Volume IV, No. I January 2019
Table of Contents
Industry Trends and Analysis: (pg. 3)
Patee Sarasin, former CEO of Nok Air:
"Unlocking the Riches of In-flight Wi-Fi" (pg. 4)
David Bruner, former V.P. Panasonic Avionics:
"Buckle Up! :Turbulence Ahead in Airline Connectivity Markets"
"The Promise of the New Iridium and Aireon Services: Big Advancements in Air Traffic Management on the Horizon" (pg. 26)
Ernst Peter Hovinga, CEO Hiber: "Disrupting the Satellite IoT Connectivity Market: The Promise of Hiber" (p.31)
"Upcoming and Recommended Satellite Mobility Events"
Independent Analysis of Maritime, Aero and Land-based Satellite Ventures and Technologies
In This Issue...
"Satellite Operators and the C-Band Gold Rush"
"Internet in the Air: The Turbulent Flight to Profitability"
With Dave Davis, former CEO of Global Eagle
"SmartSky vs. Gogo: The Battle for the ATG Market"
Part I: An Interview with Nancy Walker, Chief Commercial Officer, SmartSky
Part II: An Interview with Oakleigh Thorne, CEO Gogo
"What's Ahead in 2019: Key Trends in Satellite and Mobility Markets"
An Intrview with Arie Hlasband
Satellite mobility World
Table of Contents...
Industry Trends and Analysis (pg.3)
"Satellite Operators and the C-Band Gold Rush" (pg.5)
"Internet in the Air: The Turbulent Flight to Profitability:" With Davis Davis, Fomer CEO, Global Eagle. (pg. 12)
Part I: "SmartSky vs. Gogo: the battle for the ATG Market " An Interview with Nancy Walker, COO, Smartsky Networks.
"Part II: SmartSky vs. Gogo;The Battle for the ATG Market" with Oakleigh Thorne, CEO, Gogo. (Pg. 32)
"What's Ahead in 2019: Key Trends in the Satellite and Mobility Markets"
Recommended Upcoming Industry Events (pg. 50)
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Welcome to the January 2019 issue of Gottlieb's Satellite Mobility World, and our fourth year of publication. 2019 promises to be an even more exciting year as the industry faces an ever escalating set of challenges.
This month we're focusing on aircraft connectivity and the upcoming battle in the ATG market between Gogo and Smartsky. In an interview with Global Eagle former CEO, Dave Davis, we'll explore the barriers facing the major connectivity players and we'll look at the upcoming battle for the business jet market with Smartsky COO, Nancy Walker and Gogo CEO, Oakleigh Thorne.
In our Editorial segment, well delve into the C-Band Coalition's effort to realize billions of dollars in windfall profits for re-allocating 200 MHz of its C-Band spectrum for 5G mobile services. We'll look at what the favorable and opposing views of this controversial proposal and its market, legal and political implications.
Gottlieb's Satellite and Mobility World is published monthly (except August) by Gottlieb International Group., Inc. Suite 100, 1209 South Frederick Street, Arlington, VA USA 22204
© Copyright 2019
Interested in our unique Promotional Capabilities?
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Gottlieb's Satellite and Mobility World is published monthly (except August) by Gottlieb International Group., Inc. Suite 100, 1209 South Frederick Street, Arlington, VA USA 22204
© Copyright 2018
Interested in our unique Promotional Capabilities?
Contact us today!
SATELLITE MOBILITY WORLD
Industry Trends and Analysis
White House May Issue New Executive Order to Bar Huawei, ZTE Equipment Purchases - Gogo and Rural Wireless Operators at Risk
Washington: December 27th: President Trump is considering an Executive Order that would declare a national emergency under which he would prohibit the use of ZTE or Hauwei telecom equipment in the U.S. - technology on which aero connectivity provider Gogo relies upon for both its existing ATG network and its planned NextGen network. While the wording of the order is not yet clear, in addition to prohibiting the purchase of new equipment, the order could force the removal of Chinese equipment already installed installed in U.S. networks, a potentially onerous problem for operators of rural wireless networks as well as Gogo.
Speedcast and Carnival Renew Contract for Fully-Managed Communications Across Global Fleet
Multi-Technology and Multi-Band Network with Innovative Network Automation and Optimization will Deliver Industry-Leading Communications Solutions Onboard the World’s Largest Global Cruise Fleet
SYDNEY, December 24, 2018 – Speedcast International Limited (ASX: SDA), the world’s most trusted provider of remote communication and IT solutions, today announced that it has signed a new contract, with multi-year extension options, with Carnival Corporation (“Carnival”), the world’s largest leisure travel company. Speedcast will provide remote communications and value-added services across the company’s global fleet of cruise ships. The three-year material contract is expected to generate 8-9% of expected full year 2019 revenue.
Speedcast has been delivering communications services to over 100 cruise ships across the various Carnival brands since 2013. With this new contract, Carnival increases its investment in communications, with bandwidth delivered to the fleet increased significantly in order to provide its guests with a high-quality Internet experience. Speedcast is leveraging 40 satellites, including High Throughput Satellites (HTS), across C-band, Ku-band and Ka-band spectrums and 20 teleports to deliver the largest dedicated maritime satellite network in the world.
The connectivity experience is managed and enhanced by a unique and innovative centrally-orchestrated intelligent automation system called Speedcast TrueBeam. Speedcast TrueBeam is the result of a four-year development program at Speedcast, and is being launched operationally for the first time. TrueBeam gives ships anywhere in the world the ability to seamlessly maintain communications, even while moving in and out of a satellite beam’s coverage area. The system incorporates intelligence that understands, predicts and mitigates known satellite communication challenges, such as rain fade, line of sight blockage and network congestion. TrueBeam is critical when using the small beams of HTS, which can require multiple beam switches per day. The TrueBeam system analyzes network availability, capacity, bands, and other key data points across networks and is able to make intelligent decisions without manual interaction. It is the first system of its kind that is able to centralize the planning and switching of a remote network of this size and scale.
Speedcast’s services also include an extensive global terrestrial backhaul network to carry data traffic to the internet and back to Carnival’s key operations data centers. Speedcast will also implement the latest network optimization technologies from Xiplink to help enable an enhanced guest experience.
Beyond connectivity, Speedcast will provide an enhanced suite of value-added services including voice services and support for the growing demand for data-rich applications and streaming from personal devices while onboard.
Speedcast’s 24/7 Technical Support Centers on five continents, a dedicated service delivery team and over 250 field engineers globally will ensure the operation and maintenance of the network to deliver a high degree of service availability.
“Speedcast is thrilled and proud to continue this partnership with Carnival as its trusted provider for communications,” says PJ Beylier, Speedcast CEO. “I would like to thank the entire Carnival team for their trust and look forward to continuously raising the bar together with Carnival to deliver an industry-leading communications guest experience in the cruise industry, just as we did earlier in the year delivering world record-setting bandwidth to the Carnival Horizon. The continuation of our partnership with Carnival, following a very competitive process, is a testament to Speedcast’s unique capabilities, demonstrates our ability to innovate and adapt to fast-evolving customer needs and is confirmation of our leadership position in the cruise sector.”
“Carnival Corporation looks forward to continuing our relationship with Speedcast to enable industry-leading connectivity onboard our ships to enhance the guest experience beyond what we are offering today,” says Reza Rasoulian, VP of Global Connectivity for Carnival.
OnWeb Service Offers to Sell minority Stake to Russia
Moscow: December 24th: Reuters reports that in an attempt to secure the right to operate in Russia and to quell opposition from the Russian security service, which has contended that OneWeb could be a threat to national security, OneWeb has offered to sell a 12.5 per-cent interest the company to Russia in exchange for the right to operate. However, should Russia make the investment it would allow Russia a seat on the board which could give it access to OneWeb's technical documentation - an advantage it wants and which may not be possible, due to the need for approval from FICUS, The Foreign Investment Committee of the U.S. which would likely prohibit any such technology transfer.
OneWeb is desperate to secure access to the Russian as it offers substantial market opportunity and would likely obviate the possibility of Russia or Russia and China building a similar service that could compete with OneWeb. With Russia and China off limits and India already unavailable due to a massive cellular based broadband build out, the venture's prospects of success would seem every more remote.
XipLink Acquires Sevis Systems Cellular Backhaul Assets
December 10, 2018 – Montréal, QC: XipLink, the technology leader in Wireless Link Optimization is proud to
announce the acquisition and subsequent closing on certain assets of Sevis Systems designed to optimize cellular
traffic onto IP-based backhaul links. Specifically, XipLink is acquiring the 6000 series product line for circuit oriented
(E1/T1) base station connections, the 7000 series for IP base station connections and all related intellectual property
associated with these products. Sevis Systems will continue to focus on their core signaling solutions unrelated to
the cellular backhaul business. Jack Waters, CEO at XipLink notes, "We are very excited for our existing customers and the Sevis account base to provide cellular backhaul optimization solutions for every generational standard in the marketplace. In the last few years, XipLink has significantly grown this vertical market using superior TCP acceleration, compression and caching techniques for 2.5G, 3G and 4G connections over satellite and other stressed networks. Starting today, this will make
XipLink the largest independent* provider of cellular backhaul optimization systems over satellite."
With the Sevis 6000 circuit-based product, which will be renamed the XS-S6000 series, XipLink will now offer
standards-based optimization of voice and signaling traffic for 2G mobile network operators (MNO) networks. The
Sevis 7000 packet-based products are renamed the XS-S7000 series and will be supported at their current software
level. Lastly, for customers that desire to convert Sevis 7000 appliances to XipLink's Advanced Cellular Compression
(ACC) solution set with more advanced networking features, a software upgrade option will be provided to the
marketplace by the end of February 2019. The Sevis 6000 and 7000 series products will be quickly assimilated into
XipLink's product line and available for order immediately with a two-week lead time.
Bruce Bednarski, SVP of Business Development and the key senior executive in charge of XipLink's cellular backhaul
business comments "we welcome the opportunity to work closely with the talented Sevis employees, technology,
distribution partners and impressive base of MNO customers. XipLink is confident that the unified approach will
enhance our leadership position and continued growth in the cellular backhaul market.”
RigNet Expands Infotainment Services for Remote Crews
HOUSTON, Dec. 11, 201: RigNet, Inc. (NASDAQ: RNET), the leading provider of ultra-secure, intelligent networking solutions for distributed oil and gas operations, today introduced CrewFlixTM as a new addition to its CrewConnectTM portfolio, which provides crew morale services grounded in reliable, secure, and controlled connectivity.
CrewFlix is a video-on-demand streaming service offering an entertainment library that includes top grossing films licensed from Walt Disney, Paramount Pictures, Warner Bros., Universal, Sony, and many more. It also includes popular TV series over Internet Protocol networks with monthly updates. Optional daily news and sports broadcast programing are also available. CrewFlix can be delivered to both TVs and personal devices or both, depending on site requirements, and it supports video streamed to iOS or Android devices as well as PCs or Macs.
A 2018 survey, conducted by industry publisher Futurenautics, found the average offshore worker has 3 mobile devices, 72% of which are smart phones and 58% are laptops. This is further supported by the 714% growth in usage of RigNet’s CrewHotspotTM service between Q3 2017 and Q3 2018.
“OurCrewFlix offering is designed to meet the growing infotainment demands of crews working in remote onshore and offshore location around the world said RigNet Vice President of Remote Services, Edward Traupman. “We’re innovating a traditional video-on-demand service by tailoring the delivery to BYOD users while ensuring crews are not accessing such content from unsecure sources.”
The service is delivered with multiple audio tracks and subtitles using adaptive-bit-rate streaming technology that adjusts to “last mile” issues of network conditions and bandwidth availability. The service delivers powerful performance and enterprise-class, high-availability features over existing WiFi networks. CrewFlix is available under RigNet managed service agreements with enterprise subscribers.
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5G: Satellite Operators and the C-Band Gold Rush
The race for is on for 5G. It's a race to facilitate the Internet of Things, to allow us to drive across town in self-driving cars, to download movies to our cell phones in seconds and to enable a whole new world of super-efficient connectivity.
Given the urgency for America to be among the first to deploy this new technology, Congress has generated several pieces of legislation to speed its implementation and in doing so, has created a new regulatory gold rush, suddenly turning an obscure piece of electromagnetic spectrum, used by satellite operators for distribution of broadcast content, 500 MHz of spectrum between 3.7 and 4.2 GHz, into a new Klondike.
To understand what is going on, let's review a bit of the background on these frequencies. Originally, satellite operators were granted free licenses specifically for broadcast of programming content via satellite, and much of the live content we view today still reaches us in this way.
With the coming of 5G, this block of obscure C-Band spectrum now becomes much more valuable, so much so that mobile operators could pay billions of dollars for the right to use it.
To mine this rich vein, the satellite operators, now united in an organization known as the C-Band Coalition," are asking the FCC to grant them new terrestrial licenses for free so they can sell 200 MHz of the spectrum they have used for broadcast to the mobile operators.
In return, the satellite operators, in the name of the public interest, propose to speedily "clear" the "band" and re-locate their broadcast industry customers to new frequencies at an expedited rate, one far faster, they claim, than would be possible through use of the traditional FCC auction process, thereby accelerating the implementation of 5G.
In essence, under their proposal, they would take over the role of the FCC and using a "market based approach," they would negotiate with mobile operators for compensation to surrender 200 MHz of the spectrum, thereby directing billions of dollars in potential license fees to themselves rather than to the U.S. Treasury - the prospect of which has driven up the stock price of debt ridden satellite operator, Intelsat, from a dismal $2.44 to over $37.
While obviously supported by the satellite operators who would derive enormous monetary benefit and the broadcast industry who could avoid any troublesome re-location of services, there is considerable opposition to the Proposal, much of it coming from major companies including Google, Comcast, T-Mobile, Qualcomm and numerous public service, non-profit organizations including the Dynamic Spectrum Coalition and the Public Interest Spectrum Coalition.
A Question of Speed of Access:
According to the Public Interest Spectrum Coalition whose membership includes Consumers Union, Common Cause, The Consumer Federation of America and others, "A private auction or negotiated sale controlled by a few foreign based companies and with no return of the anticipated proceeds of $10 to $30 billion to the U.S. Treasury, amounts to massive and needless giveaway of public assets. A "market based" approach that is tantamount to an auction or sale would be an end run around Section 309(j) of the Communications Act in clear contravention of Congressional intent and precedent."
Another organization, The Dynamic Spectrum Alliance, whose members include Amazon, Google, Facebook and Microsoft, notes that "Regulators around the world have learned from the Commissions successes that spectrum auctions are the best method of assigning spectrum rights when spectrum sharing is not possible. Reliance on beauty contests and opaque mechanisms prevent countries from benefiting from auction revenues, interfere with transparency and public oversight and too often lead to legal challenges."
Obviously, as there are numerous opponents to the C-Band Coalition Proposal, if approved by the FCC, implementation would be challenged in the courts or require congressional approval, resulting in extended delay which could make the process of re-allocation proposed by the Coalition even more lengthy than going through the traditional and legal auction process.
Beyond the legal issue itself, there are other grounds for objections to the Proposal including the anti-trust implications of a single entity negotiating license fees with the cellular operators.
While the creation of the C-Band Coalition Proposal creates a platform for the orderly re-location of broadcast services to new frequencies, it eliminates competitive bidding and thereby obviates the potential for any reverse auction process in which the mobile operators might benefit and leaves the buyers positioned against a monopolistic holder of spectrum that theoretically could demand any sum it wants.
We also believe that the Coalition's proposal that they be allocated free terrestrial licenses violates a "free market" approach under which competitors face each other on equal terms, that awarding billions of dollars in valued spectrum for free to the satellite operators and auctioning off similar spectrum to the mobile operators for enormous sums is inherently unfair.
Finally, awarding anywhere from $10 to $30 Billion dollars in windfall profits to foreign corporations is definitively not in line with the "America First" initiative of the Trump administration. In fact, the potential sum is so large that it could more than pay for Trump's $5 Billion border wall.
A Dangerous Precedent:
According to the Public Interest Spectrum Coalition, "a private sale would set a dangerous precedent, suggesting that incumbent licensees should always wage maximum resistance against giving up or sharing unused spectrum unless the Commission gives them all the public revenue that until now has always, with few exceptions, flowed back to the public."
Whatever course is chosen to re-allocate the spectrum, there would be considerable cost to "clear" the band.
Can the Spectrum be Shared?
If, as suggested by the Dynamic Spectrum Coalition, the frequencies can be shared by employing a "Dynamic Spectrum Sharing Database" any re-location costs could be eliminated or minimized. Under this proposal, software defined radios could be deployed that could detect and utilize unused frequencies thereby enabling both satellite and mobile operators to share the spectrum.
If, however, clearing sections of the band is required, satellite operators contend that they should receive compensation for re-locating incumbent users to new frequencies and for future revenues forfeited due to loss of the spectrum.
Compensation for Business Risk?
Unlike the mobile operators who paid billions to secure exclusive use of their spectrum, the satellite operators paid nothing for their "point to point" licenses and have enjoyed the privilege of years of free usage, enabling them to generate billions of dollars in revenue. In accepting this gratuitous award, they built on "shaky ground," knowing full well that their licenses didn't guarantee them multi-purpose, exclusive use of the band. In fact, they had to share it with microwave licensees.
Essentially, some would contend that they took a business risk that has ultimately gone sour, and are now asking that the FCC reward them for what has ultimately turned out to be a misjudgment - both on their part and on the part of the FCC. If they had paid for the "point-to-point" licenses in the same way as cellular operators, they would likely be in a stronger position.
Ultimately, it would seem appropriate that the satellite operators be compensated for the cost of moving existing users to other portions of the band given the FCC's shared responsibility for the problem, and that the level of compensation be determined by negotiation between the FCC, aided by a group of independent experts, and the satellite operators themselves, thereby assuring an equitable and fair settlement to reimburse the satellite operators for re-allocation costs.
In the end, we believe that once the FCC reviews the responses to its July 12 NPRM, submissions from over 62 different entities and over 1,000 pages of commentary, it will follow its legal mandate and avoid any ruling that could be challenged, legally or politically.
"Obviously, there are numerous opponents to the C-Band Coalition Proposal and that if approved by the FCC, would be challenged in the courts or require congressional approval, resulting in extended delay, which could make the process of re-allocation of the spectrum even more lengthy than going through the traditional and legal auction process."
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"...we believe that a "free market "approaches demands that competitors for spectrum face each other on equal terms, that awarding billions of dollars in valued spectrum for free to one group and auctioning off similar spectrum to another group is inherently unfair ."
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An Interview with Dave Davis, former CEO, Global Eagle
Despite the inherent advantages of in-flight connectivity, providers are struggling to find a path to profitability. With too few users ready to pay, high costs of installation and operation and unsure payback for the airlines, the future of the in-flight connectivity industry, as it is structured today, may be in peril.
In an effort to find out just what is going on in the business, why the providers are struggling, whether there is a path forward to profitability and what that path might be, we sought out Dave Davis, the former CEO of Global Eagle Entertainment and now, CFO of Sun Country Airlines. In an engaging interview, he was kind enough to share his thoughts on the state of the airline connectivity business and its future.
SMW: It has been reported that all of the major commercial airline companies – Gogo, Global Eagle, and Panasonic – are struggling to achieve profitability. Gogo, in particular, is in the process of a restructuring, eliminating the subsidies on hardware installation, initiating charges for engineering and certification services, and eliminating custom installs. Are these changes typical of those required by the other providers, and, if implemented, will they enable the companies to achieve profitability, or are there other barriers to profitability to be addressed?
Dave Davis: The answer is that none of these companies can afford to subsidize the equipment installed on the aircraft and still make money. The antennas are still too expensive for the providers to be able to subsidize their installation on a full fleet of aircraft. So, the business case is very difficult to make.
Initially, Gogo led the charge in terms of equipment subsidization, and it forced other providers to follow suit either in whole or in part. Since there are a finite number of airlines and airplanes in the world, if you don’t get on the aircraft, it’s very difficult to displace incumbent providers. So, everyone was forced to follow Gogo. It was a “land grab.”
Gogo could get away with this as long as they could continue to raise debt and use that debt to finance equipment installations. So, they continued to do it. That opportunity has run its course.
The promise of sufficient returns from the airlines or from the passengers on the airplanes hasn't paned out. There just wasn’t enough return to justify the huge investments in equipment subsidization. Now, the balance sheets of the providers are strapped, and none of these companies have the ability to go out and raise huge amounts of additional debt. So, they can’t subsidize installations any more. The airlines are going to have to pay if they want to install inflight connectivity onboard the aircraft.
I think a big question is given the fact that the providers are not subsidizing equipment installs anymore, what’s going to happen to the overall growth rate in the industry? I think it’s going to have a real impact now that the airlines have to shoulder all of the equipment costs.
SMW: If you were to again become the CEO of an aircraft connectivity company, what would be your strategy to achieve/enhance profitability? Is there a way out for these companies other than consolidation or outright sale? If you were to attempt to sell one of these companies, what segment do you see as a logical buyer i.e. the cellular operators, the airlines themselves etc?
DD: I think that given the status quo, it is going to be really difficult for these companies to make money, and I believe a consolidation between the service providers has to take place. Currently, each provider develops its own antennas and leases its own satellite network. In addition, between Global Eagle, Panasonic and Gogo, you have three NOCs and three teams of engineers. Consolidation would allow the industry to take advantage of volume antenna production and eliminate the need for multiple networks, support infrastructure and duplicate personnel.
In addition, those companies that own their own satellites and deliver the service, Inmarsat and ViaSat, the vertically integrated providers, have some real advantages in the market. They can dedicate bandwidth to aviation or maritime or in-home Internet or military applications.
So apart from either vertical integration with satellite operators or consolidation among themselves, there’s little opportunity to return to profitability. Ultimately, there has to be consolidation, and it would most likely be triggered by a bankruptcy or valuations falling so low among the providers that Private Equity would step in and restructure the industry.
SMW: As we know, the price of Ku-Band capacity is falling rapidly, but connectivity providers will be required to provide more capacity. Do you believe the falling cost of Ku-band capacity will have a significant effect on the ability of the connectivity provider to become profitable?
DD: Bandwidth costs are dropping rapidly which should clearly help the service providers become more profitable. On the other hand, the airlines are demanding more and more of it. So that works in the other direction. So, there’s a lower unit cost but the provider has got to buy a lot more units. So, it’s hard to say whether this leads to more or less profitability.
SMW: Has anyone come up with the right business model– a way to pay for the service?
DD: Passengers, so far, seem to be largely unwilling to pay for connectivity, given that 90% of them don’t buy the product. Passenger take rates, when they have to pay for the product, are high single digits at best, maybe low double digits in extreme cases. So, we have seen a variety of creative alternatives to pay for the service other than charging the passengers.
First of all, there’s been a push over time to get advertisers or partners. These deals seem to be few, and I haven’t seen that any of them have the potential to offset the cost of the service. While there are some advertising partnerships in place such as the Amazon-Jet Blue arrangement, I don’t believe they are significant enough to soak up the cost.
Another approach that has been pursued is the concept of offsetting the costs of the connectivity through operational savings – another alternative that has yet to be proven. The idea has been out there for some time, and I don’t yet see that it has being widely adopted. A real fact that proponents of the idea have to contend with is that a lot of data that the plane generates, the operating information, the maintenance information, performance parameters, are not needed in real time. The data can be stored on the aircraft and downloaded when the aircraft lands. I have not seen an instance yet where there is any significant saving relating to the real-time transmission of the data.
Personalized advertising is another approach that has been suggested – sending ads tailored specifically to each passenger. However, there are a lot of technical difficulties associated with that concept, especially the transmission of individualized content. Getting the demographic data at the airline level and transmitting to target someone sitting in seat 5G is not a simple task.
The argument against doing the individualized approach using air to ground connectivity is that I believe that 90% of the effect can be accomplished by storing a lot of ads onboard and updating them fairly frequently and serving them up to passengers onboard in various demographic categories. While, you may not get down to the individual level, you can certainly get appropriate ads into certain groups. So, whether there is real value in leveraging on-line connectivity as a tool to precisely target an individual passenger is questionable.
SMW: Of course, Gogo CEO, Oakleigh Thorne, has said that he wants to be on the “right” planes but not every plane. Can you explain what commercial aircraft and routes represent the most lucrative targets. What would the criteria be for selecting the “right” aircraft?
DD: I think he has got a very good point. When you look at the take rates on aircraft, a lot of the users are business passengers whose companies are paying for the service. So, you want airlines that are not leisure focused but serve a healthy mix of business passengers i.e. Delta, United, American. It’s hard to imagine passengers on leisure carriers like Spirit and Sun Country taking out their wallets and paying for Internet access.
Another issue is passenger density. As you have to purchase satellite beams, you want large numbers of passengers flying within those beams. If you have to light up the Pacific Ocean and you have 5-6 aircraft flying though the area each day, it’s going to be really tough to make payback. So, business traffic in relatively high-density regions is the sweet spot.
SMW: Inmarsat and Panasonic have recently announced a partnership in which Panasonic will deploy Inmarsat’s Global Xpress service for new installs and Panasonic will provide content and services. Can you discuss the advantages for each player, and do you believe that the partnership will have significant effect on the connectivity segment?
DD: I think the partnership is an important step in this direction of consolidation. They are not fully combining the companies, but they are going to market together. There are significant advantages including offering both Ku and Ka-Band options, a full slate of content as well as live TV, and you have seatback offerings in the case of Panasonic, allowing you to offer a full suite of IFEC products. There’s no doubt that it gives them an advantage over other players. If you look at what they can bring to the customer, it’s significantly more than others can bring.
SMW: In terms of speed, there have been many conflicting claims as to which satellite system provides superior performance. Is there any one satellite Internet provider with a significant technological advantage?
DD: I would say that for current generation systems now on commercial aircraft, now that Gogo and Global Eagle and Panasonic are buying a lot more bandwidth, the products are pretty similar. However, with the capacity that ViaSat can bring, they probably have a marginal advantage right now, but I don’t know if it’s a huge advantage. Maybe when ViaSat 3 goes up, the speed advantage will be more significant.
SMW: Do you think that ViaSat’s claim of lower cost per-bit allows Jet Blue to offer the service for free?
DD: No, I think it is just a decision at the airline level to spend the money. While the bandwidth may be somewhat cheaper, I don’t think that’s what’s behind the decision to offer the service for free. I think they are viewing it as a differentiator and hoping it will attract more passengers.
SMW: As we know, there are several major initiatives to launch new LEO broadband Ku and Ka-Band constellations. While these constellations have the potential to offer lower latency broadband services, accessing these satellites will almost certainly require that all aircraft upgrade their terminal capabilities to electronically steered, phased array antennas. While Gogo has upgraded existing ATG installations to satellite with the Thinkom 2 Ku antennas, which are capable of accessing LEOs, do you believe that those carriers already offering broadband via conventional mechanical antennas and GEO satellites will refit their planes with flat panels and convert to LEO?
DD: I don’t think that’s a high probability unless there is some dramatic cost advantage to doing it. As you know, it very costly to retrofit an aircraft and so far, I haven’t seen indications of savings that would make such retrofits desirable. However, on new airplanes and on airplanes that haven't yet installed a system, if you have a lower profile antenna and it’s also lower cost and could access both the GEO and LEO networks, that would be ideal.
SMW: Considering that the availability of LEO services is still three to four years away and during that period, airlines are continuing to add connectivity, will there be enough of a market left for the LEOs to gain a significant share?
DD: While many more aircraft will be fitted with conventional antennas and GEO services within that time frame, the airline industry is growing at four to six per-cent a year.
SMW: Of course, Jet Blue is offering the service for free and Delta’s CEO has recently commented that he, too, would like to offer free Wi-Fi onboard the Delta fleet. Do you think other airlines will be forced to follow Jet Blue’s lead?
DD: I think some carriers with “big” balance sheets, strong earnings like Delta and a lot of business passengers may view it as worth the cost. However, I think a lot of airlines are not going to view it that way. So, it’s really an airline by airline decision on whether they are going to spend the money or not.
SMW: While the struggle for profitability seems to be confined to the commercial airline segment, the business aviation segment appears to be doing quite well. Why does the business segment offer greater opportunity for profit than the commercial aircraft segment?
DD: A few things: first of all, bandwidth requirements are lower, but the big difference is that you have a customer segment that is just not price sensitive. So, on the commercial side, you have an airline whose life blood is controlling costs. They are laser focused on competitive RFPs, squeezing supplier pricing and keeping costs down.
If you are a wealthy business jet owner and you have to pay more for satellite Internet are you going to notice? It’s a different buying group.
Service and making sure the system is reliable are going to be more important than price driven decision making. In the jet charter business, you have customers that are paying thousands of dollars for a single jet charter. So, you can bury the cost.
SMW: ATG backed up by Iridium NEXT appears to be the most practical way to equip mid-sized and smaller jets with broadband services, especially due to the much lower hardware and installation costs than satellite. Given that most of these smaller jets fly only domestically, due you think that they will convert to satellite, assuming that flat panel, phased array antennas are available for jets in their size ranges?
DD: I think that ATG is the perfect network of business aviation. It uses smaller antennas, is easy to install and you very rarely fly outside of the ATG coverage area. For regional jets and for business aviation, ATG can be just fine. Of course, on business jets, backing up ATG with Iridium’s new NEXT service makes sense, especially since there are only a small number of passengers aboard a business jet, making a 320 Kbps X 720 Kbps link adequate as a backup.
SMW: Dave, thank you. It will be very interesting to see what happens in this segment and given your comments, I think its certain that we will soon see some very significant changes in the structure of the industry.
Internet in the Air: The Turbulent Flight to Profitability
"I think that given the status quo, it is going to be really difficult for these companies to make money, and I believe a consolidation between the service providers has to take place."
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About Dave Davis:
Dave is Chief Financial Officer at Sun Country Airlines and board member.
Prior to joining Sun Country, Dave Davis served as named Global Chief Executive Officer of Global Eagle Entertainment where he previously had served as Chief Financial Officer and Chief Operating Officer.
Mr. Davis brings over 20 years of financial and business management experience in the airline and other industries to Global Eagle.
Prior to joining Global Eagle, Davis spent nearly 3 1/2 years in private equity, first as Senior Managing Director of Perseus LLC, then as Partner and Co-Founder of Bearpath Capital LLC.
Davis spent a total of nearly nine years at Northwest Airlines, eventually being appointed EVP and Chief Financial Officer.
After playing a leading role in Northwest's merger with Delta Air Lines in 2008, Davis left the merged company. Davis also previously served as Chief Financial Officer of Kraton Polymers and US Airways.
An engineer by training, Mr. Davis worked early in his career for Rockwell International and BF Goodrich Aerospace. Mr. Davis holds a Bachelor of Aerospace Engineering and Mechanics degree from the University of Minnesota and an MBA from the University of Minnesota's Carlson School of Management.
Part I: An Interview with Nancy Walker, Chief Commercial Officer, SmartSky
There's a battle brewing in aircraft business jet connectivity markets, one pitting long-time market leader and ATG provider Gogo against upstart, SmartSky, purveyor of a new ultra-high speed ATG Network.
Unlike the original ATG network launched by Gogo and operating in only 4 MHz of licensed spectrum, a new technology has emerged that uses a much larger, 60 MHz chunk of spectrum in the unlicensed 2.4 GHz band, one that could enable speeds as high as 100 Mbps to an individual aircraft vs. the significantly lower speeds of approximately 4.0 Mbps available on the current Gogo ATG network.
While both Gogo and SmartSky plan to launch networks that exploit the greater amount of spectrum available in the "band," SmartSky claims to be far ahead in launching its network, and if it is, it may beat Gogo to market..
The problem is that at this point in time, Gogo may see its advance halted, largely due to its use of ZTE technology. Initially delayed by a temporary ban on ZTE equipment that was lifted last summer, it now appears that the Trump Administration may issue an Executive Order in January prohibiting the purchasing of Chinese telecommunications equipment and possibly even mandating its removal from U.S. networks, a development that could be crippling to Gogo's launch of a network competitive with SmartSky and even its existing service. Barring issuance of the Order, Gogo could launch its NextGen network in 2019, and be competitive.
However, should the Executive Order be issued, as expected, and order the removal Gogo's existing ZTE equipment, its existing ATG service could be disrupted as well, raising the risk that business jet customers, unable to convert to 2 Ku satellite, could find themselves without service. More likely, however, is that an Order would bar only new purchases. If it does order removal, it would almost certainly and provide for a transition period.
To find out more about how SmartSky views its chances to challenge market-leader Gogo, and how Gogo views its position, we set up exclusive interviews with Nancy Walker, SmartSky's new chief commercial officer, and, in "Part II" of our feature, with Gogo CEO, Oakleigh Throne.
SMW: While Gogo and others are struggling for profitability in the commercial airline segment, the business aviation segment appears to be doing quite well. Can you explain the difference in these markets and why it so much easier for providers to make a profit in the business segment?
Nancy Walker: Profit is a function of being able to charge an appropriate margin, commensurate with the value added, and having a capital efficient business model to support the service.
On the commercial side, Gogo, the major provider, has been forced to keep prices high due to the limited capacity of its network. So, usage has been primarily confined to business passengers. Even so, the limited number of users combined with the need to share revenues with the airline reduces both revenue and margins to the connectivity provider.
For the business aviation passenger, the value is very high and supports a relatively high margin and is a comparatively minimal cost item when compared to the cost of a jet charter or as a cost of business jet ownership. Of course, in the charter model, the cost of service is buried in the cost of the charter. However, based on the new ATG technology, the economics associated with provision of the service is about to change.
As providers implement the new ATG services, bandwidth will increase many fold, resulting in a fall in per-bit prices and an expansion of usage in both business and commercial markets.
SmartSky, with its highly efficient network has a lead in the deployment of this technology and will be in in an excellent position to take advantage of this opportunity. Unlike our major competitor, Gogo, we will not be burdened by conversion from an outdated, legacy system, and will be a "pure play" based on a highly advanced, new ATG technology.
SMW: As you know, in the early stages of in-flight connectivity in the commercial segment, providers subsidized the cost of installation. Does SmartSky have plans to do this in the business market, given its higher profit potential?
NW: I can only tell you that on our side, our opinions is that we are offering a great service which is affordable enough that subsidization isn't in our plans at all, neither in the business or commercialization space. In fact, its so much easier and less expensive to install than a satellite system. An ATG install can be done overnight vs. a satellite system which can take days.
SMW: I was under the impression that SmartSky was primarily focused on the business jet market. Is that still true?
NW: That's mostly true. Initially our target is the business jet market, but its no secret that we are interested in the commercial segment as well. We've been attending a lot of the trade shows focused on that segment, and are especially interested in regional commercial jets since we believe that ATG is the only solution likely to be implemented. Of course, in the case of larger commercial jets with a mix of domestic and international routes, we see potential for a hybrid satellite-ATG solution.
SMW: In the business jet market, Gogo is about to face significant competition from SmartSky. As we know, Gogo is in the final stages of development of a similar service that combines the use of unlicensed spectrum with its 800 MHz licenses and is claiming that the combination is superior due to potential interference in the unlicensed band. Do you believe that their two-frequency capability is a meaningful advantage over SmartSky?
NW: No, we believe the incumbent’s two frequency capability is not an advantage. All we will say is the congested areas already have the slowest performance on their legacy, licensed spectrum network, so the concept of "backing up" unlicensed spectrum with their limited amount of licensed spectrum seems to us to make little sense.|
SmartSky’s network, on the other hand, incorporates a unique beam forming technology that was designed to deliver dedicated 4G LTE connectivity to each aircraft. In our network, there is no sharing as in an omni-directional broadcast network.
Once our deployment has achieved full CONUS coverage, we’ll have about 27,000 beams covering the US. Beyond that, our system design allows for very capital efficient expansion should we decide it is necessary to add capacity, in a targeted fashion, to any high traffic flight routes.
SMW: Considering the potential for prohibition of the use of ZTE technology, Gogo's originally projected date for testing of its network in September is in doubt. Can you give us an idea of how SmartSky’s deployment scheduling compares?
NW: First of all, let me make the point that we do not use Chinese technology in our network. So, we are not affected by the potential restrictions. In terms of product launch, we are very close.
Almost 2/3 of our ground stations are already under control of our Network Operations Center through the LTE cores, and the remainder are well on the way. We already have FCC and FAA certification for our system. and have multiple STCs issued and more are in progress. We already have over 1,000 flight hours on our network - testing not yet undertaken by Gogo, and we have already done highly successful demonstration flights on our system with the press, partners, and customers.
At present, we expect to have 80-90% of the U.S. flight hours covered by spring 2019 and the entire continental United States geography covered soon after. So, type certified aircraft could be using the network by mid-summer. Of course, you have to understand that each type of aircraft must be certified, and that will go on throughout 2019 and beyond. In this regard, we have a system we call Smart Cart.
Smart Cart is a technology that allows allows us emulate a SmartSky ground site in the hanger, validating a successful installation on the ground rather than requiring a flight, which drastically speeds up the certification and routine installation process.
As we understand it, the incumbent has yet to accomplish any of these things in its attempt at to launch its own NextGen network. Further, it is still reliant on ZTE which could be a huge problem given the pending Executive Order that could likely prohibit use of the Chinese provider's equipment.
SMW: I understand that you have an extensive portfolio of patents covering your beam forming technology which could represent a significant barrier to competitive entry. Can you tell us more?
NW: We patented the key concepts related to various important aspects, all of which are needed in combination to make this work: elements of beamforming, wedge network architecture design, seamless hand-offs, and simultaneous spectrum re-use patent families to name some. To put into perspective the required level of innovation, we’re about to cross over 100 issued patents.
Frankly, we don’t see how a competitor could develop a functional and reliable unlicensed band system without having access to our proprietary IP. Developing the IP was very challenging precisely because we had to overcome the combined technical/regulatory challenge that operations in the 2.4 GHz band represented. To obtain certification, we complied with ALL existing FCC rules for the band just like every other user.
We received no waivers and no rule changes, requiring us to expend a very significant amount of dollars and development time. However, the effort has given us tremendous flexibility to deploy our IP in other attractive licensed and unlicensed bands in the future, in addition to or in place of the 2.4 GHz band.
SMW: According to a recent press release, you are integrating your ATG platform with an inflight entertainment platform from FDS Avionics. Can you tell us more about this project and the capabilities of the FDS offering?
NW: FDS has built a very compelling on-board, stored IFE solution for Business Aviation that gives operators the flexibility of having IFE or not.
The platform has been delivering content over its do CAPSULE™, a streaming media and moving map platform, that is stored on two removable 1 TB drives.
The first drive is included and can be loaded with personal content. An optional second drive is reserved for do 360, a monthly subscription service for fully-licensed movies, music, and more. This multi-media platform provides business aviation with access to licensed Hollywood content and an extremely immersive 2D and 3D moving map experience.
While we designed the SmartSky network to allow for streaming of whatever content a customer can get from the ground, some customers prefer the option of accessing stored IFE content. So for this reason, we partnered with FDS. It is a simple drop-in integration and gives our customers the complete flexibility to have a choice on the IFE equipment they want, if any.
SMW: To what degree are existing Gogo business customers “locked in” to their existing contracts. How difficult would it be for them to switch providers?
NW: The majority of Gogo’s business aviation customers are on month to month contracts and not locked in. We anticipate a small minority will be on longer term contracts of some sort.
Switching providers is not hard and we expect many customers will want to switch to SmartSky. To do so only requires installing new equipment. Interestingly, Gogo’s upgrade path also requires customers to install new equipment, so effectively this represents a new buying decision anyway, and thus a great switching opportunity.
SMW: What is the future of ATG in commercial airline markets? Given the enhanced speed capabilities of unlicensed frequency ATG, do you believe that it will retain the leading position in domestic commercial airline markets, or will we see a major movement to satellite?
NW: We see SmartSky’s ATG connectivity system and Satellite based connectivity systems as being complementary to each other, not exclusive of each other.
Satellite systems offer ubiquitous coverage that ATG systems simply cannot provide today, while the SmartSky ATG system provides a level of user experience and capacity in congested flight corridors that satellite systems may not be able to provide and offers significantly greater capacity in the return channel - aircraft to ground, that is not available in satellite systems.
Of course, there are additional advantages in a combined Ku or Ka-Band satellite solution and ATG solution for commercial aircraft.
ATG equipment is much less expensive to install and operate than satellite systems. ATG blade antennas combine advantages of minimal weight and drag with the lower cost of terrestrial bandwidth, allowing airlines to provide connectivity at a much lower cost over land routes, while using satellite only when the aircraft is over water or outside of ATG coverage
In the business jet market, we see potential for the combination of ATG with L-Band services such as Iridium's new Certus service. As the number of users aboard a business jet is very few, Certus, with its soon to be realized 352 Kbps X 1.4 Mbps forward link capacity, should be a more than adequate back up for the occasional periods when a business jet might be out of range of ATG coverage.
Low latency of a terrestrial based system is also an advantage, allowing for such applications as on-line gaming and improving the performance of latency sensitive applications such as video conferencing.
Given the many advantages inherent in the use of a combined ATG - satellite system, we believe there is potential for many Ku or Ka- Band satellite equipped aircraft to add ATG, now that extreme high speed and low latency capabilities are available.
SMW: Thank you, Nancy for a very informative interview.
Smartsky vs. Gogo: The Battle for the ATG Market
Abut Nancy Walker:
Walker is an aviation industry veteran with more than 30 years of aerospace technology and IFC experience.
She most recently served as a senior portfolio manager for Leonardo DRS, where she was responsible for acquisition and execution of a large $100M+ assortment of programs in support of ruggedized network computing systems for U.S. defense and international military customers.
Previously, Walker held various positions of increasing responsibility in technical, programmatic, leadership, and business development areas at NASA, Harris, LiveTV, and Thales.
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Part II: SmartSky vs. Gogo: The Battle for the ATG Market
An Interview with Gogo CEO, Oakleigh Thorne:
In "Part II of our feature, we see interesting contrasts in the viewpoints of SmartSky vs. Gogo. In our interview with Oakleigh Thorne, Gogo CEO, we learn a lot about how Gogo views its competitive position vs. that of SmartSky. In it, you'll find his remarkably candid assessment of Gogo's market position, the obstacles and opportunities that confront it in both commercial and business jet markets, and how he views the future of the aero connectivity business, both in commercial and business markets.
SMW: Gogo has over $1 Billion in Debt. How did you end up with such a large debt load?
OT: If you go back into the history of commercial aviation, originally there wasn’t much demand for Wi-Fi on aircraft. Back in 2008 and 2010, when we were selling commercial airlines on having broadband connectivity and were using our ATG system, the airlines had no interest in Wi-Fi. Their attitude was that if you want to put it on our airplane and sell it, that’s fine. You are going to pay us a royalty, and you are going to maintain it. It just wasn’t that expensive to install an ATG system. So, that was the model back in the day.
Later on, when satellite came into the picture, everyone figured that you could bear the CAPEX and make it up later on down the line with revenue share. However, with insufficient numbers of passengers demonstrating their willingness to pay for the service, the payback just hasn’t materialized, forcing the industry to drop the subsidies. Initially, everybody in the industry took a pretty big hit to their balance sheets.
So, on my watch, we are no longer subsidizing deals. However, this hasn’t made a big impact on acceptance by the airlines, since a $300 K installation relative to the cost of a big jet is not a huge investment.
SMW:SMW: On your Nov. 6, 2018 earnings conference call, you noted that you have not made a formal decision to proceed with NextGen ATG, but due to the Department of Commerce lifting the denial order against ZTE, you would be able to start test flights in September. However, it was recently reported that in January 2019, the Trump White House would issue an Executive Order that would ban the purchase and/or possible use of Chinese equipment in U.S. networks. Should that occur, how will that effect your existing service as well as your plans for your legacy and NextGen service?
If you do have to replace your current infrastructure with more expensive equipment, how would you finance the upgrade given your current debt level of $1.1 Billion?
OT: I think if we were required to tear out ZTE equipment in our existing ATG network immediately, it would have a devastating impact as it would on other telecommunications providers in the U.S. I also think it would create a backlash among many consumers whose service would be disrupted.
So, I don’t think the Trump administration would require that the equipment be removed immediately. If, instead, they require it to be taken out over time, we already have a migration planned from our EVDO technology to LTE, and we would just accelerate that transition.
In terms of financing the transition, that cost is already incorporated in our long-term plan. However, we would need to accelerate that cost.
In terms of the ban's potential impact on the roll out of our new NextGen network, we have a lot of alternatives that would leapfrog the 2.4 generation of technology, and we would likely move on to one of those technologies.
We spent three years developing the 2.4 solution, and we have a lot invested in it. So, we are furthest along with that solution, and we would like to finish it. We have a network already built between Michigan and Colorado and have been flying between the towers for quite a while. We know our maximum range, which is roughly 200 km from tower to aircraft, which is rumored to be a lot greater than SmartSky’s range, which would make our cost to deploy much lower than theirs.”
SMW: Can you tell us where you stand in terms of deployment of the NextGen network, and how your deployment schedule might be affected if the Trump administration goes ahead and re-implements a ban on the purchase of ZTE equipment?
OT: First, I think it’s important to note that in the business jet market, our current 4G service performs very well and is well suited to the demands of a business jet that carries only a small group of passengers.
If we cannot use ZTE technology, yes, there would be some delay, but many users may not bother to immediately transition to a NextGen type service anyway, giving us time to finish our own implementation of a higher speed upgrade.
We haven’t made a final decision whether or not to deploy our NextGen network, and any decision may hinge on the content of the upcoming Executive Order.
If the government does not ban us from doing business with ZTE, we would be ready to start deploying in 2019. The technology is already developed, and we, in fact, have 50 antennas that we are able to deploy immediately. So, we could be in full production on our NextGen ATG network very quickly, and I am guessing we would beat SmartSky to market.
SMW: You claim that your NextGen is superior to the SmartSky offering due to the combination 800 MHz licensed spectrum along with the 2.4 GHz unlicensed spectrum, in that your licensed spectrum could be used as a backup in interference-prone areas. Doesn’t the fact that flights over highly congested population areas overload Gogo’s 800 MHz allocation obviate that advantage?
OT: The problem with 2.4 GHz is that there is a high noise floor and that’s because it’s so heavily used on the ground. We think that when aircraft equipped with only a 2.4 GHz system fly over congested areas, they are going to lose coverage.
In contrast, we own our 800 MHz spectrum, and there is not congestion from other users that creates a noise floor; our only congestion is from our own traffic, and that traffic is declining as mainline aircraft migrate from ATG to 2 Ku. So, the amount of traffic on our ATG system is coming down.
As that process is completed, the 800 MHz spectrum should serve quite well as a backup for the business and regional jets. In addition, our new AVANCE system improves the performance of the signal once it is received making much better use of the available bandwidth. It uses bandwidth much more efficiently creating a much better user experience.
SMW: Can you tell us more about your migration plan? Which market segments will use ATG and which will use satellite?
OT: Our plan is to move all the large commercial aircraft to 2 Ku satellite and regional and business jets will operate primarily on ATG.
However, due to the superior economics of ATG, we do envision hybrid systems employing high-speed NextGen or a NextGen-like solution in combination with satellite. There will be few commercial planes left out there running ATG alone.
SMW: What about the prospects for use of the new LEO satellites? Do you foresee advantages to their use over the GEOs?
OT: We hope the LEOs become available. Our 2 Ku antenna is very compatible with LEOs, and we have plans for how we would handle them. LEOs would be great as far as we are concerned as they will reduce the latency and lower the cost of satellite connectivity a lot.
SMW: SmartSky claims that they have over 100 patents related to the use of beam forming in the unlicensed band. Do you see this as a potential barrier to the deployment of your NextGen system?
OT: We have been in business twenty years longer than they have, and we have ninety plus patents ourselves. We do not infringe on any valid patent of theirs.
That said, they have tried to patent things that we and others were doing before they even existed. So, we believe some of their patents ignore prior art. So, we believe the probability of them winning a patent fight against us would be extremely low.
SMW: SmartSky says they have the capability to simulate aircraft reception in flight thereby negating the need to do test flights on business jets, essentially speeding up the STC process. How long might it take you to get the necessary STCs to launch your NextGen service on most business aircraft?
OT: We have been very effective in securing STCs and have hundreds of STCs in the business jet market. With our last system, which we launched about a year ago, AVANCE L5 and L3, we already have STCs that cover 200 aircraft models.
We have the largest installation and OEM network in the world, and our dealers see enough value in the systems that they pay for the STCs. So, we can get them very quickly. Within one year, Gogo could have STCs to cover 200 aircraft models just like we did in 2018 with AVANCE L5 and L3.
SMW: SmartSky tells us that they will have 90 per-cent of the U.S. covered by summer and the entire lower 48 states by the end of 2019. Based on your experience, do you believe they can reach that goal?
OT: Rumor has it that they need to raise capital to build out their network, and it is not unusual for companies that are raising capital to make bold claims, and in fact, Smartsky has made many bold claims in the past that did not come true.
Since 2014 they have repeatedly made claims they were going to launch their network nationwide and have yet to fulfill any of those promises.
Beyond that, we look at where they fly and where they test, and we don’t see that. We know that they are deploying on towers. We also hear them saying at NBAA that they don’t have production technology yet. So, if it’s not production technology they are flying now, they are going to have to go in and refit all of the towers they are using for demos.
They also say they are going to launch in the NE corridor from Florida to New York and New York to Chicago. Those corridors are going to be a challenge because that’s where the highest rates of interference are encountered. If they can prove it there, it’s going to show that they have a terrific product.
When they do have a competitive product, they will be a competitor, and that’s fine. The business aviation market is very large and is very under penetrated, and we have serious competitors there already in the form of Inmarsat with Jet ConneX and others. Another competitor might change the dynamic a bit, but we don’t think it’s going to change it that much. There’s enough market for many players, and everyone can grow successfully.
We don’t feel threatened by the prospect of SmartSky. Even if they do get their system going, It’s going to be a long process for them to reach profitability as they don't have the relationships we have. They are going to be burning cash for a long time during the ramp up period before they see positive cash flow, and that’s going to be a challenge for them.
SMW: I understand there is a clause in your commercial aircraft contracts that allows airlines to switch if a better service is available and that business jets are also free to switch on short notice. Is that correct?
OT: In the business jet side, we don’t have long term contracts. We don’t “lock” them in other than having a good product and good service. It’s not the same as the commercial airline side where we were investing a lot of money installing equipment. In those cases, we have longer-term contracts.
SMW: What is the major differentiator between the business and commercial markets and how do you see the need changing?
OT: : The business jet market is not as speed obsessed as the commercial airline market given the smaller number of passengers that we serve in each aircraft. Right now, there is more than enough bandwidth for the typical business jet.
However, regional commercial jets do require additional bandwidth because of the number and density of passengers. As I mentioned previously, there are a lot of business jets that aren’t really going to want a NextGen system, at least in the short term, because they are happy with the performance of AVANCE L5.
In the longer term, with software programs getting larger and greater demand for streaming and graphics transmission, all segments will ultimately want more bandwidth. So, as a network operator, we are always looking at a combination of different technologies to enhance performance, and that’s why Gogo went from an analog ATG system to a digital one, and to a satellite-based system.
SMW: In terms of hybrid installations, those that deploy both satellite and ATG, are there many installs of this type, and how are they managed?
OT: We have hundreds of business aviation customers that have both an ATG and a satellite system. We manage the connection and have a service called “wide area network management” and based on the customer’s profile, we will transition from one network to the next as they fly in and out of ATG coverage.
A lot of these customers have Swift Broadband and ATG. As Jet ConneX becomes more popular, we expect to see a lot more of it combined with ATG.
There are also a handful of customers who even have three systems onboard very high-end corporate aircraft. What we have found is that a lot of customers do prefer to use an ATG network whenever possible due to its lower latency and cost efficiency.
SMW: There is a lot of discussion regarding consolidation in the IFC segment. Do you believe that this will happen or is there a path to profitability other than consolidation?
OT: The last time I checked, no one in the ride sharing business was making any money either, but I believe that industry has a very strong future. That’s why those companies have such high valuations. We think we have a very strong future as well. We are sure that we will ultimately achieve profitability, but I am not giving any guidance on that yet. We feel pretty strongly that on a stand-alone basis, we can make it.
You know, we are the industry leader in commercial aviation in terms of installed aircraft, and we are rapidly gaining ground in satellite installs. We’re probably number two in the world after Panasonic in the number of satellite installs, and our position in business aviation is very strong, and we maintain confidence in our future.
Will there be consolidation in the industry? There could be some. It hasn’t happened so far due to differences in business models, and challenges in balance sheets that, when combined, aren’t financially viable. Consolidation can happen. While it hasn’t happened so far, it may happen in the future.
SMW: What is your feeling about the Panasonic-Inmarsat partnership? This seems like it might be a step toward consolidation. How do you think it will affect the industry?
OT: I think it’s great for us. We are seeing a lot of opportunity based on the confusion it has created.
For example, will the partnership continue to support Ku-Band? Will existing customers be forced to move to a new antenna at some point?
Frankly, the service levels from these providers aren’t great. I think there is a lot of concern out there on behalf of customers. It has created a lot of opportunity for us, and we will try and take advantage of it.
SMW: I recently flew across country, and the pricing was very high, and the service was poor. Given the upgrade to 2 Ku, how will your pricing model and performance change?
OT: First of all, you must have been using our legacy ATG system, not 2 Ku. A lot of our uses are free today. If you fly Delta, you can do free messaging, and browsing is free on Japan Airlines, when you fly domestically. 2 Ku works great, and we have tremendous customer satisfaction scores. Be careful characterizing us as slow and expensive. You’re talking about the old world, not the new.
SMW: Thank you, Oakley for your very informative comments. We will definitely catch up again with you in a few months for an update.
"Recall that we are moving commercial aircraft off of our 800 MHz system onto 2 Ku satellite thereby freeing up capacity. So, as that process is completed, the 800 MHz spectrum should serve quite well as a backup for the business and regional jets. So, the amount of traffic on our ATG system is coming down."
"Another competitor might change the dynamic a bit, but we don’t think it’s going to change it that much. There’s enough market for many players, and everyone can grow successfully. "
Oakleigh Thorne currently serves as President and CEO of Gogo. Thorne, a member of the Gogo Board of Directors since 2003, has approximately 30 years of leadership experience with significant operational and financial expertise.
Prior to joining Gogo, he was the Chief Executive Officer of Thorndale Farm LLC, the family office of the Thorne family. Thorne has served in numerous senior management positions, including as Chief Executive Officer of eCollege.com and Commerce Clearing House (CCH).
He holds an M.B.A. in Accounting and Finance from Columbia Business School and a B.A. in Journalism from Boston University.
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What's Ahead to 2019 - Key Trends in Satellite and Mobility Markets
2018 has been a year of disruption in satellite and satellite mobility markets. During 2018, we've covered the hottest issues and trends in the industry. Looking ahead to 2019, we've spoken with many CEOs and top executives in the industry. Based on our conversations, summarized here are the key industry trends that we believe will drive the markets in 2019.
According to Intellian, around 25,000 vessels of a potential 70,000 are now equipped with VSAT.
Falling bandwidth prices along with intense competition among the three major providers - SpeedCast, Marlink, and Inmarsat - have driven costs down and expanded the market to include more legacy containerships and bulk carriers - segments that were previously thought to remain on L-Band. For example, KVH has done especially well in competing with L-Band with it low-priced, V3, Ku-Band offering.
Ocean going tankers of all types continue to lead the cargo market in adoption rates, and bandwidth demands are increasing. However, the real market for capacity continues to be in the cruise segment.
Cruise lines are in a race to deliver in-home-like connectivity and, in doing so, are employing new, ultra high-speed modems with DVB-SX2 on the downlink, dynamic SCPC solutions on the uplink and channel bonding. Modem and hub manufacturers Comtech and Newtec and software provider, Xiplink, are leaders in this area.
The biggest news, however, is the introduction, by Intellian, dual and tri-band antennas along with the company's Intelligent Mediator, a system capable of coordinating and controlling multiple antennas.
Using this technology, antennas can be pointed at any combination of satellites and their signals combined to produce ultra-high throughput, resulting in a near home-like experience for cruise passengers. Working with Carnival Cruise Lines, Speedcast has pioneered in this application, and just recently announced a renewal of its services contract with the cruise company.
Expect cruise lines to accelerate the installation of this technology as they struggle to compete with high-speed Internet offered by their all-inclusive, land-based resort competitors.
With a potential market of over 300 vessels, the revenue potential for antennas, high speed modems, networking hardware and associated software in this niche is substantial.
In the commercial airline Wi-Fi market, profitability continues to be elusive, and there is continuing speculation as to how long three of the four major providers - Gogo, Global Eagle and Panasonic Avionics - can remain independent. Panasonic and Inmarsat have already partnered and the pressure is in the segment to reduce costs and achieve profitability. Given passenger resistance to pay for the service, its simply become too expensive to maintain multiple satellite networks, duplicate antenna development efforts, separate NOCs and duplication of staff.
In the business jet ATG market, a segment that has been relatively profitable, Gogo and new entrant, Smartsky, will be battling for market share. Both firms are in the process of implementing new ATG technology employing unlicensed spectrum which is expected to provide ultra high-speed connectivity.
However, SmartSky appears to be in the lead and has over 100 patents ot says will protect its technology - a claim disputed by Gogo.
However, Gogo appears to be facing serious challenges including the possibility that its ZTE based technology could be banned from the market. The While House is expected to issue and Executive Order in this regard in January.
In Europe, Inmarsat is launching it own ATG network but will also face significant competition from satellite connectivity providers ViaSat and Global Eagle, the latter which has recently announced a big win with Air France.
Cyber security is now a major concern, and both Speedcast and RigNet are offering products and services focused on the need to protect critical data, a major concern to the Energy industry. To meet the need, Rignet acquired Cyphre, a hardware-based encryption company, and Speedcast has developed its own suite of cyber security services (to be covered in our March edition).
2018 has seen a rapid advancement in small satellite capabilities. Moving far beyond simple imaging applications, CubeSats are demonstrating significant potential not only for new applications but for disrupting the roles of large, conventional GEO satellites.
In 2018, we profiled CubeSat based companies innovating in the fields of IoT, narrow band communications, imaging and in-orbit satellite satellite renewal including Hiber, Kepler Communications, Sky and Space Global, NSLComm, Effective Space, Skycorp, and Satlantis.
We recommend that anyone interested in this segment should attend the Small Satellite Conference at Utah State in Logan, Utah next August.
Given the rapid evolution of this new technology, it's likely that within five years, traditional satellite operators will be launching their own CubeSats.
Given the huge CAPEX required to deploy OneWeb and Starlink, their ill defined target markets, oversupply of GEO based HTS, the rapid extension of fiber and the emergence of 5G, we believe that these mega-LEOs, are not economically viable, and should they be built, will ultimately face bankruptcy. On the other hand, those constellations that deploy significantly fewer satellites, require reduced CAPEX and are focused on enterprise target markets will have the best chance of success i.e. Telesat and Leosat.
SES' introduction of its new, m-Power service offers an attractive alternative to the "big" LEOs." By combining GEOs and MEOs, the company can offer a mix of services that combines the advantages of high throughput with low-latency, tailoring a mix of service to fit specific markets while avoiding the mega- investment and high risk associated with the launch of LEOs.
In the maritime segment, as bandwidth prices continue to fall, expect a major shift from L-Band as a primary means of communications to its use as a backup for VSAT installations, resulting in a drop in ARPU for L-Band maritime Services and much larger market for backup.
With the introduction of Iridium Certus, we expect a significant migration from Fleet Broadband to Certus resulting in a conversion of as much as 20% of Inmarsat FB user base to Certus by the end of 2020.
C-Band Coalition Proposal - Potential for Approval:
With the potential for legal and political opposition to the C-Band Coalition proposal, as surfaced in many of the responses to the FCC's July 12th NPRM, we expect a major delay in any action by the FCC, and have serious doubts as to its ultimate approval.
After considering the magnitude and number of objections to the Coalition proposal, we believe the Commission will avoid legal and political risk and choose to re-allocate the spectrum through the traditional auction process.
Bandwidth Oversupply - Satellite Operator Consolidation:
With what has turned out to be a massive over-supply of HTS and even more capacity projected to come on-line in 2019, downward pressure on HTS pricing will continue. C-Band demand will also be constrained by overcapacity and the displacement of live content by OTT programming.
Rejection of the C-Band Coalition's proposal to allow the satellite operators to re-allocate a segment of the C-Band to mobile operators and thereby pocket billions of dollars in fees could be the trigger to force to trigger industry consolidation. We see Intelsat as especially vulnerable should the Coalition proposal fail to be adopted. If that occurs, expect Intelsat stock to drop into the low teens.
Flat Panel Electronically Steered Antennas:
To date, Kymeta remains the only available ESA in the market. However, by mid 2019 we expect Phasor to merge with its long-awaited Ku-Band antenna. At the moment it appears that other major contenders, Alcan, Isotropic, C-Com, Gilat , and Ball, will not likely enter the market until 2020 and beyond.
Use of the the term "connected car" has resulted in a lot of confusion. Broadband Internet connectivity via satellite to passenger vehicles is currently provided by the major cellular operators, and its likely that due to the low cost of 4G or 5G antennas, vs. the much higher cost of a flat panel satellite antenna, and the need to re-tool the roofs of multiple vehicle models, cellular will continue to dominate. 5G is also the only practical solution for autonomous vehicles, given the requirement for extreme low latency of 10 Milliseconds or less.
While there is potential for point-to-multi-point update of software via satellite, we believe that in addition to the re-tooling of roofs required, the cost of flat panel phased arrays will never reach the price point required to make them a practical solution. In this application, only a small, universally mountable antenna makes sense - much like the "shark fin," GPS antennas deployed today.
Expect an acceleration of change in 2019 as the satellite industry is re-shaped. The old GEO centric satellite model is melting away. Mass production of less expensive satellites, initiatives to launch LEOs, emergence of small satellites and CubeSats and industry consolidation will dominate the headlines in 2019.
There are many mobility related satellite industry events and unless you have an unlimited budget, here are the "must attends" and others that may be of interest. Note that the "hot" sectors are Cruise, Aero and Yachts. Satellite Mobility World attends those events highlighted in blue.
***PTC: Honolulu, Hawaii: January 20-23. PTC’s annual conference is the Pacific Rim’s premier telecommunications event. The Conference is a strategic springboard for the global communications industry, providing all attendees with a three-day platform to focus on planning, networking, and discovering what the new year will bring.
***Small Satellite Symposium: Silicon Valley: February 4-7. Silicon Valley. Relatively new (4th event), the conference has received good reviews.
*****Satellite 2019: May 6-9: Washington D.C. We consider this one of the two most important Satellite shows and conferences in the industry, the other being the World Satellite Business Week in Paris, held the second week of September.
*****Global Connected Aircraft Summit: June 10-13: San Diego, CA . This is the premier conference for those interested in broadband connectivity on commercial aircraft.
****CommunicAsia: Singapore June 18-20: This is the premier satellite industry event in Asia. Not to be missed.
*******Small Satellite Conference: Logan, Utah, August 8th-12th 2019. While a bit out of the way, this is the primer conference in the industry. With most of the innovation in satellite coming from this segment, it's a must to attend. Last year, over 3,000 attendees from all over the globe attended - far more than any other conference focused on the topic.
***Nor Shipping: Oslo: June 4-7: Important exhibition for those following the Scandinavian shipping industry and the maritime VSAT Market.
******World Satellite Business Week: Paris, France: Typically, the 2nd week of September (dates to be announced) For those seeking the opportunity to meet and easily network with top executives of the satellite industry, this is the premier conference of the year.
***Monaco Yacht Show: 25-28 September: Monaco: For those interested in the use of VSAT on yachts, this is a key event.
*Other Conferences/Shows of Interest:
***Digital Ship CIO Forum/Cyber Resilience Forum: Held in numerous locations around the world, these events are notable for their focus mainly on IT related issues including cyber security, IoT and M2M. Sponsored globally by Marlink, they are held nearly everywhere.
Upcoming and Recommended Satellite Mobility Events
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