Competition Rises For Connexion

By | June 30, 2003 | Feature

Connexion by Boeing has yet to collect a dollar from its fledgling commercial in-flight satellite communications service, but the new venture already is facing stiff competition.

Verizon Airfone is rolling out a new narrowband messaging service called JetConnect aboard United Airlines [NYSE: UAL] and Continental Airlines [NYSE: CAL] that has certain advantages compared with satellite-based Connexion by Boeing, said Bill Pallone, president of Oak Brook, Ill.-based Verizon Airfone. The pluses for Verizon include the use of existing Airfone infrastructure in more than 2,000 planes, no charge for retrofitting aircraft that already use Airfone, and the ability to upgrade the onboard equipment with the new narrowband service either during routine stops overnight or during the day.

Connexion by Boeing, on the other hand, is proposing broadband services that would give passengers enhanced, always-on capabilities at higher prices. Boeing also has the added burden of high startup costs for equipment, the loss of major U.S. airlines as investors, and time-consuming retrofits that could take two to three weeks per plane, industry sources said.

Verizon Airfone, a subsidiary of Verizon Communications [NYSE: VZ], already provides in-flight phone service using ground-based technology and does not require airlines to pay any of the costs to retrofit their fleets with its in-flight JetConnect messaging service, Pallone said. In addition, Verizon Airfone shares revenue from its in-flight services with the airlines.

A couple of years ago, Verizon appeared on the verge of becoming a partner with Boeing on the Connexion by Boeing service. However, those plans changed after the terrorist attacks of Sept. 11, 2001, left United and other major U.S. airlines financially battered and reluctant to spend money on an untested service.

“We were working closely with Connexion,” Pallone said. However, United, Delta [NYSE: DAL] and other U.S. airlines, which had planned to invest in the service and use it, bailed out. “When that project unraveled, we looked at what we could do on our own,” Pallone said.

One of the big advantages for the airlines to work with Verizon Airfone is the chance to use existing onboard infrastructure that now allows plane-to-ground phone calls. “Our focus is to reuse as much of our technology as possible,” Pallone said.

Demand for in-flight phone calls had been falling, but Verizon Airfone officials noted that demand for messaging services was on the rise. They responded by offering to tap into that demand, while boosting the company’s revenues.

Sold Enhancements

Andrea Maleter, technical director at the Futron Corp., a Bethesda, Md.-based satellite consulting firm, said the Verizon Airfone service offers solid enhancements to the previous voice-only service. In addition, Verizon Airfone’s narrowband service may attract a broader market than Connexion by Boeing, she added.

At the same time, the Boeing service offers much greater bandwidth capabilities to serve both business and leisure travelers desiring high-speed access to corporate network files or entertainment, Maleter said.

D.K. Sachdev, a satellite engineer who heads the SpaceTel Consultancy in Vienna, Va., said the “jury is still out” about whether any of the in-flight communications services would capture enough passenger use to become profitable.

“In the early development phases of such concepts, several jet-setters expressed the view that all they want to do on long distance flights is catch up on sleep and get a little break from office crises,” Sachdev said. “However, it is intrinsically a sound market and will evolve, particularly when mixed with entertainment.”

In times of uncertainty in the airline market, Airfone’s incremental approach to develop the narrowband version using existing assets certainly makes sense, Sachdev said. But the satellite-based Connexion by Boeing approach provides higher-speed and is more universally applicable on both domestic and international routes, he added.

Verizon Airfone is working with Tenzing Communications to offer in-flight e-mail to supplement existing messaging services. Indeed, Verizon Airfone’s JetConnect offers passengers quite a bit of information, Pallone said. It provides instant messaging, text messaging, games, news, sports, weather, and city guides.

“Instant messaging is a packet-data technology,” Pallone said. “It is fast. It’s just like instant messaging on the ground.”

In two or three years, Verizon Airfone plans to upgrade its capabilities to include broadband. A non-satellite broadband link would be developed to operate between the plane and the ground, he added.

“Everything that Boeing was talking about doing with a satellite link, we can do with our broadband [terrestrial] link,” Pallone said.

Verizon Airfone is expected to offer broadband in the 2005 timeframe to enable passengers to have Internet access at speeds comparable to DSL. The exact speed will be determined by network traffic, the number of aircraft, the number of channels and other factors, he said.

“Today, our server requires a laptop and a wired connection onboard,” Pallone said. Passengers connect their laptop to an Airfone seatback phone with a standard RJ-11 cord. Once they logon to their system, the JetConnect home page appears. The onboard cabin telecommunications unit that communicates with the Airfone ground network acts as a file server to cache Web page content and route text and instant messaging at the standard dial speed of 56 Kbps.

Verizon Airfone’s costs to retrofit each plane likely will total less than one-tenth of what Connexion by Boeing might spend, Pallone said.

Industry sources estimated that the price of retrofitting each plane with Connexion by Boeing services could approach $1 million. Boeing’s plans are complicated by its need to install an antenna on top of each plane to link up with the satellite. This would require cutting a hole into the plane’s fuselage and adding additional weight, sources said.

Connexion by Boeing officials replied that their service would offer the only true broadband capability in-flight and would charge fixed prices to passengers. The real-time broadband connectivity of Connexion by Boeing would be comparable to the office or home.

“Unlike other providers, Connexion by Boeing allows travelers to access their own personal and business e-mail accounts, gives them full access to the Internet, and VPN-secured access to their business intranets,” said Sean Griffin, a Boeing spokesman.

In addition, installation of the equipment could be done during maintenance checks when the plane would not be flying anyway, Griffin explained.

Finally, Connexion by Boeing’s broadband services is part of a broader “e-enabled” avoinics package being offered by Boeing that allows the plane to connect with the airline’s operations, maintenance and service centers. “The savings from the resulting operational efficiencies are significant,” Griffin said.

Pricing

On price, Verizon Airfone JetConnect service might have the edge. The fee for the basic JetConnect messaging service is $5.99 per flight. United is offering an upgraded JetConnect service with e-mail for $15.98 per flight, with an additional fee of 10 cents per kilobyte of data for each e-mail message that exceeds 2 kilobytes. A kilobyte typically is a page or two pages of text. United and Continental expects to have their fleets upgraded with JetConnect e-mail service by September, Pallone added.

“A message of more than two or three sentences would approach the 2 kilobyte limit,” said Thomas Leizear, network operations manager for PBI Media. “If you are using the service to download short text messages of less than two or three sentences long, it would be fine. If you are trying to use it to pull down emails with large amounts of text or attachments, it could become expensive.”

If an e-mail attachment exceeds 2 kilobytes, a dialog box would appear on the passenger’s screen to indicate how much of an additional charge would be assessed for that attachment. If a passenger agrees to pay the additional fee, the attachment can be viewed.

In comparison, the Connexion by Boeing broadband service would cost a flat fee of between $25 and $35 for a flight that could last seven or eight hours. That service would include Internet and corporate intranet capabilities. In contrast, the JetConnect service would not provide Internet nor corporate intranet access.

The question is how much passengers might be willing to pay for these services, said Roger Rusch, who heads the TelAstra satellite consulting firm in Palos Verdes, Calif.

“Everybody wants e-mail, but they don’t want to pay for it because the Internet is supposed to be free,” Rusch said. “There are a very small number of people who would be willing to pay Connexion’s proposed $30 per flight for high-speed service.

As far as Airfone’s pricing, 10 cents per kilobyte is $100 per megabyte. “This is the most expensive service that I have heard of,” Rusch said. Mobile satellite service provider Inmarsat charges roughly $15 per megabyte for in-flight communications.

“These services are not going to be successful if the cost is considered to be unreasonable by the users,” Rusch said. “It will end up just like voice Airfone service. People want to use it, but are offended by the tariffs.”

Griffin explained: “A Connexion by Boeing customer knows the full price the moment they log on. Passengers using alternative narrowband or simulated-connectivity services, such as Verizon, have no way of knowing in advance what their final bill will be, and could well be shocked when they discover that they’ve been billed for hundreds or even thousands of dollars.”

Both the Airfones and JetConnect operate in a wired environment on the plane. Verizon Airfone plans to move to wireless technology but that depends on Federal Aviation Administration approval because of possible risks to the plane’s avionics.

“Almost all laptops and PDAs now have wireless capability,” Pallone said. “Right now 46 people can be connected [on one plane at the same time]. With wireless capability, even more people will be able to be connected at the same time.”

Verizon Airfone already has invested hundreds of millions of dollars in infrastructure, Pallone said. In contrast, Connexion by Boeing has spent $600 million to $800 million thus far only on development, industry sources said.

Tenzing’s Technology

The Verizon Airfone in-flight e-mail service is available aboard specially equipped planes that fly over land in North America.

Verizon’s partner Tenzing is able to offer service outside North America by using Inmarsat’s L-band satellite equipment already onboard most of the commercial aircraft, said Alan McGinnis, president and CEO of Tenzing. “We are trying to take advantage of whatever technology already exists on the aircraft,” McGinnis said.

On its own, Tenzing is currently providing in-flight communications to four airlines worldwide and could have eight to 10 airline customers by year-end. None of these carriers need to pay to have additional infrastructure installed onboard their aircraft, he said.

“The Verizon/Tenzing system is very compelling economically,” McGinnis said. “At this time, when the airlines are so challenged financially, it makes our product uniquely attractive.”

Aside from United and Continental, Tenzing also is providing service to Virgin Atlantic. Short-message services and one-way text messaging currently are available to Virgin Atlantic’s customers. That service uses the existing seatback screens on Virgin Atlantic aircraft. Two-way text messaging aboard Virgin Atlantic aircraft is to be added in September. However, e-mail service is not yet available for Virgin Atlantic passengers.

Tenzing also is working with Cathay Pacific to rollout both e-mail and messaging services aboard its entire fleet of 70 airplanes. Cathay Pacific is the only airline that holds an ownership stake in Tenzing. Other Tenzing owners include Airbus, Rockwell Collins [NYSE: ROC], a venture capital firm and two individual investors, McGinnis said.

Offering in-flight communications has not yet been profitable for Verizon Airfone or Tenzing. Connexion by Boeing should be no different in its early years. However, Tenzing could cross the break-even threshold as early as the first half of 2004, McGinnis said.

Boeing’s proposed use of Ku-band satellite technology offers the higher bandwidth needed to provide broadband services, McGinnis acknowledged. However, he warned that use of the Ku-band is more expensive than using L-band capacity. Revenue is unlikely to cover that additional cost, he added.

“I wouldn’t debate for a second that broadband will end up in aircraft,” McGinnis said. Tenzing’s focus on keeping costs down gives it a less robust service than Connexion by Boeing, but there is an “order of magnitude” difference in terms of cost and installation time between the two services, he added.

–Paul Dykewicz

(Bill Pallone, Verizon Airfone, 630/575-1200; Alan McGinnis, Tenzing, 206/285-5280; Sean Griffin, Connexion by Boeing, 206/655-9359; Andrea Maleter, Futron Corp., 301/347-3450; D.K. Sachdev, SpaceTel Consultancy, 703/703/757-5880; Roger Rusch, TelAstra, 310-373-1925)

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