if any growth potential still left in satellite phones, and the actions of Iridium and Thuraya appear to indicate that their remaining customers are relatively price insensitive.
Even more surprising is that so far, at least, the new entrants do not seem to be particularly keen on shaking up the existing “premium price” paradigm for satellite phones. In the case of TerreStar this is rather worrying, given that their objective is to greatly expand the satellite phone market, and bring satellite-cellular roaming to a mass market, which seems very unlikely to happen with an $800 phone. Is TerreStar simply trying not to give too much away about its future pricing plans, while it focuses on developing all the other elements needed for a commercial service, such as distribution channels, billing systems, etc.? Will TerreStar actually be able to convince a cellular operator to subsidize its phone (which would require a significantly greater commitment from a partner than its current roaming agreement with AT&T)? We should find out soon, as TerreStar intends to launch commercial services at the end of 2009.
Permalink
07.03.09
Posted in Inmarsat, LDR, LightSquared, Operators, Regulatory, Services at 9:12 am by timfarrar
In April 2009, Inmarsat announced that it would be taking a 19% stake in SkyWave, facilitating SkyWave’s acquisition of Transcore’s satellite communications assets. However, SkyBitz, Wireless Matrix, XATA and Comtech Mobile Datacom [the Commenters] jointly objected to SkyWave’s FCC application for the transfer of these assets, citing “numerous and substantial negative impacts on MSS Providers and other end-users using L-band capacity”. Although the submission is heavily redacted, it appears that one of their primary concerns relates to the “restrictive trade covenants included by Inmarsat” in the Transaction and they demand an explanation of how Inmarsat “will ensure non-discriminatory treatment of all MSS Providers and other end-users with respect to capacity, availability and contractual terms and conditions”. The Commenters “believe in fact that the Transaction will (i) actually eliminate competition for end-users (as a result of the Covenant), (ii) delay deployment of advanced satellite services to end-users other than SkyWave’s customers, (iii) result in higher pricing to end-users at the expense of higher margins for SkyWave and Inmarsat, and (iv) ultimately reduce the affordability of MSS services for end-users.”
While it remains unclear exactly what is contained in the “Covenant” referred to in these comments, Inmarsat noted at its recent investor conference that one of its motivations for investing in SkyWave was to promote consolidation in the Low Data Rate (LDR) industry, and that more than half of the investment comes in the form of future airtime credits. The Transaction also “provides for a fully funded development programme for new products and services” and will drive “traffic growth on Inmarsat satellite network”, we assume at least partly as a result of SkyWave and Transcore committing to use Inmarsat’s capacity exclusively (Transcore currently uses SkyTerra’s L-band capacity in North America). The airtime credits and development program certainly give SkyWave an advantage over other providers using leased L-band capacity, and this financial and commercial advantage is presumably what would induce the “consolidation” that Inmarsat seeks.
What is particularly interesting is that on June 29, SkyWave withdrew its FCC application to undertake the Transaction and on June 23, Inmarsat (in conjunction with other MSS operators) sought an extension of time until July 14 to respond to the FCC’s consultation proceeding for its Third Annual Report to Congress on Status of Competition in the Provision of Satellite Services in which the only meaningful concern was also expressed by SkyBitz.
With SkyBitz (which currently uses leased SkyTerra capacity) cited by Inmarsat as one of the “key competitors” in the LDR market (and the only plausible one that could switch to Inmarsat capacity, since the other key competitors listed, namely Iridium, Qualcomm and Orbcomm, all use incompatible technologies), it will be very interesting to see what happens over the next few weeks: will Inmarsat restructure (or even abandon) the SkyWave Transaction to eliminate the “restrictive trade covenants” that SkyBitz is concerned about (presumably making it more difficult to promote the consolidation Inmarsat seeks), or will Inmarsat actually facilitate a deal between SkyBitz and SkyWave to fulfill its market consolidation objective and eliminate the most prominent source of objections?
Permalink
07.01.09
Posted in Financials, Globalstar, Handheld, ICO/DBSD, Inmarsat, Iridium, LightSquared, Operators, Services, Spectrum, TerreStar at 10:25 am by timfarrar
With apologies to the Eagles…its a lovely place, for MSS consumers at least. However, for MSS operators it seems to be somewhere you can check out [or go bankrupt] anytime you like, but you can never leave.
Today we’ve seen confirmation that Globalstar is now fully funded to complete the construction and launch of its first 24 second generation satellites by the end of 2010, while TerreStar has launched its new S-band satellite from Kourou, French Guiana and intends to initiate commercial services at the end of this year. Iridium also looks increasingly likely to complete its deal with GHL, since GHL’s shares and warrants are now trading well above the $10 value that would be refunded to investors if they voted down the deal. While there has been much speculation about potential mergers in the last two years, these now look less, rather than more, likely to occur in the near future (with the sole exception of SkyTerra’s Harbinger-backed bid for Inmarsat, which should be decided one way or another later this year).
Thus by early 2011, it looks like we will have at least four and more likely six voice and data MSS systems providing service in North America (Inmarsat, Iridium, Globalstar and TerreStar plus ICO and SkyTerra) and four systems (Inmarsat, Iridium, Globalstar and Thuraya) providing service in most of the rest of the world. With new advanced satellites, consumers will benefit from improved data capabilities and smaller, cheaper handheld satellite phones.
However, the development of at least three new systems (ICO, TerreStar and SkyTerra) and to some extent Globalstar as well (based on financial analysts’ comments at the time of its IPO in November 2006) has been justified largely by the value of MSS spectrum, due to the FCC’s rules enabling deployment of Ancillary Terrestrial Components (ATC), rather than by the intrinsic potential of the market for mobile satellite services itself. Thus, unless and until demand for MSS spectrum and ATC materializes, we run the risk of overcapacity for land-based MSS services, particularly in North America. This will certainly benefit end users, and price reductions (especially in conjunction with cheaper, more attractive terminals) may help to stimulate significant market growth, but it remains to be seen whether this will enable all the MSS operators to deliver a return for their investors or whether we’ll see more of them “checking out” with a bankruptcy filing as ICO North America did in May this year.
Permalink
06.19.09
Posted in Broadband, Government, Inmarsat, Services, Spectrum at 11:27 am by timfarrar
We’re not referring to hybrid satellite-terrestrial (ATC/CGC) networks, but to the details of Inmarsat’s long term satellite development plans for its Inmarsat-5 constellation revealed at today’s investor meeting in London. Though its fifth generation satellites are not due to be launched for nearly ten years, Inmarsat is already actively developing plans for satellites which include both L-band and higher frequencies, not just a “cheap and cheerful” low cost evolution of its current satellites.
Inmarsat doesn’t plan to develop what it characterized as “high risk” L-band satellites with ground-based beamforming (which is being employed by ICO, TerreStar and SkyTerra, with no apparent problems that we can discern), but instead is looking at including other frequency bands in the I5 constellation. In addition to indicating that S-band is not needed for its core business (but would instead be used mainly for terrestrial applications), Inmarsat suggested that standard FSS frequencies (i.e. Ku-band) were not particularly interesting. Thus we conclude Inmarsat may have a preference for including military Ka and/or X-band capacity on the I5 satellites. With the US government deploying its own Wideband Global System (WGS), there will be many thousands of DoD terminals in the field capable of using these frequency bands by the time the I5 constellation is launched.
Potentially the I5 satellites could provide surge capacity for the DoD (and other defense agencies) to supplement the government-owned WGS satellites, and provide incremental revenue opportunities for Inmarsat. Alternatively, Inmarsat could carry a hosted WGS-derived payload, in the same way as Intelsat recently agreed to carry a hosted UHF payload for the Australian Defense Force. According to figures provided at the conference, Inmarsat already receives 37% of its revenues from government services, and either approach would cement or even increase the proportion of revenues from government in the future.
Permalink
06.15.09
Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, Operators, Services at 11:53 am by timfarrar
As Inmarsat moves towards commercial launch of its new Global Satellite Phone Service (GSPS) some time in 2010, expectations have been building in the analyst community about the potential of GSPS to gain 10%+ of the $500M satellite phone business. In reality, the $500M market estimate (given by Inmarsat in 2006 when it acquired ACeS) represents retail service revenues and is an overestimate given the significant revenue declines experienced by Globalstar and Thuraya, two of the three principal handheld satellite phone providers, in 2007 and 2008. By our estimate, Globalstar, Thuraya and Iridium generated only about $270M in wholesale service revenues from handheld satellite phones in 2008, including a significant amount from Iridium’s US government contract.
While Inmarsat will start to compete in this market during 2010, what appears to have been completely overlooked by analysts are the significant limitations of the GSPS handset. As with the current SPS phone (see p17 of the user guide), we believe that customers will be advised to use the handsfree earpierce and physically point the phone antenna at the Inmarsat satellite. Some level of user cooperation in using satellite phones is not unprecendented, since Thuraya advises customers to ensure the antenna is pointed at the satellite when operating at low elevation angles, such as in south east Australia. However, Thuraya has never achieved much success in areas where this level of user cooperation is required, and the feedback we’ve heard on the first generation SPS phone that’s in use today has been pretty negative.
Inmarsat will certainly be able to improve the performance of the GSPS service within the EMEA region, to a level comparable with Thuraya, once its more capable Alphasat satellite is launched in 2012. However, Inmarsat will be constrained in the size of the antenna that it can use on future satellites, due to the need to maintain its existing levels of maritime coverage, so Inmarsat is unlikely to be able to extend similar levels of handheld performance globally without very substantial incremental capital expense.
Thus it does not appear that GSPS will be a realistic challenger to Iridium as a global satellite phone, and it may not be easy for Inmarsat to reach its target of a 10% market share within two years of launching the product, especially if Globalstar completes its next generation system and re-enters the market as a low cost handheld provider by early 2011. More importantly, as Iridium seeks to fund its next generation system (a prospect of which Inmarsat has been openly scornful), it will be able to make a very strong argument to the US government that Iridium NEXT is a necessity to maintain support for global handheld satellite services, on which US soldiers are increasingly reliant.
Permalink
Posted in Aeronautical, Services, VSAT at 10:56 am by timfarrar
So how many passengers will be willing to pay for in-flight Wi-Fi service on domestic routes? We’ve always agreed that there is “‘there is zero proof’ that a significant number of passengers are willing to pay for in-flight Wi-Fi service on domestic routes”, as noted in a recent NY Times article?
Certainly airlines are “rushing to install Wi-Fi” but its far from clear that they are “banking on a viable market” since it is rumored that Aircell is funding most if not all of the cost of installations. Instead its clear that airlines see very positive passenger reactions to WiFi availability and want to gain a competitive advantage, especially amongst high revenue business travelers. It appears that airlines are receiving a share of revenues, but unless a substantial part of these payments are being held back until the equipment costs have been covered, then the number of planes needed for Aircell to reach break even may be even higher than the 2000 planes previously indicated.
Current usage largely reflects take-up confined to this business traveler segment, with Virgin America reporting that “20 to 25 percent of its passengers use it on the San Francisco-Boston route, heavily used by business travelers” with an across the board “average of 12 to 15 percent”. That’s slightly better than our experience of 15%-20% take rates (20-25 users) on cross country daytime flights between San Francisco and Washington DC with only a handful of users on short West Coast flights, and its not clear if Virgin America is including night flights in its overall estimate. Although WiFiNetNews suggests “that’s not a bad ROI”, even if 25% of the revenue goes to covering the installation costs it will still take at least a couple of years before these have been covered, and Virgin has by far the best selection of routes (about 50% of flying hours cross country) and airplanes (all with at-seat power) and this ignores the fuel cost of flying the equipment around.
For Delta, it remains far more doubtful whether a fleet-wide installation makes economic sense (although it appears the risk is likely to be borne by Aircell rather than Delta) given the prevalence of short flights in most network carriers’ schedules. Indeed, Aircell is now experimenting with lower prices on these short flights ($5.95 on one recent flight we took from San Diego to San Francisco) in an attempt to stimulate demand. As a result, as the NY Times highlights, incremental revenues from Internet-enabled smartphones may be important to closing the Aircell business plan. However, we remain skeptical as to whether it will be possible to attract substantial usage from the average consumer, unless through consumption of video entertainment, which would likely overload the Aircell network, and its far from clear what is the compelling reason to consume sports or movies, which are already available from the entertainment system built into Virgin America’s planes.
Even if it proves difficult to generate a return on its original investment, Aircell is likely to dominate in-flight communications in North America, simply because its capex is a sunk cost and it is going to be installed on 1000+ commercial aircraft in the next 18 months. We hold out far less hope for VSAT-based services such as Row44, which believe will struggle to gain critical mass and justify their rather more expensive terminal installations. The most interesting airline to focus on will be Southwest, which is currently trialling the Row44 solution. Will it decide to proceed with fleetwide installation of in-flight WiFi, and if so will it decide to switch to the much lower cost AirCell solution?
Permalink
« Previous Page — « Previous entries « Previous Page · Next Page » Next entries » — Next Page »
